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    Why New Startup Netflix Won't Fail, as Explained by Co-Founder Reed Hastings in 2001

    Written by

    Derek Mead


    Videodrome is Motherboard’s look at the wacky old archival footage floating around the web. Check out old posts here.


    “Which of one of these businesses is most likely to succeed?” asks the narrator on this web start-up episode of seminal Internet tv show “Net Cafe.” Reed Hastings, co-founder of Netflix, is one of the four entrepreneurs featured, so with the gift of hindsight it’s laughably easy to guess who’s going to succeed. But think about it in period: Was Netflix really a risky enough concept to be compared in the same breath as a guy developing a rather shaky video-based ad-delivery system?

    “Net Cafe” is one of my favorite relics of the dot-com era because it totally embodies the stereotype that millenium-era Silicon Valley was just filled with arm-waving geeks filling San Francisco’s inordinate number of coffee shops and brainstorming en masse about how to solve the world’s problems with the internet. That’s how we get a guy discussing how he’s developing a genome-based version of Web MD (which is actually still around), and the guy behind now-defunct Global Viewing, which I don’t totally understand, but feel like may have been a sort of Chatroulette with ads. Those two right there are Web 1.0 in all their glory: computer doctors and the dot-com era’s obsession with e-voyeurism and grainy webcams tracking your daily life.

    Then there’s Netflix. Reed Hastings (his interview starts around the 13 minute mark) is billed as a Silicon Valley legend, which is deserved true; before he co-founded Netflix, he found success with Pure Software. But this episode aired in 2001, three years after Netflix first started shipping DVDs. How did it still qualify to show up on a startup show?

    It’s easy to forget considering it’s now an unlimited-video megalith that had a large hand in destroying brick-and-mortar rental stores, but Netflix had a pretty shaky start. The site launched in 1998 with a single rental model — you paid $4 for a DVD plus $2 for postage, and late fees applied. Now, the dot-com era was filled with all kinds of startups promising to eliminate your need to go to a store, but paying those rates while still having to wait on a DVD is rather insane — although selection and availability may have been an advantage, especially if you remember Blockbuster being out of every single copy of Scream.

    It wasn’t until 1999 that Netflix added the subscription model — which capitalized on the excellent no late fees angle — and the firm waited until 2000 to kill off single rentals. Netflix’s IPO didn’t come until 2002, and it posted its first profit in 2003. That’s all a long and convoluted way of saying that, yes, in 2001 Netflix’s startup status was definitely deserved.

    That’s what I enjoy so much about looking back on that period. The startup bubble was inflated by wacky ideas of entrepreneurs given an easy platform to build on in the internet, and while it seems obvious now that just about any idea that cut costs by eliminating brick-and-mortar shops had potential, that thread hadn’t been fully teased out yet. So that’s who we end up with a guy thinking “You make money off ads, so let’s just flood a site with them!” right alongside someone with a zany idea to kill Blockbuster.

    Follow Derek Mead on Twitter: @derektmead.