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Speaker 1: Get in touch with technology with tech Stuff from how

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Speaker 1: stuff works dot com. Hey there, and welcome to tech Stuff.

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Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer here

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Speaker 1: at how Stuff Works in a law of all things tech,

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Speaker 1: and recently I did some episodes about the video rental

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Speaker 1: company Blockbuster and how it went from being the dominant

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Speaker 1: force in rentals to declaring bankruptcy and all but disappearing

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Speaker 1: from view today. As per text Stuff listener Kevin's request,

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Speaker 1: I'm going to begin to talk about another company, Netflix,

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Speaker 1: one that has been frequently cited as the giant killer

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Speaker 1: when people talk about Blockbuster. But this is a very

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Speaker 1: interesting and surprisingly deep story, the story of Netflix and

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Speaker 1: rise and where it is today. So this is actually

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Speaker 1: gonna be a rare four part episode. The founding of Netflix,

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Speaker 1: just by itself is a pretty fascinating tale, and that's

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Speaker 1: what this episode is really going to focus on. So

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Speaker 1: where did Netflix come from and how has it evolved? Well, first,

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Speaker 1: the origins of Netflix are a matter of some debate,

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Speaker 1: or at least there are contradicting versions of the origins

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Speaker 1: of Netflix. Read Hastings, the co founder of Netflix, once

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Speaker 1: said that he came up with the idea after he

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Speaker 1: incurred a forty dollar late fee from the aforementioned Blockbuster.

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Speaker 1: The video he had rented was Apollo thirteen. No word

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Speaker 1: on whether or not his response to getting hit with

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Speaker 1: the fee was Houston, we've had a problem. Actually. In

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Speaker 1: an interview in Fortune magazine, Hastings said, quote, I remember

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Speaker 1: the fee because I was embarrassed about it. That was

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Speaker 1: back in the vh just days and it got me thinking,

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Speaker 1: there's that there's a big market out there. So I

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Speaker 1: started to investigate the idea of how to create a

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Speaker 1: movie rental business by mail. I didn't know about DVDs,

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Speaker 1: and then a friend of mine told me they were coming.

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Speaker 1: I ran out to Tower Records in Santa Cruz, California

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Speaker 1: and mailed CDs to myself, just a disk in an envelope.

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Speaker 1: It was a long twenty four hours until the mail

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Speaker 1: arrived back at my house and I ripped them open

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Speaker 1: and they were all in great shape. That was the

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Speaker 1: big excitement point. End quote. So later on he would

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Speaker 1: change the name of the video store from Blockbuster to

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Speaker 1: a little mom and pop video rental store that had

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Speaker 1: gone out of business several years later. In a future episode,

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Speaker 1: I'll explain why that story changed. But then there's another

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Speaker 1: version that Hastings has shared at the Mobile World Congress convention.

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Speaker 1: He said the idea spawned from a theoretical scenario he

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Speaker 1: encountered in graduate school. So a math problem, if you will,

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Speaker 1: And the math problem goes something like this, what is

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Speaker 1: the bandwidth of a station wagon loaded down with tapes?

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Speaker 1: I'm talking about tapes that have magnetic storage on them,

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Speaker 1: that kind of tape. To answer that question, you have

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Speaker 1: to know a lot of different variables. You need to

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Speaker 1: know how many tapes you can load into the station

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Speaker 1: wagon using the most efficient method possible, sort of Tetris style,

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Speaker 1: so that you can fit the maximum number of tape

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Speaker 1: tapes in the in the carrying capacity of the station wagon. Two,

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Speaker 1: you need to know how much data can each tape

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Speaker 1: hold individually. It's for you to be able to know

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Speaker 1: what the band with is. And three, you would need

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Speaker 1: to know how long it would take for the station

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Speaker 1: wagon to get from its starting point to whatever its

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Speaker 1: destination is. And that would allow you to answer that question.

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Speaker 1: And this got him into thinking about how much data

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Speaker 1: a DVD could hold and how quickly you could distribute

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Speaker 1: the information on that DVD by utilizing the postal service,

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Speaker 1: and that the Internet would make delivery services faster. But

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Speaker 1: another version of this story was shared by Mark Randolph,

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Speaker 1: who was the other co founder of Netflix, and he

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Speaker 1: said that he and Hastings were racking their brains to

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Speaker 1: come up with a way to build the Amazon dot

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Speaker 1: Com of something, and this would be back in now.

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Speaker 1: In those days, Amazon dot Com was still only an

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Speaker 1: online bookstore. That's all they dealt with was books. Also,

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Speaker 1: it's interesting that they wanted to build the Amazon dot

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Speaker 1: Com of something because at that point Amazon dot Com

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Speaker 1: had been operating at a loss and it would continue

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Speaker 1: to do so until two thousand three. It did have

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Speaker 1: a profitable quarter at the end of two thousand one,

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Speaker 1: but two thousand three was its first profitable year. Still,

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Speaker 1: Amazon dot Com got a lot of investment money poured

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Speaker 1: into it, so maybe that's what they meant. Plus, in

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Speaker 1: those days, the way that startups typically worked was that

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Speaker 1: you would get a business going. Maybe you would figure

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Speaker 1: out a way to generate revenue, but that wasn't really

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Speaker 1: that important. What was more important was that you showed

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Speaker 1: yourself to have a really valuable idea, one so valuable

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Speaker 1: that a larger company wanted it, and then they would

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Speaker 1: acquire your company for a princely sum, and then you

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Speaker 1: could go and do it all over again and continue

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Speaker 1: to make startups and sell them till the cows came home.

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Speaker 1: Remember this is in the days well before the dot

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Speaker 1: com bubble burst. But let's take a step back for

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Speaker 1: just a second. Who are Read Hastings and Mark Randolph. Well,

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Speaker 1: first we'll start with Wilmot Read Hastings Jr. He was

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Speaker 1: born in Boston, Massachusetts, in nineteen sixty to a well

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Speaker 1: to do family. That's putting it lightly. His mother's family

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Speaker 1: were founding members of the Social Register. And for those

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Speaker 1: who do not know, I certainly do not move in

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Speaker 1: these circles, So I would not be one to know

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Speaker 1: about this if I had not read extensively about it before.

