Starting with DVD rental, Ride Hastings how to create Netflix

He used to be a soldier in the United States Marines. It was only 10 dollars left in his pocket, but it was just a ride across Africa. He was born noble family, a gifted family, with ancestral mathematical talent, his grandfather was The wolf on Wall Street, his father was a lawyer, a two-year high school math teacher. But in the end it was devoted to the film and television industry.

30 years old, he was pampered, indecisive, do not know how to manage, gain money but lost his heart, after 30 years old, power, money, fame became the media labeled him. You think this is a story about the rich, but the first half of his interpretation is a painful choice and follow the heart.

Ride Hastings (Reed Hastings), you may not have heard the name, but you must know Netflix, the company he founded. In February 2016, Netflix ranked fifth in the list of "2016 of the world's 50 Most Innovative companies" in the US financial magazine, Fast Company, a star company that was courted by Wall Street. And Netflix produced several plays: "Card House", "super sense eight people group", "BoJack BoJack" is also known in the world.

▲ homemade drama "House of Cards" and "Sense8".

In the first quarter of 2013, the "card House" broadcast helped Netflix add 200多万个 users.

Netflix, the new-looking company, was founded in 1997 in the United States, where it started out as an online film-rental trader with 10 million subscribers. The business model is simple and users can view 100,000 DVDs via email or online. As of 2015, Netflix has nearly 60 million users and a revenue of $6 billion in almost 50 countries around the world. Although the company's annual profit is only about $4, but the share price of more than a share of more than 500 dollars. They used more than 10 billion times to watch the big data to analyze the audience's preferences, and successfully launched the home-made play "House of Cards."

As the founder of Netflix, Hastings's experience, like all the new Silicon Valley upstarts you've ever heard, is filled with a spirit of adventure that is born to stand at the top and a ruthless killing to make decisions, but at the same time he seems very human. It was his character that made it possible for a company founded in 1997 to still give the impression of a new company today.

Hastings's academic career

October 8, 1960, a couple in Boston, Massachusetts, came to the birth of their son, who named him Hastings. Hastings was fortunate to be born in a privileged environment. His father was a famous lawyer, and his grandfather was a famous mathematical genius in the last century, and he earned a fortune in the 1929 stock disaster with his genius.

Hastings, should go on such a road, from childhood to the Noble school, grow up to read the best university in the United States, enjoy the best education and resources, the future is not a lawyer is a financier, like his father. Hastings from the top American aristocratic private high school to the top liberal arts college Bowdoin College in Maine State, and has repeatedly won the highest mathematics award, and later obtained a Master of Science degree in artificial intelligence from Stanford University, it seems to be very consistent with the normal development of the script.

▲ the early Hastings. (source:addicted2asuccess)

But while reading, the middle two events may have changed his life slightly, once joined the United States Marine Corps officer training camp, although soon found inappropriate to quit school. On another occasion, shortly after graduating from Bowdoin College, Hastings joined the United States Volunteer organization Peace Convoy, where he was sent to Swaziland in Africa for two years as a math teacher in a high school. That experience may have laid the groundwork for Hastings to become an entrepreneur in the future.

The experience was very satisfying. If you had spent $10 on a ride across the continent, you wouldn't be afraid of any challenges.

Start the first company

After returning from his volunteer career, Hastings entered Stanford University and went on to obtain a master's degree in artificial intelligence from Stanford University in 1988. After graduating he joined a technology company, where he invented a tool for detecting memory leaks. A year later, he left the company and founded the first company, Pure Software, whose products are the tools he invented earlier.

The company developed very rapidly, with employees from the initial 10 to the final 640 people, and successfully listed in 1995. At this time Hastings met the first threshold in life, he did not understand management. In general, such a young sitting with power and money, the choice of normal people is to bite the bullet, but Hastings repeatedly asked to expel himself, were blocked by the board.

In 1996, Pure Software announced the acquisition of Atria Software. In less than a year, Pure Atria was appointed Chief technical Officer of the new company as Hastings, the chief CEO of the joint company, by Rational Software, who was acquired by the company for about $600 million. Hastings knew it was not what he wanted, and announced his resignation shortly after the announcement of the takeover.

In the first company I founded, although I was doing mediocre work, I reaped great wealth. Because, the bigger the size of my comes, the more bureaucratic we become.

Netflix, who almost died in swaddling clothes.

Some people may have heard the story that Netflix was founded because Hastings borrowed a video to forget it, was fined $40, and then angrily ...

Like all legends with coincidental dog blood, this story is not true. Because the last entrepreneurial "failure", Hastings reflection for a long time, the history of this period of reflection has been a mystery, but since then, he seems to have opened the body, figured out a lot of things.

In 1997, Ride Hastings and another co-founder Mark Randolph co-founded Netflix in Los Gatos, California, USA. At the time, DVD technology was just born, and it was much lighter and easier to mail than a traditional video, making it a viable foundation for Netflix's initial business-offering movie DVD rentals through the internet and mailing them to customers across the United States.

