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There are very few internet-users who haven’t heard of Netflix. The streaming giant has grown so exponentially that it no longer needs an introduction. But long before it had become a staple tool that eats up hours of our time, Netflix was a DVD rental service that was on the verge of collapsing. So what happened? How did such a large turn of events occur? Read on to understand the highs and lows of Netflix, and how it got to where it is now.

About the Founders

Marc Bernays Randolph who was the co-founder and first CEO of Netflix is an American entrepreneur with a flair for business, having invested in various companies throughout his career. Randolph was born in New York, to Stephen Randolph, who was a nuclear engineer, and Muriel Lipchik. On his father’s side, he is related to both the legendary psychoanalyst Sigmund Freud and Austrian politician Edward Bernays. Randolph was a very active child and spent his summers working for the National Outdoor Leadership School. After finishing school, he went on to pursue Geology from Hamilton College, and soon after graduating took up a job at Cherry Lane Music Company.

Over in Cherry Lane, Randolph handled the mail-order operation and taught himself the basics of marketing in the process. It was while working here Randolph’s fascination with user data was born, and this would later prove to be the inspiration behind Netflix’s recommendation interface. In 1984, he founded an American chapter for the MacUser magazine and also co-founded MacWarehouse and MicroWarehouse, firms that handled mail orders a couple of years later.

He later joined Borland International in 1988 as a marketer, but soon left to pick up odd jobs in Silicon Valley start-ups, such as Visioneer, and Integrity QA. Then, in 1996 Pure Atria which was a debugging company acquired Integrity QA, and that was when Randolph met Reed Hastings, who was the founder of Pure Atria. Meanwhile, Wilmot Reed Hastings Jr. was born in Boston and attended the Buckingham School in Cambridge. Shortly afterwards, he joined the Marine and spent a summer at Marine Corps Base Quantico. He never completed his training, choosing instead to serve the Peace Corps.

After graduating, he joined the Peace Corps and taught in Swaziland for two years, and then returned soon after. In 1988, he graduated from Stanford University with a master’s in computer science and took up a job at Adaptive Technology. He left the company in 1991 and found his first venture Pure Software, which helped in troubleshooting other software. In 1996, the company merged with Atria Software, forming Pure Atria. It was while serving as the CEO there that he met his friend and colleague Randolph. In 1997, the company was acquired by Rational Software for a whopping $850 million.

Founding Netflix

In January 1997, when Pure Atria was on the verge of being acquired, founder Hastings planned on going back to school, while VP Randolph was looking for the next big launch. Well, as luck would have it, that next big idea turned out to be Netflix! The idea for the company was hatched on a 90-minute car ride that the duo took from Santa Cruz to Silicon Valley. For six months, Randolph kept pitching ideas to Hastings, till finally one day, they hit on the idea of having a movie rental company that operated via mail. The first thing the duo did was head down to a music store, buy a CD and send it to each other.

When the pair received the CD without any damages, the pair knew that this idea could indeed work.
What followed was a mad scramble to find investors, and this was something the pair found difficult as they were rejected over a thousand times during this process. Then Blockbuster CEO John Antioco reportedly even laughed the idea off, but the duo refused to give up, and slowly Netflix grew.

The pair started the company in 1998 by using their savings and taking money from Randolph’s mother, and IntegrityQA founder, Steve Kahn. Analysis of user data helped the team build a successful subscription-based business model which still works for the company even now. They tested out an early recommendation algorithm named Cinematch, which was met with positive results. The company had only 30 employees initially and slowly grew, introducing a subscription in 1999.

By 2000, Netflix had over 300,000 subscribers but was losing money badly. This led to Blockbuster offering to buy the company for $50 million, but the duo turned down the offer. The economic crisis of 2001 would then force them to fire around one-third of their 120 people workforce, but the spring of 2002 brought good times for the company, and the business started to grow.

Streaming Giant

The company went public in 2002 and sold 5.5 million shares at US$15.00 per share. The company earned its first profit of US$6.5 million in 2003, and had by then over 35,000 films in stock, and was shipping over 1 million DVDs every day. Randolph gave up the position of CEO to Hastings in 1999 to focus more on product design and development and then left the company in 2003, a year after the company went public. Hastings proved his mettle and grew Netflix to the stage it is at now, wherein it has a market value now exceeding $130 billion.

By 2005, the company acquired movie rights and were about to go public, but decided instead to opt for a streaming channel, which went public in 2007. In 2007, Netflix delivered its billionth DVD and slowly started the move to a digital format via the internet.

2010, the company expanded further by starting a streaming media and also grew beyond America, going international and offering services in Canada, Latin America and the Caribbean. Since 2012, Netflix has started taking content production and generation seriously and has pushed out several award-winning series through its Netflix Original tag. By 2016, Netflix had expanded to over 190 countries and had already released more than 126 original series and films.

Netflix is as of now the world’s sixth-largest internet company bringing in over $15.7 billion every year, with revenue growing at 35%. From being a company that was barely surviving to the behemoth it is now, Netflix has indeed come a long way, and along with that way it has faced constant challenges. But it is in overcoming those challenges by constant evolution and adaption that the secret to Netflix’s success lies. Netflix went from being a novel and crazy-sounding idea to a movie rental company and then morphed into a streaming and production giant that churns out award-winning content month after month. With over 151 million subscribers around the world, it is safe to say that the future looks bright for Netflix.