Netflix got it right. Will the Studios follow?

In trying to legally consume digital movies, there are two models: the Netflix way and everyone else. Let’s start with the latter.

If I want to watch a movie online (streamed or downloaded), I can go to Amazon OnDemand, iTunes, XBox Live, Vudu, and Sony’s PS3 platform. These are all generally the same: the selection varies from about 5,000 movies to 30,000 titles. I can download or view a DRM-restricted 24-hour rental (the download sits on my hard drive for 30 days but once I start playing it I have 24 hours before it “expires” and becomes unplayable) for $2.99 – $5.99. Or I can purchase a DRM-protected movie for $12.99 – $16.99. The DRM protections render the movies completely non-portable (I cannot take them with me, unless bought from Apple and used on an iPod). While that is not consumer friendly, the 24 hour expiration window is pure customer cruelty. Note to studios: why not just make the rental simply play once within, say, 30 days. Why must I finish watching in 24 hours? Just silly, really, and clearly meant to penalize those of us who have kids and/or work hard and have limited windows at night to watch TV. Can’t finish in 24 hours, TOO BAD! Buy it for $15, dude!

Or, you can join Netflix and come over to the good life. For $8.99 a month, you get one DVD sent to your home at a time, chosen from more than 100,000 movies. You get a fantastic queue system which allows you to essentially pre-order a rental as soon as you hear about a movie (long before it is even released on DVD). And now you can, at any time, as often as you like, stream more than 20,000 movies to your computer or TV (using a $99 Roku box). I am living in luxury folks. I can watch each movie as many times as I like, and take as long as I want to watch it. This is a company that understands and indeed caters to consumers’ needs.

I know the studios hate the model. Studio execs have told me they would be “out of business” if every service worked this way. But the adoption of the other models is paulty compared to Netflix’s. They have more than 10M subs and are growing like a weed. They are best positioned to migrate consumers into the digital movie world, because they can satisfy our need for vast selection with their physical/digital hybrid model. And they make the restrictions appear invisible. (True, no portability. But with WiFi on a plane, we’re getting there.)

Once again, I think the way to navigate the digital world is to remember that the consumer is in control. To win, you must satisfy them, not penalize them. (Last week’s studio idea: remove the bonus features from DVDs that are used as rentals in order to make people buy more full-featured DVDs. Um, good thinking.) It’s just too easy to steal, so better to offer me something superior to the stolen good.

Why Mint Matters: A Message to Entrepreneurs About Products

This is a column that really doesn’t need to be written. Or at least, shouldn’t need to be. Most entrepreners already understand this concept pretty clearly. But some do not, and for those of you thinking about taking the plunge into startup-land, there is an important message here: it’s all about the product. Take it from Aaron Patzer.

VCs spend a lot of time boiling down the characteristics of successful companies into their simple essence. I think I speak for most when I say it is usually: team, market, product. (Feel free to disagree, fellow VCs.) As an entrepreneur, I always thought most about those three subjects as well. Going back to my Apple days, however, I learned a valuable lesson that I did not always practice as an entrepreneur, and Aaron Patzer, the CEO and founder of Mint reminds me of why it is critical: the product must be absolutely stellar. Not good, not “okay for now”, but, to steal from SJ, insanely great. Have you used Mint.com?

Mint.com is the leader of several startups focused on personal financial management. It’s an audacious notion, since Quicken’s Intuit and, to a lesser extent, Microsoft’s Money, are so dominant. But Aaron recognized weakness in the market leaders: the products have become overly complex, have not adapted to the lifestyles and needs of today’s digital consumers, and perhaps most importantly, their innovation has been non-existent for almost a decade. But that realization is not the only thing driving his success. It’s because his product is amazing.

Aaron has both EE and CSE degrees from Duke and Princeton. Engineers often make great CEOs. But he is also the chief product visionary for the company. And he doesn’t just discuss what he’d like to see in the product — he designs things himself. He showed me the specs he creates in Photoshop. They are more than just wireframes. They looked like completely designed pages to me. You can see his attention to detail in the product. Although it is missing key features to completely overtake Quicken, it is light-years ahead in its usefulness and intuitiveness (pun intended). Mint demonstrates both a better understanding of the customer and a much better product than Intuit has delivered. And it’s paying off. Since launching in September 2007 and winning the TechCrunch 40, Mint has about 1M users and has probably developed an insurmountable lead over its new-startup competition.

The incumbents are taking notice. As if scripted perfectly by the Mint PR team themselves, Intuit’s lawyers actually sent Mint a letter two weeks ago flabbergasted by Mint’s claims of growth. Quicken has been caught completely flat-footed — their Quicken Online product is a weak, uninspired, water-downed version of Mint itself and their forthcoming version of Quicken for Mac, while claiming to be a complete re-write, still misses the mark completely (why must my entire financial life reside on one computer all the time and not online? Why must Quicken insist on charging banks in order to support Quicken when Mint supports more than 7500 financial institutions in the US, virtually every one that matters, and, with Mint’s iPhone app and email alert system, Mint is built for those of us who live our busy lives online and through multiple devices and presents us with beautiful budgeting and investment analysis — just the stuff that matters.)

Mint is not complete. And if any other company shipped it, I may not use it until more features appeared (most noticeably, bill pay and reporting). But because the product is so fantastic, it drew me (and one million others) in. And Aaron will get there.

So, the lesson here is clear: you need an absolutely killer product. Pulling a team together who understand that need and know how to get there is important. But as the founder or founding team, make an honest assesssment of your strengths of producing a world-class product. One of the founders must have this ability, and it might just be best if it is you.

Note: Venrock nor I have an investment in Mint. I just really like the company.