Thread by @dunkhippo33

I saw a pretty fantastic documentary last night called Netflix vs the World (on Amazon Prime).

Some interesting tidbits and lessons learned:

1) Background - @reedhastings was the initial $2m 😲angel check into the company (from the proceeds of his successful startup)

The co worked on a lot of biz ideas before landing on trying to disrupt video. There was a lot of e-commerce but no one was touching video at the time.

2) Marc Randolph and Reed Hastings knew that the big reason no one was touching video was that the VHS format was a real bear. Clunky and large. Hard to ship.

Anyone ever seen a VHS tape? I remember those from way back in the cobwebs of my childhood memories.

3) DVDs were just starting to come about (keep in mind this is the late 90s). What the documentary didn't cover was that I remember there were other contenders for storage formats at that time that didn't make it.

So betting on DVDs was a bet in itself.

4) One of their first experiments was to try sending a DVD in the mail? They tried shipping a DVD to Reed's house through local mail.

It got there and didn't break. So they thought they had something interesting.

5) And so they decided to launch an online video store that sold and rented DVD-based films.

And they got 100+ orders on the first day of launch!

6) However apparently USPS sends local mail differently from mail that goes to the rest of the country.

And, their DVDs broke in the "regular" mail. So they had to figure out packaging. If the 1st test send to Reed's house had broken, they wouldn't have started the biz.

7) Within months they were on a $1m runrate which is pretty amazing for pre-2000.

However, 99% of sales were on *selling* DVDs not renting.

8) They felt that Amazon would eventually come in and sell DVDs so they didn't think this was a good biz to be in.

Rentals could have high margins but no one was renting from them at the time.

9) So they faced a crossroads. Do you bet the farm on the rentals biz when only 1% of your sales are from rentals?

Or do you stay in the commodity biz of selling DVDs knowing your margins will go to near zero with Amazon looming?

10) They made the bold move to bet it all on rentals. They thought they couldn't do both because lack of focus meant they wouldn't do either well.

This is a classic pivot move that most startups don't do well, but they excelled here and would do this again later.

11) They listened to their customers and figured out why rentals weren't working. It came down to logistics:

1) It was a pain to keep picking new videos
2) Ppl didn't want a time limit

12) So they changed their rental biz to a subscription model:

-no fees, unlimited time on each one
-pick a bunch of movies you like all at once, and you'll automatically get the next one

13) And that worked! They started marketing like crazy.

One insight was that consumers came to them for unique content (and this would come back later).

A mktg campaign that did well were the hearing tapes of the Bill Clinton - Monica Lewinsky case. They offered that for free

14) Funny enough, the company they partnered with to create these DVDs mixed up their content with another client's.

That other client's content was Chinese pornography.

Since there were no labels on the DVDs, Netflix accidentally sent out the porn DVDs to their users!

15) Customers started writing in bewildered by Netflix's decision to send them Chinese porn.

At first they had no idea what was happening because they didn't actually check the content that had come back from the DVD creator.

It became a good opp to apologize

16) The apology was heartfelt and went a long ways in building trust with their customers.

That sealed some customer loyalty. Sometimes a snafu is actually a moment to seal the deal w/ customers.

17) They grew but were losing money because the payback period was quite long. The dot com bust happened.

Reed became CEO (even though initially he was an advisor and investor), because he had the most clout and could raise money during the dark days of late 2000-2001.

18) They grew and grew and still faced tough times w/ the economy and the markets. They tried to sell to Blockbuster for $50m who laughed in their faces.

19) Eventually, they crossed 2m subscribers and Blockbuster realized they needed to get into the same business.

Blockbuster sent spies to their warehouses to learn how to copy the Netflix model. Blockbuster also competed on price which hurt Netflix on profitability.

20) Blockbuster started becoming a serious contender. It looked like Netflix could actually lose despite having great operations and a great business. Blockbuster could just outspend them in every way.

But the Blockbuster CEO didn't get his promised bonus so he stepped down.

21) The new CEO replacement decided for whatever reason to double down on the in-store model and get rid of their online offering that they had grown to 1M+ users in the last year.

And that was the nail that sealed the coffin for Blockbuster.

22) Netflix continues to thrive today, but they would have the foresight to pivot again. They decided to separate their DVD and online business lines and prioritize the online biz. It ended up being a debaucal in how customers responded but it was absolutely the right call.

23) It's so hard to give up your cash cow to go all in on what the future *may* look like, so big props to them for doing that.

24) These days, they have been in the original content creation game for a while. They have spent so much money on original content, and the general public has wondered what are they doing?

And that too is a direction that is hard to go in but is the right call.

25) Video content today is a commodity, so they are doing everything they can to constantly create original, differentiated content so they can stay ahead despite having some flops and spending a lot of money in this initiative

26) tl;dr Great movie to watch on how to pivot with conviction!