▲ a Netflix bag with a leased disc. (Source:collider)

At that time, Netflix's rival was the American film leasing chain Blockbuster (blockbuster), Blockbuster is a veteran British traditional company, the most traditional shop rental video business, in 2000, had 528 chain stores, 2,000 Million subscribers, employing 4,190 people. Netflix is growing fast, with 120,000 subscribers in 2000, while losing as much as $60 million, when technology companies burst into a bubble, and a large number of companies collapsed, and Wall Street saw technology companies on the defensive.

Hastings had to ask the then industry boss Blockbuster to buy their own company, flatly rejected. At that time, no one could see Netflix's 120,000 subscribers.

Hastings was never determined to lay off a job when he first started his business. "It was cruel, just like decorum." It took 3 years to understand that the company needed him to do the right thing, not selfish, but to protect the company. When he was rejected by Blockbuster, he went back in a disgraced manner and laid off 40% of his employees.

By the end of 2001, the number of subscribers to the company increased to 500,000. In the midst of the gloom of most technology companies, Netflix's unexpected growth attracted attention from the capital markets, raising $83 million, and successfully listed in 2002. In March 2003, Netflix users broke millions, Blockbuster waking woke up, ready to launch online leasing business Sniper Netflix.

Here's a comparison of the Blockbuster and Netflix monetization models:

Blockbuster Most of the revenue comes from forgetting to return the tape on time, a penalty that can bring in $300 million a year in cash flow.

Netflix is different, one months as long as $10, can borrow two pieces, all the discs are delivered by mail. On the Internet, you can make an appointment for the movie you want to see, and after reading two of them, Netflix will send you two of your next appointments, so you'll love this handy cheap way to borrow. And Netflix will optimize it based on the data, how it can be delivered faster, how it's delivered, and how many pieces are set up to save the postage. Because it is a monthly fee, there is no high penalty, and this price is too low compared to Blockbuster. According to later Hastings recalled:

netflix initially only offers a single rental service. Although the subscription model is one of our few ideas, it has not reached a surprising level.

Now it seems that with unlimited expiry dates and no late fees, Netflix is highly competitive, but at that time we were not sure whether users liked to create or view a large list of movie DVDs online.

Thought it would be a tough game, but rather dramatic, Netflix didn't spend much effort, and Blockbuster ended up in bankruptcy. The reason is also very simple, the single revenue model of liquidated damages is fragile, can not afford the impact of the Netflix model. At that time Blockbuster also considered the cancellation of liquidated damages, but will affect the income of the franchise store, the owners do not agree.

On the other hand, Blockbuster has not contacted the online lending service before, so in 2003 years only to start, already and only do online borrowing Netflix is not the same starting line, not to mention also have to be careful to do, also dare not put how much manpower and financial resources, to prevent anger to join the shopkeeper. With the development of the Times, the rapid development of the network, Blockbuster still in the traditional mode and new business between the hesitation, loss more and more.

Carl Icahn, who was later watched by Wall Street lone Wolf (Carl Icahn), sped up the death of Blockbuster, capital gains, and Icahn's short-term interest in driving away the original CEO, the new CEO giving up on the internet, half a year's churn, and Netflix no rival. The days that followed were even worse, and Blockbuster was declared bankrupt until September 2010. The bankruptcy of Blockbuster is like a coin that falls deep in the depths of the hole, and the long echoes are accompanied by the soaring price of Netflix.

▲ the closed Blockbuster store. (Source:washingtontimes)

However, at that time Blockbuster and Netflix also faced the same thing, the advent of the Internet era, online to watch the film more and more convenient, faster speed. While Blockbuster is still thinking about how to squeeze Netflix, Hastings is already thinking about the longer term, facing tough choices: whether to give up the basis of his survival-online rental DVD service.

Choice: Give up the past

By 2006, Netflix subscribers have been nearing tens of millions of dollars, with DVD rentals and sales revenue reaching $27 billion. On February 25, 2007, Netflix officially announced that it had rented the 1 billionth movie DVD. But this time Hastings realized that their real rivals were not Blockbuster or anyone else, but HBO.

As many families have Internet services and mixed media such as cable or satellite television, Hastings decided in 2007 to launch video streaming services as a key focus of Netflix's future business expansion, starting with the development of set-top boxes and completing the key steps to expand from the network to the TV, with its keen judgment. Laid the future of Netflix's industry status.

Its share price has soared since Netflix launched its streaming media service, hitting a high of nearly $300 in 2011. At this time, Hastings announced that its business subscription price adjustment, the price of the film DVD rental down from the previous $10 a month to 8 U.S. dollars, while the film streaming media services free time also formally announced the end. This strategy saved a lot of money for most subscribers at the time, but for users who subscribed to both movie DVDs and streaming media services, their subscription cost rose from $10 to $16.

