I’m a huge fan of Netflix.  I don’t just mean as a customer, but as an admirer of their business execution and their strategy.  I don’t remember when I initially signed up for the service, but it was a long time ago.  The amount of discs that I had out at one time has gone up and down over the years, but I don’t believe I ever cancelled my membership at any point in time.  From a business perspective, I’m continually impressed with the analytics and advanced usage of data that Netflix uses to improve their service and profitability.  In my eyes, the company has basically done no wrong.  Or have they?

I deserve a bit of a late pass here, but Netflix has removed the ability to have “friends” with your account.  It happened almost a year ago, so maybe it deserved to be removed.  Or maybe it just wasn’t any good, and it should have been made better.  The reason that it was removed was explained on the Netflix blog by their VP of product management.  The short version of the story is that only 2% of the customers used the feature, and the company only has limited engineering resources, so they are redirecting them elsewhere.

Now in most cases, this is where I would commend Netflix on using data analytics to make educated decisions based on their data.  But this seems like this may not have been such a straight forward case.  Let’s look a little closer at the statistic that Netflix gave.

Friends is a feature on the Netflix Web site that’s been used by less than two percent of all subscribers since we added the feature in 2004.

Let’s break that down a bit.  What does this statement tell us?  Friends wasn’t popular?  That’s obvious, but what else?  Let’s look at that date.  2004.  What was your internet footprint in 2004?  Were you on Facebook?  Were you posting on Twitter?  How about Tumblr?  The answer to all three is not likely.  Twitter and Tumblr didn’t exist, and Facebook was still limited to only college students in 2004.  In fact, 2004 was the year that Facebook launched itself.

Think about what that means in terms of a “friends” feature.  Instead of the modern process, maybe using Facebook Connect or Twitter account to automatically discover which of your friends are active Netflix members, you had to enter in email addresses of your friends who you thought were members.  The experience was less than stellar, you could say it sucked.  I’ve got dozens of friends with Netflix accounts, and never had more than a handful of Netflix friends.

The reason that I even discovered that the friends feature had been removed was because my actual friends and I have been creating a real social experience using Google’s Reader application.  All it takes is one of us to click a bookmark while browsing to a movie’s page on Netflix.com.  From their the discussion takes place off of Netlfix.com and on Google.com.  Why is this important?  The answer is data.  The more Netflix knows about it’s customers, the better it can serve them and execute it’s business.  Netflix is a data-driven company.  They are featured in the book Competing on Analytics for having a competitive advantage based on their usage of data, but I feel like this is a case where data may have let them down.

Was the friends feature not used because customers weren’t interested in the functionality?  Or was it not used because it was poorly implemented and then never updated with modern social methods to increase usage?  It may have been a mix of those two things, but I am guessing that as time went on, users were looking for better integration into their social sites.

I decided to take a look on Quora, another social site, to see if there were any existing theories on the removal or “failure” of the feature.  There were a few suggestions, and I thought this one was the most apropos.  It also let me to discover that a new site FriendsOnNetflix.com was launched in an attempt to bring back similar but improved functionality.  I didn’t sign up for the site, but it boasts of Facebook and Twitter connectivity on the front page.

In an age when companies are moving more and more towards social functionality, Netflix has taken a giant step away from it.  Is this their first major mistake?  There is no evidence that it is hurting them right now.  But is that because their main competitor Blockbuster is completely inept when it comes to movie and video subscription service in the current day and age?  Netflix had a business model that was very customer friendly.  Flat  monthly fees, and then, at no extra cost, unlimited streaming, of an albeit limited selection.

If you want any more evidence that Netflix is destroying Blockbuster, then you only need to look at this infographic.

So I am left with one final question.  Does Netflix understand the power of social media?  Or is it blinded by all of it’s success with quantitative data analytics?