Netflix sceptics wonder how long it'll continue growth
Netflix is the Amazon of DVD-rentals in its successful handling of logistics and customer service: 1.5 million transactions a week, each valued at about $4, with revenue in the last quarter up 77% to $72.2 million, and the number of subscribers up by 75%. However, there are questions about Netflix's viability and the onslaught of competition according to this Wall Street Journal story (subscription required):
The offer of unlimited movies forces the company into a precarious balancing act. People who rent very few films are the most profitable, but aren't likely to stick around because the service is uneconomical. People who rent lots of movies can be money losers for Netflix, but they are generally satisfied customers who stick around a long time and spread the word about the service.
Netflix has opted to keep those customers happy, figuring they will be profitable in the long run. As a result of the strategy, customer turnover is down, but monthly disk usage per average paid subscriber has risen 18% to 5.9 movies this year. Netflix won't say at what point a customer becomes a money loser, but if the rental trend continues it could hurt profits.
I especially don't buy their eBay-like argument that because the average customer like myself has rated 100+ movies I'm going to stick around as a Netflix customer. Rating those movies was easy and has yet to deliver really good recommendations a la Amazon. No, I'm going to stick around because they're the best deal in town and have good service. But if someone else was to come along with better search and a larger catalog of movies, I think I'd be saying goodbye to Netflix.