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Speaker 1: The Social Registered tracks things like marriages, births, other big

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Speaker 1: life events among the well to do in high society.

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Speaker 1: So we're talking old money typically, and it's a relatively

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Speaker 1: small list of families in the grand scheme of things.

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Speaker 1: These are movers and shakers and business and politics and

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Speaker 1: in finance. And there's no way I would ever be

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Speaker 1: listed in there, not that I have any great desire

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Speaker 1: to be, but his family on his mother's side founded

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Speaker 1: that his great grandfather was Alfred Lee Loomis, whom I

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Speaker 1: covered in a previous episode of Tech Stuff, and he

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Speaker 1: would go to college. That that is, Hastings would go

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Speaker 1: to college in Maine at Bowdoin College. He graduated with

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Speaker 1: a bachelor's degree there, and then he entered the Peace

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Speaker 1: Corps for a few years, spending much of that time

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Speaker 1: in Swazila and in Southern Africa teaching mathematics. When he

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Speaker 1: got back to the States, he first attempted to enroll

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Speaker 1: in m I T. He wanted to study computer science,

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Speaker 1: but M I T wouldn't accept him, so instead he

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Speaker 1: enrolled over at Stanford University and he would graduate nineteen

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Speaker 1: eight with a master's degree in computer science. He got

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Speaker 1: a job as a software developer, and in nineteen ninety

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Speaker 1: one he founded his first company, called Pure Software. In

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Speaker 1: nineteen Pure Software merged with another company called Atria Software

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Speaker 1: in a stock transaction deal worth nearly a billion dollars,

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Speaker 1: and Hastings would become the president and CEO of this

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Speaker 1: new company called Pure Atria. One of the company's services

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Speaker 1: was to work on solving computer bugs that would pop

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Speaker 1: up when multiple developers would all work on the same

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Speaker 1: computer code. Atria's former CEO would actually become the chairman

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Speaker 1: of this new company, and in August nine, another company

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Speaker 1: called Rational Software made a move to acquire Pure Atria,

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Speaker 1: which meant that Hastings got a handsome payout an enormous

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Speaker 1: amount of money, made him a millionaire and a multimillionaire,

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Speaker 1: and it gave him the money he would need to

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Speaker 1: found Netflix. He was essentially the source of the seed

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Speaker 1: money for the company. Mark Randolph was born in Chappaqua,

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Speaker 1: New York, in nineteen fifty eight, also to a wealthy family.

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Speaker 1: He had famous relatives of his own. His great uncle

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Speaker 1: was Sigmund Freud, and he was also the nephew of

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Speaker 1: Edward Burnet's, a public relations and propaganda genius some might say,

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Speaker 1: the master of misdirection. You can learn more about Burnet's

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Speaker 1: and episodes from shows like Stuff You Should Know and

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Speaker 1: Stuff They Don't Want You to Know. They've both done

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Speaker 1: episodes about Edward Burnet's and his is a fascinating story.

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Speaker 1: Randolph would go on to attend Hamilton's College in New York,

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Speaker 1: where he earned a degree in geology, which totally rocks.

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Speaker 1: When he graduated, his dad helped Randolph get a clerical

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Speaker 1: job at a company called Cherry Lane Music Company, and

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Speaker 1: Randolph worked in the mail order side of the business

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Speaker 1: and learned about catalogs and mail order strategies and marketing

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Speaker 1: strategies and about direct mail. He began analyzing customer behaviors

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Speaker 1: and learning which products were performing best and the types

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Speaker 1: of customers who were likely to buy a future product

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Speaker 1: based upon past purchases, and so he started to redesign

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Speaker 1: the UH, the company's approach to this and make it

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Speaker 1: more effective. He was then asked to design the computer

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Speaker 1: inventory and processing system for the company when they decided

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Speaker 1: to move to a computer system, and he would co

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Speaker 1: found the American version of Mac User magazine, and then

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Speaker 1: he was tapped to launch two new mail order businesses.

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Speaker 1: They were called mac Warehouse and MicroWarehouse. After those jobs,

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Speaker 1: he worked for a software company called Borland International for

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Speaker 1: seven years years and after that he worked at various

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Speaker 1: startups in the dot com boom and became a founding

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Speaker 1: member and chief product marketing officer at Atria, in which,

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Speaker 1: as I mentioned, Pure Software had acquired. So Randolph then

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Speaker 1: became the head of corporate marketing at the new company

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Speaker 1: of Pure Atria. But just a few months after he

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Speaker 1: took that position, they had the announced merger with Rational Software,

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Speaker 1: and that meant his job was already on borrowed time.

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Speaker 1: He knew that his job was going to be eliminated

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Speaker 1: upon the completion of that acquisition, so he and Hastings

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Speaker 1: started talking about a possible business venture together. And I've

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Speaker 1: heard it said that Hastings is sort of the engineering

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Speaker 1: and numbers guy, and it makes very cold and calculated

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Speaker 1: decisions in many ways, and Randolph was more of a

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Speaker 1: people person in creative type now, according to Randolph himself,

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Speaker 1: as the acquisition neared, he would talk to Hastings about

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Speaker 1: various ideas. He had to launch the next Amazon dot

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Speaker 1: Com of something, and they were going back and forth

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Speaker 1: on what that something should be. Early on, they talked

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Speaker 1: about the possibility of video sales and rentals using the

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Speaker 1: Internet as a way to connect customers with video titles.

