A memoir by Netflix founder and first CEO Mark Randolph has appeared. It's been about six years since Mark got to the idea of Netflix, started the service, went public and left the company. There was a turbulent drama about "The Man Who Changed the World."
Netflix is now the champion of the subscription business model. But by the mid-1990s, Mark was probably just one in the thousands who were looking for e-commerce ideas inspired by Amazon's success. So why did Mark succeed? The first was an encounter with current CEO Reed Hastings. Another is that the author had a great affinity with the start-up period.
This book is a series of scenes that seem to be "this is a climax." First, there is an exchange regarding acquisition by Amazon and selling to blockbuster. Then there's the drama about the CEO, which is really human, but never insidious. Of course there is team friendship. The background and processes behind the development of various groundbreaking business models are also really interesting.
Let me introduce two key phrases in this book. One is “That will never work”, which is the original title of this book. And the other is "Nobody knows anything". With this in mind, we hope you will enjoy the finest business entertainment.
Main points of this book
After a lot of ideas and trial and error, Mark and Reed came up with the idea of renting DVDs by mail and opened up the market.
Overcoming the headache of the collapse of the dot-com bubble and the pain of layoffs, we built our own business model of subscription, matching service, and next day delivery, and went public.
Since its launch, Netflix has created a corporate culture of “thorough honesty, freedom and responsibility,” and has maintained that culture even after it has grown in scale.
"It never works."
First internet DVD rental shop in America
Mark Randolph and Reed Hastings took turns driving and commuting together. In 1997, the only thing Mark knew was that he wanted to start a business and sell online.
In the car, I hit the lead with my thoughts, but every day was bounced back. One day, the idea of video e-commerce caught on Reed's antenna. From here everything started. As for the role, Mark decided to invest his time, the lead to fund. That is, a manager and an investor.
“That will never work”. This is the reaction when Mark's wife Lorrain first heard the idea. It costs too much above all. However, I think that DVD mail rental will work. Mark thinks so, and moves toward realizing the idea.
On April 14, 1998, Netflix's service started. It's the first internet DVD rental shop in America. DVD player owners claim that they will be able to buy and rent any DVD production regardless of where they live.
Create a market
Mark first set out to develop the market for DVDs and DVD players. The first DVD player in the United States was tested for sale in March 1997, the year before. At the start of the service, there are only 800 DVD titles. I was able to claim that all the DVDs in the world were in stock.
The first promotion was a tie-up with manufacturers such as Toshiba and Sony. He added a coupon that allows you to rent a DVD for free if you buy a DVD player. Manufacturers can solve the consumer dilemma of not buying a player because there is no software. It's a win-win contract.
Access to services has grown rapidly. However, many of the guests did not return after using the free rental. It was completely taken out and the deficit seemed to swell.
There was another bad number. Contrary to the original plan, most of the sales came from DVD sales, with only 3% of rental sales. When giants such as Amazon and Walmart start selling, Netflix will be trampled in an instant. Marks were forced to choose between DVD sales and rental. Where should the limited resources be invested? DVD sales are almost all sales, but it was visibly seen that they will disappear in the future.
Filter to rental
At that time, the voice came from Amazon. It is a proposal for acquisition. Mark and his friends, who flew to Seattle, were overwhelmed by their stinginess when they heard of the proposed offer at the Amazon office. If Amazon reaches out to sell DVDs, it's a shame on scale and cost. And the fact that Mark and others were audible tells them they have turned to selling DVDs.
The acquisition was frightening, but Mark and others were reluctant. And he decided to bet on a rental that was only 3% of sales.
In 1999, the subscription model was introduced and rentals increased significantly. However, this was a huge cost boost as we tried out the first month for free to get more users. The deficits will continue until at least one million subscribers are reached. Investors continue to rely on their funds for management.
Collapse of dot-com bubble
In 2000, the dot-com bubble burst. Netflix has escaped from bankruptcy, but the planned shareholder disclosure has been postponed. Investors' money is also out of reach.
So Mark and his colleagues next thought about selling to Blockbuster or proposing a partnership. At that time, Blockbuster was the king of video rentals with 9000 stores. Both online and physical stores, old-fashioned and new-focused, both companies said that they could complement their business well. However, blockbuster's evaluation of the internet business is low and it is dismissed.
Although Netflix has been focusing on customer acquisition until then, it became clear to everyone that it was necessary to seriously work on cost reduction. Therefore, the site will be stripped of extra features and narrowed down rental plans. In the summer of 2001, we were finally forced to say goodbye to many members. The layoff is finally underway.
