Customers and investors are up in arms about the recent decision by Netflix to split its business into two parts, signaling that the old DVD-by-mail business is on its way out and that Netflix is 100% focused on streaming for its future.
But as Netflix cofounder and former CEO Marc Randolph explains on his blog, this isn’t the first time Netflix has risked everything on a big pivot.
When Randolph founded the company with Reed Hastings back in 1998, it was very different. The rental business worked more like a traditional video store — they rented by the disc instead of charging subscriptions, and had late fees and everything.
But the company’s main business was selling DVDs. It accounted for about 95% of Netflix’s revenue.
This revenue helped pay some early bills, but both cofounders knew it wasn’t sustainable — big-box stores like Wal-Mart would soon be selling DVDs in massive numbers at rock-bottom prices.
They also realised that they couldn’t do two things well, but needed to focus on one. So they chose rentals, even though “turning away from the source of 95% of our revenue was just about the hardest thing I had ever done.”
Randolph goes on to say that making that decision had immediate benefits — design, engineering, quality assurance, even acquisition costs. Focus created efficiency.
The takeaway: he thinks Hastings is absolutely making the right move, and his “courage and conviction” makes him the “best entrepreneur on the planet.”
The whole post is available here.
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