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Speaker 1: But this was still in the day of VHS tapes,

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Speaker 1: and the cost on a per tape basis would be

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Speaker 1: between fifty five dollars per title. That's how much a

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Speaker 1: lot of these video rental stores were paying, and then

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Speaker 1: you had the expense of shipping tapes in the mail

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Speaker 1: and the question about whether or not they would remain

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Speaker 1: in good condition. How long could you do this per

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Speaker 1: tape before they wore out? Presumably the wear and tear

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Speaker 1: would be much greater than you would see in your

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Speaker 1: typical store, And eventually that made them decide that this

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Speaker 1: particular idea was impractical. But then again, according to Randolph,

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Speaker 1: he came across something interesting while reading about new technologies.

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Speaker 1: He heard about the DVD format, and in the DVD

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Speaker 1: format was brand new in the United States. It had

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Speaker 1: launched the year before in Japan, but just made its

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Speaker 1: way over to the US. In an optical disc would

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Speaker 1: be much lighter and easier to ship than a VHS tape,

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Speaker 1: and it looked like it would be easy to get

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Speaker 1: titles much more cheaply on a per title basis, because

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Speaker 1: it looked like instead of charging this fifty to eighty

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Speaker 1: five dollars per title, it would be closer to fifteen

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Speaker 1: to twenty dollars, and that really brought that initial startup

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Speaker 1: cost way down. So the story goes that Hastings and

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Speaker 1: Randolph went to a local music store, not necessarily Tower records,

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Speaker 1: and then they bought a CD. Then they hopped over

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Speaker 1: to a greeting card store and they bought a card

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Speaker 1: that had an envelope large enough to hold the c D.

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Speaker 1: Then Hastings mailed the c D to himself and he

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Speaker 1: went home and he waited for it to arrive. And

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Speaker 1: then within a day or two, it got there, and

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Speaker 1: he checked out the c D to see if there

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Speaker 1: was any visible damage on it, and he saw that

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Speaker 1: the disc inside was undamaged. This could work, they thought,

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Speaker 1: I'll explain more in just a moment, but first let's

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Speaker 1: take a quick break to thank our sponsor. Hastings and

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Speaker 1: Randolph pulled in Christina Kish, who had joined pure Atria

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Speaker 1: on Randolph's recommendation, but then she found herself out of

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Speaker 1: a job, literally on her first day of work. She

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Speaker 1: comes to work on her first day, finds out that

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Speaker 1: she's going to get laid off once this acquisition happens.

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Speaker 1: She would be allowed to continue to show up and

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Speaker 1: draw a paycheck during this acquisition process, but she didn't

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Speaker 1: really have anything to do, and she already knew that

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Speaker 1: the job was strictly just sitting at a desk doing

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Speaker 1: nothing until the acquisition was done. Her main job in

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Speaker 1: the early planning stages of what was going to become

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Speaker 1: Netflix was to look at Blockbusters business plan and determine

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Speaker 1: how did Blockbuster make money? And that was a little

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Speaker 1: challenging because she saw how big the overhead was, how

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Speaker 1: much the costs were to operate Blockbuster, and it became

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Speaker 1: clear that Blockbuster strategy was not going to work for Netflix.

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Speaker 1: That Blockbuster had largely succeeded by acquiring various video chains

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Speaker 1: and growing this way and adding to their customer base

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Speaker 1: in that way, but that was not really a viable

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Speaker 1: option for Netflix. Meanwhile, uh they also brought on a

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Speaker 1: woman named terse T Smith. She was someone else who

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Speaker 1: had joined pure Atria on Randolph's recommendation, and Hastings brought

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Speaker 1: in a developer of his own named Eric Meyer, who

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Speaker 1: would be responsible for designing the website. Together, they began

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Speaker 1: to hash out their plan for what would become Netflix.

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Speaker 1: So how do you convince people to a shoe a

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Speaker 1: brick and mortar store for an online library of DVDs

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Speaker 1: and then expect them to wait patiently for a movie

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Speaker 1: to be packed up, shipped and delivered to their homes.

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Speaker 1: It seemed like a really big challenge. Randolph started doing

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Speaker 1: research in the video rental industry. He attended a convention

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Speaker 1: and held by the Video Software Dealers Association or v

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Speaker 1: s d A, and there he met the president of

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Speaker 1: the v s d A. It was a guy named

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Speaker 1: Mitch Low. Low initially agreed to just do some consulting

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Speaker 1: with the entrepreneurs, giving information about valuable rental industry stuff,

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Speaker 1: such as how to use software to simulate the experience

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Speaker 1: of talking to a knowledgeable video store clerk for recommendations.

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Speaker 1: This would become a key feature early on with Netflix

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Speaker 1: creating a system that would recommend movies based upon your

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Speaker 1: likes and your interests, something that that a video store

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Speaker 1: clerk could do. And you talked to a video store

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Speaker 1: clerk and say, you know, I really like action movies,

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Speaker 1: and I like movies featuring you know, a protagonist who's

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Speaker 1: really the odds are stacked against them, and etcetera, etcetera,

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Speaker 1: And they say, oh, well, have you seen die Hard?

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Speaker 1: Let me take you over here and I'll show you

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Speaker 1: and or if you have seen die Hard, I'll show

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Speaker 1: you some other movies that are similar to that that

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Speaker 1: you might really enjoy. Well. Low talked about the ways

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Speaker 1: that video clerks did this, so that they could figure

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Speaker 1: out a way to essentially simulate that through their algorithms.

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Speaker 1: Randolph eventually was actually able to convince Low to join

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Speaker 1: the new company, and interestingly, Low had already experimented with

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Speaker 1: a video rental method that was outside the norm, and

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Speaker 1: later that method would prove to be actually really effective,

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Speaker 1: although it wasn't in the early days. So what he

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Speaker 1: had done was he had installed a video rental kiosk

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Speaker 1: in a Japanese hospital, and that particular venture was a failure,

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Speaker 1: but it would turn out to be a pretty good

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Speaker 1: idea later on A box that has read one might

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Speaker 1: say more on that in a future episode. The company

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Speaker 1: would grow to eight people with the addition of a

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Speaker 1: couple of programmers and a new director of operations in finance,

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Speaker 1: and they got to work building out the initial website

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Speaker 1: and user into face now. According to the book Netflix,

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Speaker 1: which is a phenomenal book, I relied on it very heavily.