[Must read point!] No one knows
You can rent your favorite DVD for a fixed monthly fee. You don't have to worry about the return deadline, nor do you have to visit the store. This online subscription model was a strange mechanism at the time.
A year after the subscription started, Netflix became synonymous with subscription. But this was just one of hundreds of experiments at first. And it was one of the least likely to come up with ideas. Until the experimental results came out, I didn't expect it at all. Indeed, it is “Nobody knows anything” (no one knows the future). That's why entrepreneurs must believe in themselves and be willing to take on the challenge of failure.
Provide kind suggestions and guidance that a kind and movie-savvy video clerk might do. This was the goal of Netflix's service.
On the other hand, there were also circumstances on the Netflix side. If new requests are inundated, it will be difficult and costly to meet all demands. To solve this problem, you can guide users to older works that they like more than new ones.
To that end, we have developed a matching service "Cinemacchi" that uses algorithms. What made this possible is a process called "collaborative filtering," which asks users to rate a movie and divides users into clusters based on whether the same movie review is positive or negative.
Next day delivery
Because DVDs were shipped using regular mail, there were considerable regional differences from shipping to arrival. Users living in San Jose, where the headquarters warehouse is located, will receive the DVD the day after the order is placed, but users in Florida will take nearly a week. Therefore, we did not make any promises to the users regarding the arrival date and time.
This drop is likely to affect customer retention rates. However, the sign was not seen. So I chose a city and experimented with next-day delivery for a few months. What has become clear is that the next day delivery will not change the retention rate significantly, but will increase the number of new applications. Next-day delivery had created an enthusiastic fan of all their friends about the new service they were using. By claiming delivery the next day, Netflix was out of trouble.
With 60 hubs nationwide, the shipping team has made it possible to provide next-day delivery service to 95% of the US. Hubs are not warehouses. It is a "reflection point" that bounces the returned DVD to another local user.
90 of the 100 discs that arrive the day are shipped by the same day because 90 users want them for another user in the same area. The remaining 7-8 pieces are new or in high demand, and applicants will appear in 1-2 days. The mechanism is that only a few cards, which are expected not to show customers in the near future, are returned to the warehouse at the head office.
This is a breakthrough innovation in the history of shipping. You don't have to pay for large warehouses. In addition, the inventory turnover is extremely high. This is why Netflix is said to be a block of algorithms.
Thorough honesty, freedom and responsibility
Things that have changed, things that have not changed
Netflix has come alive with its subscription, matching services, next-day delivery business model and painful layoffs. Finally, in May 2002, the company went public on the NASDAQ market.
From 1997's idea, there was a lot of ups and downs, but I managed to reach the first port. During that time, some things changed and some did not.
The strange thing is the touch. Of the seven people who started the company, the only one remaining was Mark himself. Of course, the scale of the company has changed significantly.
In September 1998, Reed, an investor, embarked on management. Reed has proposed to change roles such as the CEO himself and Mark as the president, and co-run. Mark still remembers that day. Mark felt that Netflix was his company. However, considering the company and the members, he accepted this proposal. This joint venture eventually worked well.
Netflix Corporate Culture
The consistent corporate culture since the beginning of Netflix is the spirit of experimentation. The possibilities that can be considered by the experiment are crushed one by one, and the bet is left over. Subscriptions are a good example. If you are not honest about your failure, you cannot proceed. From that came the culture of Netflix, who wanted to be absolutely honest.
Furthermore, freedom and responsibility continue to be emphasized. Those who have the judgment to make responsible decisions are pleased with the freedom of decision making. This means treating the employee as an adult.
The power a startup manager needs
In 2003, Mark decides to leave Netflix. I loved the company, but realized that I didn't love working in a grown up company. I like Mark because it's a small company that is struggling to find a path, like the old Netflix.
Mark said of the startup's essential capabilities to run. It is the ability to spot a few key issues out of hundreds. Focusing only on the issue of vitality and sacrificing everything else, the ability to concentrate on fighting to the ground. It's also the ability to inspire people enough to join them in a reckless battle against giants.
Recommendation of reading
In this book, the width of the paper is also devoted to the twists and turns before the marks start their services. This part is full of uplifting feelings of startups, so I would like you to experience its realism in this book. Also, in the epilogue, "The Randolph Family's Success Lessons", which was inherited from the author's father, is posted, and it is a content that makes me really think. We hope you will enjoy the secret story of the man who changed the world.