Netflixtrial 5

Launch as a mail-based rental business (1997–2006)[edit]
Marc Randolph, co-founder of Netflix and the first CEO of the company
Reed Hastings, co-founder and Executive Chairman
Netflix was founded by Marc Randolph and Reed Hastings on August 29, 1997, in
Scotts Valley, California. Hastings, a computer scientist and mathematician, was a
co-founder of Pure Software, which was acquired by Rational Software that year for
[10]
$750 million, the then biggest acquisition in Silicon Valley history. Randolph had
worked as a marketing director for Pure Software after Pure Atria acquired a company
where Randolph worked. He was previously a co-founder of MicroWarehouse, a
[11][12]
computer mail-order company, as well as vice president of marketing for Borland.
Hastings and Randolph came up with the idea for Netflix while carpooling between their
[13]
homes in Santa Cruz, California, and Pure Atria's headquarters in Sunnyvale. Patty
[14]
McCord, later head of human resources at Netflix, was also in the carpool group.
Randolph admired Amazon and wanted to find a large category of portable items to sell
over the Internet using a similar model. Hastings and Randolph considered and rejected
[11]
selling and renting VHS as too expensive to stock and too delicate to ship. When
they heard about DVDs, first introduced in the United States in early 1997, they tested
the concept of selling or renting DVDs by mail, by mailing a compact disc to Hastings's
[11]
house in Santa Cruz. When the CD arrived intact, they decided to enter the $16
[11][13]
billion Home-video sales and rental industry. Hastings is often quoted saying that
he decided to start Netflix after being fined $40 at a Blockbuster store for being late to
[13]
return a copy of Apollo 13. Hastings invested $2.5 million into Netflix from the sale of
[15][13]
Pure Atria. Netflix launched as the first DVD rental and sales website with 30
[13][16][17]
employees and 925 titles available—nearly all DVDs published. Randolph and
Hastings met with Jeff Bezos, where Amazon offered to acquire Netflix for between $14
and $16 million. Fearing competition from Amazon, Randolph at first thought the offer
was fair, but Hastings, who owned 70% of the company, turned it down on the plane
[18][19]
ride home.
Initially, Netflix offered a per-rental model for each DVD but introduced a monthly
[20]
subscription concept in September 1999. The per-rental model was dropped by early
2000, allowing the company to focus on the business model of flat-fee unlimited rentals
[21]
without due dates, late fees, shipping and handling fees, or per-title rental fees. In
September 2000, during the dot-com bubble, while Netflix was suffering losses,
Hastings and Randolph offered to sell the company to Blockbuster for $50 million. John
Antioco, CEO of Blockbuster, thought the offer was a joke and declined, saying, "The
[22][23]
dot-com hysteria is completely overblown." While Netflix experienced fast growth
in early 2001, the continued effects of the dot-com bubble collapse and the September
11 attacks caused the company to hold off plans for its initial public offering (IPO) and to
[24]
lay off one-third of its 120 employees.
Opened Netflix rental envelope containing a DVD copy of Coach Carter (2005)
DVD players were a popular gift for holiday sales in late 2001, and demand for DVD
subscription services were "growing like crazy", according to chief talent officer Patty
[25]
McCord. The company went public on May 23, 2002, selling 5.5 million shares of
[26]
common stock at US$15.00 per share. In 2003, Netflix was issued a patent by the
U.S. Patent & Trademark Office to cover its subscription rental service and several
[27]
extensions. Netflix posted its first profit in 2003, earning $6.5 million on revenues of
$272 million; by 2004, profit had increased to $49 million on over $500 million in
[28]
revenues. In 2005, 35,000 different films were available, and Netflix shipped 1 million
[29]
DVDs out every day.
In 2004, Blockbuster introduced a DVD rental service, which not only allowed users to
check out titles through online sites but allowed for them to return them at brick
[30]
and-mortar stores. By 2006, Blockbuster's service reached two million users, and
while trailing Netflix's subscriber count, was drawing business away from Netflix. Netflix
[28]
lowered fees in 2007. While it was an urban legend that Netflix ultimately "killed"
Blockbuster in the DVD rental market, Blockbuster's debt load and internal
[30]
disagreements hurt the company.

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Launch as a mail-based rental business (1997–2006)[edit]

Reed Hastings, co-founder and Executive Chairman

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