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Speaker 1: When doing the research for these episodes. Christina Kish would

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Speaker 1: draw out the stages she wanted customers to encounter when

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Speaker 1: they would navigate to whatever the website was going to

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Speaker 1: turn into. She this was sort of the experience she

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Speaker 1: wanted customers to have, and it went from seeing the

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Speaker 1: initial page to the point where you're checking out and

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Speaker 1: paying to rent a title, and she did it all

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Speaker 1: like drawing crayon on paper. Other programmers started building out

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Speaker 1: the back end of the operations, which would include stuff

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Speaker 1: like keeping track of inventory. They need to know which

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Speaker 1: titles were available, how many copies of each title were

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Speaker 1: in stock, how many of those copies were out for rental,

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Speaker 1: that kind of thing. They need to know that in

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Speaker 1: order to be able to fulfill orders, So they had

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Speaker 1: to build the system to actually support that. They also

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Speaker 1: needed to have the infrastructure in place to be able

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Speaker 1: to actually ring transactions. This is in the early days

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Speaker 1: of online commerce. You didn't have a whole lot of

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Speaker 1: examples out there beyond some big names like Amazon dot Com.

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Speaker 1: So essentially they were building out all the basic functions

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Speaker 1: of online shopping that developer I mentioned earlier, Eric Meyer,

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Speaker 1: he set a very high goal. He wanted the programming

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Speaker 1: team to make sure that the Oracle software they were

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Speaker 1: using as a foundation for the back end operations would

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Speaker 1: eventually be able to handle up to ten million customers,

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Speaker 1: which seemed like a crazy number, but He was essentially

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Speaker 1: talking about scaling up the back end for business before

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Speaker 1: there even was a business, and he felt strongly that

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Speaker 1: was better to be prepared and be ready for the

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Speaker 1: eventuality than to be caught without the structure in place.

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Speaker 1: Once the need arose. They created a search tool that

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Speaker 1: they would call flicks Finder that would help users find

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Speaker 1: films by title, director, or actor. So if you really

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Speaker 1: liked movies that featured I don't know, Bruce Campbell, for example,

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Speaker 1: then you would get results like Army of Darkness or

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Speaker 1: Bubba Hotep, that kind of thing. They also added in

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Speaker 1: a feature called film Facts, which included stuff like a

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Speaker 1: synopsis for each DVD and included ratings for the films,

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Speaker 1: and would include a rundown of the different features you

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Speaker 1: could find on the DVD, because of course a lot

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Speaker 1: of DVDs would ship with bonus material on them. And

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Speaker 1: they created a recommendation engine, or they put the building

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Speaker 1: blocks in for a recommendation engine. They would take a

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Speaker 1: couple of years for that to really take form, but

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Speaker 1: this is something that Netflix is known for to to

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Speaker 1: this day. The recommendation engine would suggest films similar to

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Speaker 1: ones that the customer had previously rented and they might

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Speaker 1: be in a similar genre, or they might have the

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Speaker 1: same principal actors or director involved. And they also included

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Speaker 1: a feature that would remind customers about films they had

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Speaker 1: flagged as being interested in but had not yet did.

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Speaker 1: So let's say you go to Netflix's site early on

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Speaker 1: and you see a whole bunch of different movies that

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Speaker 1: you're interested in. You're only going to rent a couple

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Speaker 1: at the moment, but you want to flag the ones

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Speaker 1: you're interested in so that you remember on a future visit.

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Speaker 1: Oh yeah, yeah, yeah, I did want to see that movie.

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Speaker 1: That was what that feature was all about. Meanwhile, other

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Speaker 1: team members were busy building out inventory. DVDs were a

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Speaker 1: novelty in nineteen seven. Not a whole lot of people

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Speaker 1: owned DVD player yet by the end of that year,

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Speaker 1: and they were wicked expensive when they first came out,

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Speaker 1: like eleven d dollars for a DVD player when they

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Speaker 1: first debuted. Towards the end of nine seven, the team

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Speaker 1: had accumulated around five hundred DVDs, most of those older films.

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Speaker 1: That wasn't because the newest films were more expensive or anything.

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Speaker 1: It was mostly because movie studios hadn't really started to

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Speaker 1: release films to DVD yet. And this was where we

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Speaker 1: get into a weird situation because from the movie studio perspective,

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Speaker 1: until there was a market, right until you had enough

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Speaker 1: people buying DVD players, there wasn't a huge incentive to

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Speaker 1: put titles on DVD because there weren't enough people out

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Speaker 1: there to buy the DVDs. But then without the library,

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Speaker 1: without the titles, there was no incentive for customers school

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Speaker 1: and by the hardware. So that was a real Catch

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Speaker 1: twenty two and I honestly don't know if Catch twenty

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Speaker 1: two is one of the DVD is available at the time.

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Speaker 1: Jim Cook, the guy who I mentioned earlier who had

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Speaker 1: become the head of finance and operations. I hadn't mentioned

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Speaker 1: him by name yet, but he was the finance and

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Speaker 1: operations guy in the early days of Netflix. He helped

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Speaker 1: Randolph and Kish tweak their business plan, and he was

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Speaker 1: really good at raising concerns about the cost of operations

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Speaker 1: and the risks of getting into a business with a

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Speaker 1: medium that had yet to receive wide adoption. So he

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Speaker 1: would raise points of concern and it came down to

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Speaker 1: Randolphin Kish to figure out, well, how are we going

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Speaker 1: to address this, how are we going to answer this

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Speaker 1: point of criticism, And so it became a back and

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Speaker 1: forth and it helped kind of improve the process. Before

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Speaker 1: they ever launched, they also designed and tested out the

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Speaker 1: postage paid mailers, the inn actual envelopes that they intended

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Speaker 1: to use with the DVDs, and they ended up bringing

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Speaker 1: their friends and family across the United States in on

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Speaker 1: this to try and test out the system. So they

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Speaker 1: would mail disks to their friends and family across the

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Speaker 1: US that the friends and family would tear off the

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Speaker 1: little return address or the shipping address which would have

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Speaker 1: the return address underneath it, and then they would put

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Speaker 1: it back in the mail. And so most of their

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Speaker 1: friends and family didn't actually own DVD players, so they

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Speaker 1: would get this envelope with disks in it, and they

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Speaker 1: would take the little label off and then they would

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Speaker 1: pop it back in the mail without ever having watched

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Speaker 1: anything because they didn't have anything to watch it on.

