Is it time for Netflix to invest in system upgrade?

Netflix has traced the causes of a lengthy system outage this month that prevented the online movie rental service from shipping for several days to a hardware glitch.

The good news for the company is that it received lots of help from vendors to determine that the cause of the outage, which hobbled the company's ability to ship DVDs from August 11 to August 15, was a "key faulty hardware component." Steve Swasey, a Netflix spokesman, said the company's "strongest aspiration is to safeguard this from ever happening again."

The bad news for the company is that Netflix can't yet prevent these system outages. While a piece of hardware, about which Netflix declined to provide details, was the cause of the latest glitch, it was not responsible for the system crash back in March, Swasey confirmed.

In that earlier case, a malfunction knocked out the company's Web site, as well as its logistics and delivery systems, for 12 hours, the company then said. In both cases, Netflix was unable to ship movies "to a large number of Netflix customers."

Two major meltdowns in 2008 raises serious questions about the soundness of Netflix's system. Tony Wible, an analyst at Citigroup, estimated that Netflix lost $1.8 million to $3.6 million for each of the days it was down. The 15 percent credit Netflix is providing to affected customers will reduce the company's third-quarter revenue by $6 million, according to Michael Pachter, an analyst at Wedbush Morgan Securities.

As more and more competitors jump into Web video rental, annoying system blackouts could become more of a liability for Netflix.

In both outages, Swasey said many customers hardly noticed the delays. Many users who were expecting packages weren't put out very much by waiting a day or two extra for their films. Customers never lost money or personal information, and by most anecdotal accounts, the service remains extremely popular with users.

At the root of the problem is the fact that Netflix is quite different from most e-commerce companies. It relies on the Internet, the U.S. Postal Service, and a groundbreaking fulfillment operation that combines software, hardware, and plain old elbow grease to ship those little red packages.

Netflix has won accolades for using technology to wrest market share away from big brick-and-mortar video renters, such as Blockbuster. The company has amassed 8.4 million customers and ships more than 2 million movies per day.

But perhaps now is the time that Netflix would do well to invest in a major system upgrade. If Netflix customers continue to see delays, it could undermine the company's credibility. Does Netflix really want users to consider Blockbuster's in-store kiosks? I don't think so.

[repete_7]

Ummm...
Netflix - two glitches in less than a year.

Blockbuster - driving in traffic, not finding the movie I want, waiting in line to rent my second choice, paying much more per movie, and having to drive back to return it. Every single time.

I think I can put up with Netflix.

[sellis16]

Newsflash! Blockbuster has an online service that's just like Netflix, except for two things:

1) You can exchange your mailed movie at a Blockbuster store for another movie, free, 5x per month.

2) No service outage.

Rock on with your bad self!

[xwingsct]

Netflix has saved me a lot of money over the years.
Like the article said. I hardly notice the delay.
If I didn't read the news on the internet. I wouldn't have known.
that they having problem shipping discs.
Netflix has always been good to their customers.
They didn't really have to credited us but they did it anyway.
Now I know why Blockbuster online rental is going nowhere.

[iwarrior-poet]

The only thing that would cause me to leave Netflix is if they lost my queue. I have over 450 movies/tv shows lined up. If I lost that...

I would be a bit perturbed...

[whogrant]

I didn't care - it compelled me to figure out a long standing NetFlix Watch Now software issue (it was a driver problem) and then I spent a long weekend watching about half a dozen Watch Now movies and documentaries so I actually got more. For the most part I now prefer Watch Now for many movies that don't need BluRay or surround sound (which is a lot). I hope NetFlix can continue to make enough money as their Watch Now content streaming ramps up!

[Jim1900]

I wish they would spend the money to offer more videos online, and maybe better quality too. It would be great to bypass my cable channels entirely. NetFlix has almost all the videos I want. I could buy the Roku NetFlix box and be done with cable channels forever. And a TV antenna would work for local shows.

[Dunnion]

Having shipped back 2 of my 3 movies right before the delays hit, i for sure noticed the delay.

Netflix, while saves me alot of time with the service they provide, I am very unhappy with them as a company, they are impossible to contact, and for an internet company to not accept emails from clients is laughable.

This goof up just made me switch to blockbuster online.

[dddouchebag]

And I'm sure blockbuster never has problems. At least you'll be able to contact someone right away... because you are their only customer.

[juntha]

You gotta be joking. 2 days outage in a year? That s nothing. Get back to me when it's unavailable for a week. Then I will think about it. Same goes for Gmail outages. A few hours a year is really not a big deal. I have more problem with my cell phone and I don't see anyone writing stuff about it. You guys really think a series of 100s of servers can work without any trouble ? There are limitation even in the most sophisticated system in the planet. I agree that reaching 6-Sigma level of up-time is ideal but for a web company relying on servers, we can't expect that much... especially since even a small problem in the system can crash the whole website. If you go to the store and there's an electricity failure, you can still shop. it s a whole different story for web companies.

[nwndarkness]

Netflix needs to get Mac support. I was considering subscribing, but when I saw that I couldn't watch movies instantly on my Mac I walked right on past. Unfortunately, there isn't another subscription movie service for macs. Blockbuster online is the same way, only PC. Guess I'm stuff with 3.99 rentals from iTunes.

[sellis16]

Blockbuster has an online service that's just like Netflix, except better.

"Ummm..."

[queerlib]

Netflix is Mac compatible with the purchase of the very cheap Roku Player ($100)!

[dirty55409]

I have no problems with netflix. I called their 1-800 number, talked to someone in about the same amount of time it takes blockbuster/hollywood video to take you off hold, and the lady said you'll get your discount automatically you don't have to do anything. I was pretty impressed. Netflix has me as a customer for ever!

[Csipa1]

I think what will kill these online movie rentals is the quality of the disks. I rented about 10 movies from Netflix so far and I already ran into a movie that was unwatchable because of the bad handling by previous renters or the company. You sit down with your people to watch a movie, eat pizza, beer, chips, everything ready and bang the movie is bad. At the local rental places you could run back and get the same or another movie fast, with Netflix you gotta wait another 3-4 days. I think I will get a few more movies and if I run into another bad one I just cancel my membership and start going to my local videostore again..

[patrick2h]

I purchased the Roku player because I have a Mac. I love it with the only hitch being there needs to be more Watch Instantly movies available.

[PrinceBrat2008]

I don't know what the problem is...but I can't watch Instant Movies...I installed the player and it went fine but every time I push "play now" it causes IE to shut down...has anybody else experienced this and what did you do to solve the problem?