High-tech Achiever: Netflix

Simple Surface, Complex System

All that said, the biggest star in Netflix's customer-experience script is its technology, even if it's been cast in a nonspeaking role. Most customers see Netflix, which Hastings founded in 1997 after forking over $40 in late fees for Apollo 13, as a convenient Web service that quickly delivers by mail movies they can keep as long as they want. But underlying that simple surface is a vast and complex software system that uses more than a million lines of code to compute who gets what movie next, which movies will be in demand, and, most important, which films to recommend to you.

That recommendation software, called Cinematch, urges customers to go through a rating exercise, tuning the system to find movies they will like. The more movies you rate, the more accurate your recommendations will become. "It's like your own personal box office," says Kelly Mooney, president of Resource Interactive, an online customer-experience consulting firm. "It's almost as if they keep delivering more value for the same price every month."

"If the Starbucks secret is a smile when you get your latte," says Netflix CEO Reed Hastings, "ours is that the Web site adapts to the individual's taste."

In a sense, Cinematch is one-to-one, mass-customized, cocreated customer-relationship management, all rolled into one. Never mind the buzzwords. What they mean is that each time you go to the site, your experience is truly tailored to you, and it's one you helped fashion. "Our warehouse employees never interact directly with the customer, so what we focus on instead is having the Web site be the most personalized Web site in the world," says Hastings. "If the Starbucks secret is a smile when you get your latte, ours is that the Web site adapts to the individual's taste." Even Amazon, which does personalization so well, doesn't consider reviews of past purchases when giving recommendations, says Leslie Kilgore, Netflix's CMO and a former Amazon staffer. Plus, says Hastings, Netflix's model, which lets users cancel at any time, means "once you subscribe, our interest is purely your happiness."

When customers use Netflix's recommendation software (and they do--about 60% of all movies added to queues come from recommendations), it creates a virtuous circle for Netflix and customers alike. Members are introduced to new movies and run less of a risk of wasting time on a film they won't enjoy. (Netflix says people who put movies in their queue from the new-release page or top-100 list tend to give them lower ratings.) Plus, because Netflix avoids suggesting out-of-stock films, it gets to maximize its inventory, and you're less frequently stuck wanting a movie that can't be sent.

Netflix, as you can imagine, is tight-lipped about Cinematch and how it works. ("That's proprietary" is a favorite refrain.) What it will say is that Cinematch has a database of over half a billion movie ratings and takes in more than a million new ones every day.

Homemade

Netflix can be so private about its technology because most of it was built in-house. Netflix invented online DVD rental, after all, and few off-the-shelf systems suit its needs. But it's also a matter of knowing it can do better. This is largely a company of geeks who love movies, not the other way around. (Hastings might even be called an über geek: His last company wrote software for software developers. Before getting his master's in computer science at Stanford, Hastings was a Peace Corps math teacher in Swaziland.) "It's better to control our own destiny," he says.

Netflix even built its own customer-support software a few years ago. The new system has a simple interface that gives reps a quick read on when DVDs were shipped or received. As part of a recent upgrade, 10 senior reps will get alerts that ask them to look into how a customer call might have been prevented. At times, reps will be prompted to call the customer back and interview him or her.

Hastings brags that during Netflix's early days, it had 115,000 customers and 100 support reps. Today, the company has 3.2 million customers; their questions are handled by just 43 reps. "You read a lot about outsourcing of customer support--send it to India, save $3," he says. "That's totally uninteresting to us. We're focused on higher leverage--avoiding issues and fixing them at their root cause."

That ratio is impressive, to be sure, but the fact that Netflix's customer-support number is deeply buried on the site certainly keeps those numbers down. (Can't find it? It's 888-NETFLIX.) That's one of a few glaring flaws in Netflix's experience--having to dig for a company's phone number on its Web site feels so 1997. Hastings doesn't agree. "It hits the right balance of customer satisfaction and cost," he says.

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