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Speaker 1: So the real purpose was really to see if the

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Speaker 1: mailers adequately protected the disks and if they could hold

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Speaker 1: up to the trip of being sent across the United

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Speaker 1: States and back again and still be usable for future rentals.

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Speaker 1: One thing that the team. Included was a special barcode

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Speaker 1: on each of those envelopes, and this was really important

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Speaker 1: because the barcode allowed the envelopes to skip certain steps

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Speaker 1: in the mail sorting process at postal services, at post offices,

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Speaker 1: and otherwise those envelopes could be really badly damaged and

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Speaker 1: the discs could be crushed inside. So Randolph learned about

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Speaker 1: a service that would allow him to skip mail sorting automation.

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Speaker 1: All they had to do was pre sort the envelopes

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00:23:32,080 --> 00:23:35,920
Speaker 1: on Netflix's side, So he created a system that used

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Speaker 1: a barcode scanner, just the kind that you would find

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Speaker 1: in say, department store a grocery store, and they would

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Speaker 1: print these barcodes on the envelopes and in the warehouse

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Speaker 1: you would scan each envelope and it would tell you

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Speaker 1: which bag out of like twenty seven bags you should

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Speaker 1: put the envelope. And then you had all that pre

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Speaker 1: sorted before it ever got to the post office, and

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Speaker 1: it could skip the sorting stage there and go straight

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Speaker 1: to wherever it need to go for that particular zip code.

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Speaker 1: The original mailers were made out of cardboard and they

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Speaker 1: had a little bit of stiffness to them. They could

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Speaker 1: hold up to three discs at a time. Originally, and

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Speaker 1: like I said, they had that removable address flap on

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Speaker 1: them that when torn off, would reveal Netflix's return address

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Speaker 1: and that could be used as the return envelope for

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Speaker 1: the discs. The original DVD storage vault, as in the

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Speaker 1: place where they would actually hold the DVDs they would

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Speaker 1: use for rental, was initially a room in their office space.

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Speaker 1: It wasn't a warehouse or anything um. In order to

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Speaker 1: hold all the DVDs, they were maximizing the use of

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Speaker 1: the space so much that the aisles were only wide

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Speaker 1: enough for one person to go down the aisle at

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Speaker 1: a time, and after testing out numerous configurations to find

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Speaker 1: which way was the most efficient, they eventually landed on

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Speaker 1: a an arrangement that essentially copied the way Blockbuster stores

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00:24:55,480 --> 00:24:57,920
Speaker 1: were laid out. It seemed to work best. It made

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Speaker 1: finding the relevant copies faster and more efficient. The team

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00:25:01,359 --> 00:25:04,840
Speaker 1: also worked on pricing models for rentals and ways to

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Speaker 1: promote the service, including users getting their first rental free,

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Speaker 1: though they were still charged shipping and handling fee. But

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Speaker 1: one thing they did not yet have was a name.

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Speaker 1: I'll explain how they came up with that name in

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Speaker 1: just a second, but first let's take another quick break

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Speaker 1: to thank our sponsor. One of the original names the

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00:25:32,119 --> 00:25:36,040
Speaker 1: group debated on using was Kibble Incorporated. Now this goes

437
00:25:36,080 --> 00:25:40,679
Speaker 1: to the concept of, and I hate this phrase, eating

438
00:25:40,720 --> 00:25:43,760
Speaker 1: your own dog food, the idea that the people who

439
00:25:43,840 --> 00:25:48,680
Speaker 1: build the business or service will want to use whatever

440
00:25:48,720 --> 00:25:51,399
Speaker 1: that service or product might be. And you hear this

441
00:25:51,480 --> 00:25:54,680
Speaker 1: among developers frequently, that you're eating your own dog food

442
00:25:54,680 --> 00:25:57,119
Speaker 1: means that you actually make use of the apps that

443
00:25:57,200 --> 00:26:00,840
Speaker 1: you develop. The team gravitated towards finding a name that

444
00:26:00,880 --> 00:26:04,720
Speaker 1: would consist of two short words, ideally words that are

445
00:26:04,760 --> 00:26:07,600
Speaker 1: one syllable each. They wanted one of those two words

446
00:26:07,600 --> 00:26:10,800
Speaker 1: to reference the fact that the service was all about movies,

447
00:26:11,480 --> 00:26:13,600
Speaker 1: and they wanted the other word to reference the fact

448
00:26:13,600 --> 00:26:16,720
Speaker 1: that the service was web based. And so they eventually

449
00:26:16,760 --> 00:26:19,520
Speaker 1: made a list that had two columns and down one

450
00:26:19,560 --> 00:26:22,679
Speaker 1: column were terms and slang that were related to the web,

451
00:26:23,119 --> 00:26:25,879
Speaker 1: and down the other column was a similar list, but

452
00:26:25,960 --> 00:26:28,720
Speaker 1: it was slang in terms all about the movie industry.

