The Netflix Story: How Technology Unlocks Business Models

Replacing DVDs with VHS was just the start

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

This crazy idea was to send a CD in the mail to find out if the concept of a mail-order DVD subscription service was practical. The CD, sent by USPS in a greeting card envelope, arrived safely the next day. Netflix’s proof of concept operation has been confirmed.

This week, 16 years after its reinvention as a streaming company, Netflix announced the closure of its DVD mail-order business. But how did he go from shipping that CD to becoming the juggernaut he is today? We’ll take a look.

“All I knew was that I wanted to start my own business and sell stuff 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. This led to them sharing an office and a car ride to and from work each day. Ready for a new challenge, Hastings and Randolph began brainstorming ideas for new ventures.

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

Another idea that wasn’t feasible was to go after Blockbuster by shipping VHS tapes, which were too big and bulky to ship by regular mail, and FedEx was going to eat something terrible into the profit margins. Then something happened: Digital Versatile Discs, or DVDs, arrived. They were much smaller and thinner than their VHS counterparts, and this technological innovation opened up a new form of video rental. Incidentally, once the internet became sufficiently fast and ubiquitous, streaming would also become possible, giving rise to the Netflix we know today, but I get a little ahead of myself.