Designing and Building Netflix
They frequently addressed business problems through design and customer empathy.
Throughout the chapters that discuss the founding and formation of Netflix, Randolph shares the various challenges the fledgling firm faced. I was especially intrigued by how they frequently addressed business problems through design and customer empathy.
Randolph’s stories about the launch of the Netflix Web site are especially interesting. Those of us who are familiar with the earliest Web sites and the infrastructure necessary to host a simple Web site—let alone to facilitate ecommerce transactions, customer accounts, and customization—with find much of interest. Randolph shares the important contributions that his team members made in ideating and wireframing design concepts that ultimately led to the My List feature, which remains a part of the Netflix streaming service to this day.
Realizing that postage was a significant driver of their costs, the team experimented with many iterations of the Netflix envelope and methods of shipping and returning DVDs. Early on, they sent out DVDs in a bulky cardboard envelope, which then had more of a poster-board construction. There were actually two envelopes—one holding the DVD and a second envelope that a customer used to return the DVD. Eventually, through iterative design, the team at Netflix created and patented a specialized envelope with an extended flap, allowing a customer to reuse the envelope to return a disc and, thus, both cutting weight and improving profitability.
Randolph’s recollection of a promotion with Sony illuminated, with great clarity, the signal importance of analytics, as well as knowing the product and customers’ environment. People might remember that, in the late ’90s and early 2000s, DVD players frequently came with a coupon for a number of free video rentals from Netflix. Sony’s offer may have been the most generous, giving the purchaser five free DVDs plus ten rentals. The customer just had to enter the DVD player’s serial number on the Netflix site to redeem the free DVDs. However, Netflix operations realized that they were sending an inordinate number of these DVDs to one address. Upon doing research at a local electronics store, Randolph and his colleague found that Sony had displayed the serial numbers for DVD players on the outside of their boxes. Anyone could simply walk into a store, write down several serial numbers, and scam Netflix out of a lot of DVDs.
These sorts of fumbles are typical of every new business, but it’s comforting to hear in the words of a successful entrepreneur such as Randolph that these things happen to them, too. What’s reassuring is to know that, by understanding the problems and having the courage to face and address them, a team can recover.
Changes at the Top
Randolph describes himself as a person who is good at beginning things. Reed Hastings almost certainly realized that as well. As the book describes, Hastings claimed the CEO position and split its duties with Randolph, who would become President of the company. While this change was difficult and might be seen as showing a lack of confidence in him, Randolph considered the future of his employees and how well the company would perform with Reed Hastings as CEO. Ultimately, he agreed to step aside as CEO. Of course, Netflix went on to become the behemoth it is today.
Marc Randolph’s recollections about the birth of Netflix are full of insights, drama, and stories about the challenges that could have led to the company’s early demise. However, I often found myself wondering whether another person with his same insights, work ethic, and intellect could have launched a company like Netflix successfully. It’s important to note that Randolph was already a very successful, wealthy, serial entrepreneur when he and Reed Hastings launched Netflix. Randolph had previously played a role in the founding of MacWorld, MacWarehouse, and MicroWarehouse.
Without a lot of luck, access to capital, and a strong professional network, it is incredibly difficult to launch a company successfully. To be clear, by capital, I mean not only financial, but also intellectual and social capital. The founders of Netflix were very fortunate to have been successful entrepreneurs prior to launching Netflix. Plus, being located near Silicon Valley in the late ’90s, when the commercial Web was in its infancy, gave them access to an enviable cohort of talented engineers and designers.
While Randolph, Hastings, and others who have been so successful in shaping the world we live in today certainly deserve credit for their vision and execution, it is impossible to discount the role that luck—knowing the right people and being in the right place at the right time—played in their company’s success. From his writing, I get the sense that Randolph has that self-awareness.