Netflix co-founder Marc Randolph, though long gone from the company, has decided to comment on recent decision to spin off the DVD business, Did Netflix Screw Up? I Don't Think So.
Randolph describes a very similar move Netflix made in the early days:
When Reed and I launched Netflix in 1998, it was a very different company from the one you know today. The Queue, Unlimited Rentals, and the No-Due-Dates-No-Late-Fees model were still more than a year away. Our rentals were standard a-la-carte rentals. They had due dates. We charged late fees.
Oh . . . we also sold DVDs.
In fact, much to our great concern we sold a lot of DVDs. Bucket loads. So many, that by the end of our first summer, I would guess that 95% of our revenues were coming from the sales of DVDs. Although this did pay some bills, it was obvious to us that this was not a sustainable business. It was inevitable that at some point in the near future we would have Amazon entering the DVD business. And then Walmart. And then just about every mass market retailer in the country. All of which would have crushed our margins and slowly but surely driven us out of business.
Randolph on why the streaming-only Netflix is better:
So even though I haven’t been at Netflix in a long time, I can easily imagine the growing frustration they must have felt these last few years as they made decisions they knew were suboptimal for the streaming business in order to maintain compatibility with the DVD business. How to work out pricing that covers multiple use cases. How to come up with messaging that embraces two different ways to receive movies. How to manage the significant differences in the content available between the two services. How to simplify the landing page and sign up flow.
Well no longer. Not having to worry about compatibility between the services makes it infinitely easier to optimize every decision around the real prize, which is clearly streaming. Pricing. Messaging. Content. Sign-up-flow. All better now.
Randolph on Reed Hastings:
But what is truly mindblowing, is that when I was CEO trying to screw up my nerve to walk away from selling DVDs, I risked alienating tens of thousands of customers. Reed is showing that he has courage and conviction to do the right thing despite having tens ofmillions of them.
This is why this guy is the best entrepreneur on the planet.
via readers David, Gibson and NewTeeVee.