Remember the fall of 2011 when Netflix had their meltdown? Does the name Instagram come to mind?Reed Hastings, Netflix CEO (and acknowledged technology visionary) decided to split the company between streaming and DVD’s with the latter going to a new company called Qwikster? I’m not sure what type of user acceptance research he did, if any, but within three weeks he completely reversed himself and apologized to his customers. In July of 2011 Neflix [NFLX] stock was at $307, today it is at $90.
In somewhat of a replay, just over a week ago Instagram instituted new Terms of Service (ToS) for their free photo sharing service. The ToS implied that Instagram could allow third parties to pay Instagram to display users’ photos and other user details in connection with sponsored content or promotions without any compensation or notification to the user that posted the photo. And there was no opt-out. Users could accept or cancel their Instagram account (and ask for a refund).
Whereas Netflix users were not necessarily the most wired community, the Instagram users almost by definition are, and they were outraged. And being wired, their rage was heard worldwide immediately. To Instagram’s credit, the company did a 180 instantly (so to speak.) The next day one of the co-founders, Kevin Systrom, announced that they were just kidding and really it was all just a big misunderstanding… sort of an experiment they were thinking of trying out. Yeah, right.
The funny thing is, both companies were right in the long run. Hastings at Netflix could see that physical media (DVD’s) will go away and streaming will take over. Instagram understood that there really is no privacy for online data, most especially on social media, and they figured they might as well be able to monetize it if it’s public anyway.
Where they both tripped up is not understanding the psychology of their customer base. Netflix customers felt comfortable, they loved the service and didn’t want anything to change. The technology shift would have slowly moved them to streaming but Hastings decided to be in front of the change, blythely leading the charge… but with no one behind him. As for Instagram, if you don’t believe the “just a misunderstanding” story then it seems they were trying to pull a fast one and figured the language was so vague that none of their users would figure it out. (Rather cynical I might say.)
Maybe the notion of focus groups is just too old fashioned for today’s iCompanies. It’s just so 20th century. So in the age of CxO’s du jour, maybe the time has come for the CPO, the Chief Psychology Officer. All they really need to do is come up with a completely new and cool (if that word is still in use… again) name for focus groups and ask their users first before doing something that’s going to completely alienate them. What a concept! Sounds like a job that’s worth about 250K per year plus variable comp. Sign me up.