Marc Randolph was one of the founders of Netflix along with Reed Hastings and he weighs in on the big change Netflix made recently to focus more on streaming movies online instead of renting DVDs through the mail. Randolph said the move was all about relentless focus by the ‘best entrepreneur on the planet’.
When Randolph was CEO the big switch Netflix made was from both selling DVDs and renting them to just renting DVDs. And they were concerned about making that big switch since they made bucket loads of money selling DVDs.
With Netflix shares failing off a cliff, going from close to $300 a share to $130 a share in just a few months, investors are worried. However, Randolph’s blog post makes some very good points and maybe it’s time to buy some beaten down Netflix shares.
Plain and simple, this move was all about focus. Relentless focus. A focus that has been deeply embedded in the Netflix DNA since day one
Here’s an example of what I mean.
When Reed and I launched Netflix in 1998, it was a very different company from the one you know today. The Queue, Unlimited Rentals, and the No-Due-Dates-No-Late-Fees model were still more than a year away. Our rentals were standard a-la-carte rentals. They had due dates. We charged late fees.
Oh . . . we also sold DVDs.
In fact, much to our great concern we sold a lot of DVDs. Bucket loads. So many, that by the end of our first summer, I would guess that 95% of our revenues were coming from the sales of DVDs. Although this did pay some bills, it was obvious to us that this was not a sustainable business. It was inevitable that at some point in the near future we would have Amazon entering the DVD business. And then Walmart. And then just about every mass market retailer in the country. All of which would have crushed our margins and slowly but surely driven us out of business.
Read Marc Randolph’s full blog post here.