The Background
Netflix was co-founded in 1997 by serial entrepreneurs Reed Hastings and Marc Randolph. In 1991, Reed Hastings had founded his first company, Pure Software. They IPO'ed in 1995 and later acquired Randolph's company, Integrity QA. It was then that the two would meet and become close. In 1996, Reed Hastings announced the merger of Pure Software with Atria Software becoming Pure Atria. In 1997, Pure Atria was acquired by Rational for $700 million. Hastings left Pure Software soon after the acquisition with Randolph. They were looking to start another company, and Randolph did most of the pitching.
The Spark
They knew the potential of e-commerce and hence, wanted to create a company that sells stuff on the internet. They discussed thousands of ideas, from customized sportswear to shampoos. On one of their commutes from Santa Cruz to Sunnyvale, they settled on what looked like a winner: selling DVDs for rent online. Hastings would supply the seed capital and invested $2.5 million. Netflix started as a rent-by-mail DVD service that used a pay-per-rental model. Users would browse and order the films they wanted on their website, put in an order, and Netflix would post them to their address. After renters had finished with the DVDs, they would simply post them back.
Staying Ahead
They soon became very popular, and in 1999 they debuted a subscription model, where customers could rent unlimited DVDs for a low monthly price. In 2000, Hastings approached Blockbuster for a partnership, but its CEO just smiled and laughed at him. The company became a public company on May 29, 2002, selling 5.5 million shares of common stock at US$15.00 per share. Blockbuster went bankrupt in 2010, the same year that Netflix introduced its now-famous online streaming service. Hastings has also served as Board Member of Microsoft and Facebook in the past.
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