Google (GOOG 0.74%) (GOOGL 0.55%) and Netflix (NFLX -3.92%) make it easy for customers to come and go as they please. Comcast (CMCSA -0.37%) and Apple (AAPL 1.27%) make it difficult to leave the company's ecosystem. The open-door policy is obviously the more consumer-friendly option, but which strategy serves shareholders best?
Source: Google.
In the red corner: The low-pressure team
In a recent Medium interview, Google chairman Eric Schmidt explained why Big G provides simple tools for users who want to take their data out of Google's systems and move elsewhere:
"[The Data Liberation Project] serves as a check and balance on bad strategy," Schmidt said. "If your strategy is to prevent your customer from leaving you, you probably shouldn't have had those customers in the first place."
Likewise, Netflix prides itself on its "no-hassle online cancellation." It takes a couple of clicks to leave the service, with no pressure from customer retention specialists or promises to return later.
In a 2011 earnings call conducted just weeks after the fateful Qwikster error, CEO Reed Hastings said he doesn't worry about keeping cancellations low. Instead, he focuses on adding new customers as quickly as possible -- many of whom are former subscribers who canceled the Netflix service and then came back.
Source: Netflix.
"Really, we focus on net adds and growing the business," Hastings said. "And we make it very easy for customers to exit or cancel Netflix and then come back. So we really don't focus on churn. We focus on total growth with the business or net additions."
If you want to leave Google or Netflix, the companies won't try to stop you. Instead, they keep an open door to the outside world and use this as internal motivation to do better work. If they don't keep their customers happy, they'll quickly and easily find another provider.
Like Schmidt said, you really didn't have any business serving those customers in the first place. In this model, loyalty is earned, but not forced.
In the blue corner: The lifetime commitment team
The opposite of the open-door approach espoused by companies like Netflix and Google can be found in companies such as Comcast and Apple. Once you're in, you're staying as long as possible. In this world view, it's all about keeping the customer committed to your products and services forever.
Apple and Comcast use subtly different tactics to achieve the same effect.
Apple takes the customer-friendly approach. "We remain committed to delivering great innovative products and services that delight our customers and enhance their lives," said CEO Tim Cook in a recent earnings call. In another call, he promised that Apple "will use our world-class skills and hardware, software and services to delight our customers."
So, Apple designs its computers, tablets, smartphones, and media players to work together as one cohesive unit. Get addicted to an iPhone, and you'll be more likely to buy an iPad and a Mac as well. The iTunes platform ties it all together, with familiar design and functionality cues among the mobile iOS and the more traditional Mac OS X software platforms.
Apple doesn't necessarily try to force your hand. Once you're a part of the Apple ecosystem, you're simply supposed to want to stay.
The approach may seem similar to Google's and in some ways, it is. But if you ever want to leave your iPhone and Mac behind, moving over to a Windows or Android experience, you'll find it difficult to bring along your iMessages, your Apple Mail history, and your personal data in the iCloud library. Delete your iTunes account, and all the music you bought may be lost forever.
And closing your Apple ID account isn't easy. Apple's support system doesn't offer any official way to get this done. Instead, you have to start a chat session or a phone call to Apple's account support team, explain why you want to close your Apple account, and wave off dire warnings that your data will be lost.
Comcast makes it even harder to cancel your cable TV and Internet service. Customers report being unable to cancel their Comcast accounts short of recording their service calls and threatening to publish the audio for all to hear.
You won't find Comcast claiming to "delight" its customers. But the company worries a lot about customer churn, and it works hard to keep subscribers from leaving. Not by improving the service -- as Apple, Netflix, and Google do -- but by making it near-impossible to cancel your account.
This negative attitude, plus a long history of price hikes without a corresponding improvement in Comcast's services, has landed the company on lists of the most hated companies in America. Right now, Comcast is Public Enemy Number One according to a recent consumer survey.
Apple beckons with sugar and spice; Comcast doesn't offer anything nice. But both companies make it difficult to leave, regardless.
What it all boils down to
All four of these companies are actually doing very well for themselves, and serving up positive returns to their shareholders. Over the last decade, Comcast's sales nave more than doubled; the other three have seen their revenues multiplying tenfold or more. This is how investors reacted to these great long-term winners:
So, it's not like locking subscribers into your business platform will kill the company. Apple became one of the greatest growth stories of the new millennium thanks to the unified experience across several platforms and device families, with iTunes as the beating credit card collector at the heart of it all. And for all its flaws, Comcast keeps getting away with charging rising rates for a rarely improved service.
In the disclosure notes below, you'll see that I own both Netflix and Google, but neither Comcast nor Apple. And the invitation to leave these services if you're ever dissatisfied helps me make these choices.
Netflix and Google welcome competition with open arms. Encourage it, even. Have you seen how Netflix publishes the in-house software it uses to run its digital video systems, for all to use or modify as they see fit? Or how Google does the same for important assets like Android and the Chrome browser?
This way, Google and Netflix keep a fire in their bellies. Innovate or die -- and they both step up to the challenge with more innovation.
Meanwhile, Comcast is using draconian service cancellation tactics to protect a dying business model. People want to leave Comcast for a reason, you know. There'd be even more cancellations if the company had some real competition, which, for the most part, isn't the case.
And Apple prefers to sue the pants off its competition rather than face them in the open market. If Apple ran Netflix, you can bet all of those open-source data management tools would be patented to the hilt and then defended in courts all over the world. I'm sorry, but that's not a sustainable way to run a business.
Apple should embrace its rivalries, feel the competition nipping at its mighty heels, and outwit, outplay, outlast them all. Try that strategy, and I might become an Apple investor for the long haul.
Because I think Eric Schmidt was right on the money. If your strategy is to prevent your customer from leaving you, you probably shouldn't have had those customers in the first place.
