The Netflix Story: How Technology Unlocks Business Models

The DVDs that replaced VHS were just the beginning

“Usually the best way to find out if your crazy idea is a good one is to just try it out. So that’s what we did.” marc randolphco-founder and original CEO of Netflix,

That crazy idea was to send a CD through the mail to find out if the concept of a DVD subscription service by mail was practical. The CD, shipped by USPS in a greeting card envelope, arrived safely the next day. Operational proof of concept for Netflix confirmed.

This week, 16 years after its reinvention as a streaming company, Netflix announced it is closing its DVD mail-order business. But how did it go from shipping that CD to becoming the giant it is today? We’ll see.

“All I knew was that I wanted to start my own company and sell things on the Internet. That was it,” Randolph wrote on Twitter.

Reed Hastings met Marc Randolph when they ended up working together at Pure Software after an acquisition. That resulted in them sharing an office and a car ride to and from work every day. Ready for a new challenge, Hastings and Randolph began brainstorming ideas for new ventures.

DVDs had barely been invented yet. In fact, when the founders of Netflix searched for one to try and mail it to, they couldn’t find anywhere to buy one.

Ideas were many and varied and included personalized shampoo (!), personalized dog food (!!), and selling vitamins online. All of these products now exist, but at the time the duo dismissed them as not feasible.

Another idea that wasn’t feasible was to take on Blockbuster by shipping VHS tapes, which were too big and bulky to be mailed, and FedEx was going to cut profit margins terribly. Then something happened: digital versatile discs, or DVDs, came along. They were much smaller and thinner than their VHS counterparts, and this technological innovation unlocked a new way of video rental. By the way, once the internet became fast and ubiquitous enough, streaming would also be possible, giving rise to the Netflix we know today, but I’m getting a little ahead of myself.

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