Netflix initially launched the service in the hope that users would only choose the cheapest one, but this strategy did not please the user, directly caused by a large number of users unsubscribe. Two months later, Hastings the Netflix-owned DVD division and set up a new brand Qwikster, the streaming media business continues to remain on Netflix. But in less than one months, Hastings withdrew the resolution. The move led to a drop in stock prices from $300 to more than $50, when 18% of Netflix's stock was used to short, including the famous hedge fund manager Whitney Tilson. Under the multiple pressures of capital and user, Hastings still unmoved, which is the need of a very strong heart.

We do price improvement measures and business spin-offs, not to create more profits for the company, but to keep pace with the times, because streaming media will inevitably become the most important trend in the future.

Hastings was asked at the time that the most likely was whether to consider resigning, but this time he did not choose to escape. He argues that the volatility of stock prices is acceptable, and that this is a process that must be experienced to create the company and be responsible for it. Hastings's salary has dropped a lot, but he still believes in his judgment.

Hastings is more strong than before, in the face of external negative evaluation, not as a malicious attack, but to put the negative comments in the company's most prominent position, so as to motivate employees to open the train of thought.

But he also learned the lesson, and then the price increases obviously to ease more, to take more easily let users accept the way. In the long run, Hastings's judgment was indeed very correct and visionary, with Netflix streaming to 25 million users in 2012, and physical DVD rental users falling from 11 million to 8 million, and Netflix's results were bright from a global perspective.

Netflix's profits jumped 12 times times from $7 million in 2003 to $83.02 million in 2008, but Wall Street is still not bullish on online leasing services that seem to be quickly phased out and less imaginative, if Hastings is blinded by immediate interests or constrained by the capital market Valuations, don't choose to subvert yourself, then there is no Netflix now.

Online on-demand services as subscribers become more and more, marginal costs are lower. Unlike traditional leases, as subscribers become more and more expensive, the cost of postage and purchases will rise. In this way, Netflix has a much larger imagination.

Become a content-based author

Netflix is a platform to build on online rental DVDs that, even after the transition, have a weak voice in the production and sales of content. The traditional big film and television companies just think of Netflix as their own distribution pipeline, when Hastings choose the main online film on-demand business, it means that the content can be watched online, film and television company's DVD will be greatly reduced sales.

If you don't own content, you'll need to pay for content producers. And when Netflix is at its zenith, everyone wants to share. Copyright fees for content have risen 10 times times, a year that has topped $2 billion.

Every bit of Netflix has to lose a layer of meat. Hastings aware of one thing, and so on, their company will always be the copyright of these film and television companies to kidnap, can not turn over. But Netflix has an instant profile of the viewing habits and preferences of everyone in tens of millions of users, which is detailed to each user's actions, including when to turn, when to replay and so on.

The data show that everyone loves to see actors Kevin Speci (Kevin Spacey) and director David Fincher (David Fincher) films, and the theme of the film and television dramas that reflect the political struggle is also very popular, so that, simply these factors have satisfied the filming of the play. Hastings decided to invest $100 million in his own TV series. So, with the first self-made drama "House of Cards." They didn't even shoot the test set, and they booked the first full-season shot in one breath.

In 2013, the "House of Cards" was red-billed, with a net increase of 11 million subscribers to Netflix worldwide. In October, stocks again topped $300, returning to record highs.

A self-made play is a viable way for Netflix to get rid of its heavy shackles. Since then, Netflix has been devoting resources and money to making a series of homemade dramas. In return, the number of paid users surpassed HBO and the share price rose to $450. In 2015, Netflix earned $7 billion, paying users 66 million, of which 42 million in the US, with profits of about $80 million to $100 million.

We want to develop Netflix into HBO before HBO becomes Netflix.

--netflix's chief content officer Tede Chalando

The future of Netflix's imagination will be even greater, for example by helping virtual reality technology to make it possible for people to see movies everywhere. and Hastings's "freedom and Responsibility" will be deeply rooted in the company he founded, no matter what he will do in the future. He learned to balance freedom and responsibility in the years, and a good example is that his employees manage their work hours on their own, and they can decide for themselves the cash and share ratios of their year-end bonuses. If the performance is mediocre also will be expelled, but will get a generous severance payment, good gather good scattered. And Netflix has a year-long, even extended, paid maternity and paternity leave. It was as if Hastings had made a compromise with himself, to the one who was indecisive and did not want to undermine the relationship between people.

A lot of people have discussed why Hastings success, and Hastings's judgment and the courage to subvert his spirit is difficult to separate, but he is different from other natural leaders of the business legend, he is so soft, eager to freedom. He did not choose to escape the emptiness of his first venture, nor to surrender to pure money, but to pursue his own heart and find a balance between freedom and responsibility.

Starting with DVD rental, Ride Hastings how to create Netflix