Netflix Throttling: Anatomy of a Customer Hierarchy
Customers are a varied lot. As much as we try to group them into easily understood categories, demographics and stereotypes, the truth is that, like snowflakes, no two are alike. Some will make you lots of money. Some will cost you money. Some will even allow hackers to stroll into your secure database and cost you millions.
One of the many promises of information technology is that companies are now often able to tell which of their customers are profitable, and by how much. Some are even taking the next step: discouraging unprofitable customers by making their shopping experience less than pleasant. Best Buy has been doing this for years, in an attempt to thwart customers who do exhaustive research online, who buy only those products being sold at a loss, and who buy products and then return them after testing. Best Buy has set up onerous return policies to discourage what they call “demon customers.” But it’s still a blanket policy that doesn’t target specific customers.
Netflix is taking the fight against these costly customers to the next level. Netflix advertises an unlimited DVD rental service to customers. For a monthly fee of $17.99, the company mails you three DVDs, and when you’re done viewing one of them, you package it up in a pre-paid envelope and send it back. You are allowed to have three DVDs at any given time. And theoretically, as soon as Netflix receives your return, they send out the next movie in your queue.
But it doesn’t actually work that way. Using a technique called “throttling,” Netflix identifies customers who abuse the all-you-can-rent DVD service by viewing and returning movies too frequently. The nerve! Using an algorithm that notifies the company when a customer is going to start costing it money, it “throttles” them back by delaying the shipment of their next movie—and thereby ensuring its profit. Customers who rent infrequently—otherwise known as profitable customers—are also given preference for DVDs that are out of stock due to high demand. Frequent renters just have to wait. I myself have been waiting for more than a month to see Cinderella Man.
It’s a sophisticated use of technology (Netflix calls it the “fairness algorithm,”) and one that is necessary for a company that is dependent on IT for its very existence. But it’s also brought some trouble upon Netflix. The company has had to settle lawsuits and notify customers of its new terms of service. And when I asked them specifically whether I had ever been “throttled” and what exactly my monthly threshold was, they told me they were “unable to flag any accounts as ‘throttled.’ ” I find that very hard to believe, given the level of IT sophistication at Netflix.
I’m tempted to get very angry about Netflix's throttling policy. I mean, what’s next? Will my newspaper get delivered later because I read too much of it? Will my food cost more because I enjoy it too much? It does seem that I’m being penalized for a flaw in Netflix's business model. But then again, I can’t say I’m not getting my money’s worth from the service. I just wish I could see Cinderella Man. Don’t tell me the ending.