453
00:26:29,119 --> 00:26:32,400
Speaker 1: And then they started matching up different names to come

454
00:26:32,480 --> 00:26:34,959
Speaker 1: up with a potential name for a company. So some

455
00:26:35,040 --> 00:26:39,679
Speaker 1: of the early suggestions included replay, dot com, direct, Picks

456
00:26:39,920 --> 00:26:44,480
Speaker 1: dot com, Cinema Center dot com, and e flix dot com.

457
00:26:44,520 --> 00:26:48,560
Speaker 1: But as we all know, the eventual winner was Netflix

458
00:26:48,680 --> 00:26:51,480
Speaker 1: dot Com. That was the one that people I guess

459
00:26:51,520 --> 00:26:54,080
Speaker 1: objected to the least they I don't know that there

460
00:26:54,119 --> 00:26:58,720
Speaker 1: was anyone who was passionately advocating for the name, but

461
00:26:58,880 --> 00:27:02,119
Speaker 1: there was no one who was in great opposition to it,

462
00:27:02,200 --> 00:27:04,800
Speaker 1: and so that became the name of the company. The

463
00:27:04,840 --> 00:27:08,560
Speaker 1: original logo was in purple and white. It's easy for

464
00:27:08,600 --> 00:27:11,720
Speaker 1: us to forget that that was the case. That the

465
00:27:11,960 --> 00:27:15,760
Speaker 1: Netflix is branding is so um so powerful now with

466
00:27:15,880 --> 00:27:18,960
Speaker 1: the red and white scheme that it's easy to forget

467
00:27:19,000 --> 00:27:21,640
Speaker 1: that originally was purple and white. It had an unspooling

468
00:27:21,680 --> 00:27:24,359
Speaker 1: reel of film as part of the logo design. The

469
00:27:24,440 --> 00:27:27,000
Speaker 1: red and white color scheme would come much later. They

470
00:27:27,040 --> 00:27:29,800
Speaker 1: brought on a guy named Corey Bridges to work in

471
00:27:29,920 --> 00:27:34,000
Speaker 1: customer development, and Bridges had previously worked for Netscape and

472
00:27:34,040 --> 00:27:38,480
Speaker 1: helped launch their internet browser. Bridges secretly reached out to

473
00:27:38,680 --> 00:27:42,639
Speaker 1: influencers and use net groups because this was before stuff

474
00:27:42,680 --> 00:27:46,480
Speaker 1: like YouTube and Instagram and other social media platforms. But

475
00:27:46,560 --> 00:27:49,080
Speaker 1: he saw those folks and use net groups as being

476
00:27:49,160 --> 00:27:56,360
Speaker 1: really passionate community members, and by tapping into people who

477
00:27:56,359 --> 00:28:01,080
Speaker 1: were really big users in and use net groups that

478
00:28:01,119 --> 00:28:04,359
Speaker 1: were focusing on film discussion and asking them if they

479
00:28:04,359 --> 00:28:07,880
Speaker 1: would participate in a beta program that Netflix was going

480
00:28:07,920 --> 00:28:10,479
Speaker 1: to hold. He got a lot of responses, especially when

481
00:28:10,520 --> 00:28:12,680
Speaker 1: he said that they would be allowed to be the

482
00:28:12,720 --> 00:28:16,159
Speaker 1: first people to write about this new service once it

483
00:28:16,200 --> 00:28:19,359
Speaker 1: was ready to launch, that they would essentially have the

484
00:28:19,440 --> 00:28:23,440
Speaker 1: scoop on everyone else, and his promotional plan worked like gangbusters.

485
00:28:23,480 --> 00:28:27,439
Speaker 1: They signed up eagerly to test out this service. On

486
00:28:27,520 --> 00:28:32,639
Speaker 1: April fourteenth, the company was ready to go live. They

487
00:28:32,640 --> 00:28:35,080
Speaker 1: had built up a library of DVDs and they had

488
00:28:35,080 --> 00:28:38,920
Speaker 1: tested the features with their beta testers. Read Hastings, who

489
00:28:38,920 --> 00:28:42,680
Speaker 1: had provided the seed money, had mainly stayed out of

490
00:28:42,720 --> 00:28:47,280
Speaker 1: the actual development process while all of this creative work

491
00:28:47,320 --> 00:28:50,480
Speaker 1: was going on. This was Mark Randolph's show for that

492
00:28:50,680 --> 00:28:55,080
Speaker 1: initial few months setting up the company, but read Hastings

493
00:28:55,120 --> 00:29:00,400
Speaker 1: did arrived at the company and watch as they actually

494
00:29:00,440 --> 00:29:03,560
Speaker 1: went online, so he was there on hand for launch day.

495
00:29:03,640 --> 00:29:05,720
Speaker 1: In fact, the story goes that some of the other

496
00:29:05,920 --> 00:29:08,520
Speaker 1: employees didn't even know who read Hastings was. They had

497
00:29:08,520 --> 00:29:12,080
Speaker 1: never even really chatted with him at this point. So

498
00:29:12,280 --> 00:29:15,800
Speaker 1: while this team was working on Netflix. Hastings had actually

499
00:29:16,000 --> 00:29:20,360
Speaker 1: gone back to pursue more graduate studies at Stanford. And

500
00:29:20,840 --> 00:29:24,360
Speaker 1: here's one way that Netflix was a very different service

501
00:29:24,680 --> 00:29:27,400
Speaker 1: when it first launched then it would become later on,

502
00:29:28,080 --> 00:29:31,560
Speaker 1: and why the story about Hastings and those late fees

503
00:29:31,640 --> 00:29:35,440
Speaker 1: doesn't ring terribly true even before we heard about Mark

504
00:29:35,520 --> 00:29:38,840
Speaker 1: Randolph's version of the story. When Netflix first went live,

505
00:29:39,920 --> 00:29:45,880
Speaker 1: users didn't get to subscribe to rent films indefinitely and

506
00:29:45,960 --> 00:29:50,080
Speaker 1: just pay a monthly fee. Rentals had a seven day

507
00:29:50,200 --> 00:29:53,120
Speaker 1: duration and after that you were expected to return the

