Netflix is one of my all‐time favorite products and companies. But back in 1999, a then very young Netflix—based in Los Gatos, with fewer than 20 employees—was on the edge of going bust. They had a couple of experienced co‐founders, including the now legendary Reed Hastings, but the problem was that they were stuck at about 300,000 customers.
They were essentially providing the same general pay‐per‐rental experience that Blockbuster provided, just an online version. There were, as always, some early adopters, and some people lived in places that didn't have a video store, but in truth there wasn't much of a reason to rent DVDs via the U.S. Postal Service when you could just stop by the local Blockbuster store on the way home from work. People would rent once from Netflix and then quickly forget about the service. They didn't seem very willing to change. The team knew that the service wasn't better enough to get people to change.
Even worse, DVD sales were starting to lag, and a Hollywood backlash further muddied the situation. Then there were challenges with fulfillment logistics, difficulty maintaining DVD quality, and trying to figure out how to do all this in a way that covered costs and generated some cash.
Kate Arnold was the product manager for this small team, and the team knew they needed to do something different.
One of ...