The Netflix Story: How Technology Unlocks Business Models

DVDs replacing VHS were just the beginning.

“Often the best way to find out if your crazy idea is a good one is to try it. So that’s what we did.” Mark RandolphFounder and CEO of Netflix

That crazy idea was to mail a CD to see if the concept of a mail order DVD subscription service would work. The CD he sent in a USPS greeting card envelope arrived safely the next day. Proof of concept for Netflix has been confirmed.

This week, Netflix announced the closure of its mail-order DVD business 16 years after reinventing itself as a streaming company. But how did it go from sending that CD to today’s notoriety? Let’s see.

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

Reed Hastings met Mark Randolph while working together after purchasing Pure Software. This resulted in one office and one car trip to work each day. Ready for a new challenge, Hastings and Randolph began brainstorming ideas for new companies with each other.

DVDs were barely invented yet. In fact, Netflix’s founders couldn’t find a place to buy it when they tried to send it by mail.

The ideas were many and varied and included selling personalized shampoo (!), personalized dog food (!!) and vitamins online. All these products exist now, but at the time they dismissed two as impossible.

Another unlikely idea was to take on Blockbuster by shipping VHS tapes, which were too big and bulky to ship via regular mail and FedEx would eat into the profit margin. Then something happened: along came digital versatile discs, or DVDs. They were much smaller and thinner than their VHS counterparts, and this technological innovation opened up a new type of video rental. Incidentally, if the internet became faster and more ubiquitous, streaming would be possible, even giving birth to Netflix as we know it today, but I’m getting a little ahead of myself.

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