508
00:29:53,200 --> 00:29:57,080
Speaker 1: DVD in the provided postage paid mailer envelope. And the

509
00:29:57,080 --> 00:30:00,760
Speaker 1: different titles even had different rental fees. Not everything was

510
00:30:00,800 --> 00:30:04,520
Speaker 1: priced exactly the same. I actually used the Internet Archive

511
00:30:04,640 --> 00:30:08,120
Speaker 1: wayback machine. If you've never used that, I highly recommend

512
00:30:08,200 --> 00:30:10,560
Speaker 1: checking it out. It allows you to look at uh

513
00:30:10,680 --> 00:30:14,440
Speaker 1: snapshots of websites from over the years, so if you

514
00:30:14,640 --> 00:30:16,480
Speaker 1: pick a website that's been around for a long time,

515
00:30:16,520 --> 00:30:19,000
Speaker 1: you can see what it looked like in different years.

516
00:30:19,040 --> 00:30:22,200
Speaker 1: And so I went to the earliest date available for

517
00:30:22,280 --> 00:30:25,760
Speaker 1: Netflix dot com and on the Internet Archive that date

518
00:30:25,800 --> 00:30:31,880
Speaker 1: would be January sevent so, not quite a year after

519
00:30:32,000 --> 00:30:36,480
Speaker 1: the company had officially debuted. This is still before Netflix

520
00:30:36,520 --> 00:30:39,760
Speaker 1: would move to a monthly subscription plan for users, however,

521
00:30:40,160 --> 00:30:42,520
Speaker 1: So you would rent DVDs for a week, and if

522
00:30:42,520 --> 00:30:45,440
Speaker 1: you wanted to rent let's say, the film Blade starring

523
00:30:45,480 --> 00:30:48,800
Speaker 1: Wesley Snipes, you would need to cough up four bucks

524
00:30:48,840 --> 00:30:51,280
Speaker 1: to rent that movie. But if you wanted to rent

525
00:30:51,440 --> 00:30:55,040
Speaker 1: Star Trek six the Undiscovered Country, that would cost you

526
00:30:55,360 --> 00:30:58,840
Speaker 1: five dollars. Now you could rent as many films as

527
00:30:58,880 --> 00:31:01,080
Speaker 1: you liked, and there was an offer on the site

528
00:31:01,120 --> 00:31:03,640
Speaker 1: saying that you could actually save money on a per

529
00:31:03,680 --> 00:31:06,680
Speaker 1: rental basis if you chose to rent four or more

530
00:31:06,760 --> 00:31:10,160
Speaker 1: titles at a time. About an hour and a half

531
00:31:10,760 --> 00:31:15,600
Speaker 1: after they launched their service, their web servers already hit capacity.

532
00:31:15,800 --> 00:31:19,200
Speaker 1: The promotional strategy had worked maybe a little too well.

533
00:31:19,880 --> 00:31:23,520
Speaker 1: The use net groups were really buzzing about this new service,

534
00:31:24,040 --> 00:31:27,960
Speaker 1: and before long the servers crashed. So while programmer Eric

535
00:31:28,000 --> 00:31:30,360
Speaker 1: Meyer worked on patching things up to get everything up

536
00:31:30,360 --> 00:31:32,840
Speaker 1: and running again, he sent some of the rest of

537
00:31:32,880 --> 00:31:35,560
Speaker 1: the programming team on a frantic trip to a nearby

538
00:31:35,560 --> 00:31:39,800
Speaker 1: electronics store to buy more servers in order to boost capacity.

539
00:31:39,920 --> 00:31:43,200
Speaker 1: Things were not going so hot over in the DVD

540
00:31:43,440 --> 00:31:47,640
Speaker 1: storage vault either. In fact, things were pretty chaotic. The

541
00:31:47,760 --> 00:31:50,960
Speaker 1: laser printer they were using to print out addresses jammed.

542
00:31:51,400 --> 00:31:55,000
Speaker 1: The flurry of activity meant the DVDs soon got out

543
00:31:55,000 --> 00:31:57,160
Speaker 1: of order and it became much more difficult to track

544
00:31:57,240 --> 00:32:01,120
Speaker 1: down specific disks, and every time the servers came back up,

545
00:32:01,240 --> 00:32:04,120
Speaker 1: new orders would fly in, so the team was struggling

546
00:32:04,120 --> 00:32:06,440
Speaker 1: to keep up. By the end of the day, they

547
00:32:06,480 --> 00:32:09,080
Speaker 1: had orders to send out more than five hundred disks

548
00:32:09,160 --> 00:32:12,280
Speaker 1: to more than one customers, and this was all done

549
00:32:12,280 --> 00:32:16,400
Speaker 1: by hand, and it was sometime around them. They also realized, oh, shoot,

550
00:32:17,000 --> 00:32:20,880
Speaker 1: the Internet is always open. We can't close. It's not

551
00:32:20,960 --> 00:32:25,280
Speaker 1: like from eight pm till six am we're shut down.

552
00:32:25,800 --> 00:32:28,160
Speaker 1: So the site still has to be active. It still

553
00:32:28,200 --> 00:32:30,920
Speaker 1: has to be up and available, even though we won't

554
00:32:30,960 --> 00:32:34,160
Speaker 1: be completing any more orders until the next day. That

555
00:32:34,240 --> 00:32:38,920
Speaker 1: was a stark realization. They soon included a message during

556
00:32:39,000 --> 00:32:43,840
Speaker 1: high capacity situations that read, sorry, due to extreme opening

557
00:32:43,880 --> 00:32:48,840
Speaker 1: week demand, the Netflix Store may be slow. Helping or

558
00:32:49,320 --> 00:32:53,080
Speaker 1: hindering things was that while Netflix was in development, the

559
00:32:53,200 --> 00:32:57,680
Speaker 1: DVD player was a novelty right that people. Very few

560
00:32:57,680 --> 00:33:02,360
Speaker 1: people had them. But by the spring of nine, when

561
00:33:02,440 --> 00:33:05,720
Speaker 1: Netflix was actually launching as a service, it was a

562
00:33:05,720 --> 00:33:08,959
Speaker 1: different story. The price for DVD players had come down

563
00:33:09,080 --> 00:33:12,680
Speaker 1: to about half of what they had been and DVD

564
00:33:12,760 --> 00:33:16,800
Speaker 1: player sales were starting to outpace VCR sales. So while

565
00:33:16,840 --> 00:33:21,240
Speaker 1: in late potential customer base was small, by spring of

566
00:33:22,320 --> 00:33:25,520
Speaker 1: that had changed. So it was kind of a right place,

567
00:33:25,680 --> 00:33:30,000
Speaker 1: right time scenario for Netflix. Movie studios were playing ball too.

568
00:33:30,040 --> 00:33:33,160
Speaker 1: As sales picked up, studios began to release more of

569
00:33:33,200 --> 00:33:36,600
Speaker 1: their libraries on DVD. Now they saw that there was

570
00:33:36,640 --> 00:33:39,160
Speaker 1: a demand for this kind of home entertainment, and they

571
00:33:39,200 --> 00:33:41,480
Speaker 1: saw the opportunity and they began to jump on that.

572
00:33:42,120 --> 00:33:46,640
Speaker 1: New titles and old became potential revenue generators. And Netflix,

573
00:33:47,200 --> 00:33:50,960
Speaker 1: which was protected by US president that had law that

574
00:33:51,080 --> 00:33:55,600
Speaker 1: said a company can buy and then rent out movies.

575
00:33:56,080 --> 00:34:00,440
Speaker 1: That is totally fine by law if you if you

576
00:34:00,520 --> 00:34:03,360
Speaker 1: buy a product, you can rent that product out to

577
00:34:03,400 --> 00:34:07,760
Speaker 1: other people. So Netflix was taking advantage by scooping up

578
00:34:07,760 --> 00:34:10,360
Speaker 1: copies of as many different titles as it could, building

579
00:34:10,360 --> 00:34:16,560
Speaker 1: out its own library. By August, those initial five titles

580
00:34:16,600 --> 00:34:20,640
Speaker 1: were now closer to and because VHS rental chains like

581
00:34:20,680 --> 00:34:24,680
Speaker 1: Hollywood Video and Blockbuster were slow to adopt the DVD format,

582
00:34:25,200 --> 00:34:28,160
Speaker 1: Netflix had a good running start on them as well.

583
00:34:28,640 --> 00:34:32,600
Speaker 1: Those companies were so entrenched in the VHS world that

584
00:34:32,680 --> 00:34:37,200
Speaker 1: they thought of switching lanes and moving to DVDs was

585
00:34:37,280 --> 00:34:42,480
Speaker 1: really daunting it. It represented an enormous cost for them

586
00:34:42,520 --> 00:34:45,840
Speaker 1: to be able to change formats like that. So Netflix,

587
00:34:46,320 --> 00:34:50,160
Speaker 1: because it had not been entrenched in another medium, was

588
00:34:50,360 --> 00:34:53,640
Speaker 1: at an advantage. So it was an auspicious beginning. And

589
00:34:53,640 --> 00:34:57,279
Speaker 1: we're just getting started now. In our next episode, we'll

590
00:34:57,320 --> 00:35:02,000
Speaker 1: look at how Netflix, whether the first year or two

591
00:35:02,080 --> 00:35:05,279
Speaker 1: of its existence, and how it started to come up

592
00:35:05,320 --> 00:35:10,040
Speaker 1: against what would become its main rival for the first

593
00:35:10,160 --> 00:35:15,480
Speaker 1: decade of Netflix is existence as a company, that being Blockbuster.

594
00:35:16,160 --> 00:35:18,840
Speaker 1: If you guys have suggestions for future episodes of tech Stuff,

595
00:35:18,840 --> 00:35:21,359
Speaker 1: whether it's a company, a technology, a person in tech,

596
00:35:21,440 --> 00:35:24,120
Speaker 1: whatever it may be, send me an email. The address

597
00:35:24,160 --> 00:35:27,120
Speaker 1: for the show is tech Stuff at how stuff works

598
00:35:27,160 --> 00:35:30,319
Speaker 1: dot com or drop me a line on Facebook or

599
00:35:30,360 --> 00:35:32,560
Speaker 1: Twitter to handle at both of those is tech Stuff

600
00:35:32,760 --> 00:35:36,600
Speaker 1: hs W. Don't forget. You can go to T public

601
00:35:36,719 --> 00:35:39,560
Speaker 1: dot com slash tech Stuff. That's T E E Public

602
00:35:39,600 --> 00:35:41,799
Speaker 1: dot com slash tech Stuff. That's where we have our

603
00:35:41,800 --> 00:35:44,920
Speaker 1: merchandise store, So go check out the designs there. Maybe

604
00:35:44,920 --> 00:35:47,719
Speaker 1: you'll see something that you think I need to have

605
00:35:48,120 --> 00:35:50,719
Speaker 1: a sticker with that on it, or a shirt or

606
00:35:50,800 --> 00:35:53,799
Speaker 1: a coffee mug. I have all of these things that

607
00:35:53,920 --> 00:35:56,239
Speaker 1: I have purchased and I love them all, and I

608
00:35:56,239 --> 00:35:58,280
Speaker 1: think you will too. So check that out. T public

609
00:35:58,360 --> 00:36:00,680
Speaker 1: dot com, slash tech stuff, don't forge it to follow

610
00:36:00,760 --> 00:36:04,640
Speaker 1: us on Instagram and I'll talk to you again about

611
00:36:04,719 --> 00:36:13,840
Speaker 1: Netflix really soon. For more on this and thousands of

612
00:36:13,840 --> 00:36:25,720
Speaker 1: other topics, is it how stuff works dot com