Memory is an interesting and crucial factor when you’re writing a book about events that moved quickly and were not well documented contemporaneously—a situation that commonly occurs at Silicon Valley startups. The conditions—long working hours, a blistering pace and less formal communication than at an established or public company—lend themselves to a bit of haziness when trying to pinpoint, more than a decade later, how a particular decision was arrived at, who made it and what the actual details were.
In documenting Netflix’s pre- and immediate post-launch era, I relied on the accounts of the eight founding team members to get a clear picture of what actually happened. I interviewed them separately—most had not spoken to each other in years—and fact checked with each the narrative I came up with based on their information. I also gave Netflix’s management access to the manuscript to fact check and comment on it.
Thankfully, the memories of my interviewees were pretty consistent about big picture issues—how they derived the business model, the thinking behind the back-end processes and consumer interface, the major events leading up to and following the launch and how the culture changed as the company grew.
Like most startups, Netflix had very little hierarchy in the early days—everyone put in their two cents about most decisions, partly because they were working together in one room and could overhear every conversation. Because there was not a lot of formal documentation in the form of emails, reports, etc, of Netflix’s first couple of years, I had—in some cases—to find common ground on details in which accounts were close but not identical and to decide who had the best recall and access to the most accurate information.
For example, the founding team members independently told me about a meeting that occurred in 1998 between Amazon founder Jeff Bezos and Netflix founders Marc Randolph and Reed Hastings at which Bezos offered to buy Netflix.
What was remarkable and wonderful about this process was seeing both the overlap and distinct impressions of each team member of similar events—it gave such richness to the story. So take a look at these transcripts from Randolph, Christina Kish and Te Smith about their recollection of the moment they could have lost their startup to Amazon.
Christina Kish Interview with Gina Keating
Oh-h-h. Okay. So basically you were sort of diverted from the rental, from refining the re-, rental model because Reed felt that you had to stave off this challenge from purchasers? Okay.
Right. Right. So then, that’s why ninety-nine basically killed me off. [LAUGH] Um, so what happened this is Eric, you know, working on recommend-, working on, on cue, working on recommendations. Mark and I, you know, working these three different models and then on top of it, Reed coming in and saying we have, you know, we have to sell. And so he went and made a deal with Amazon that we would do a click through to Amazon so if they didn’t wanna rent it, they would buy it from them.
Okay. So he thought he was gonna stave off Amazon by doing this. By becoming, because he tried this a couple other ways too. Like, okay we’re gonna go to Blockbuster and sell it to, and become the white box for Blockbuster to do their online service. And then he tried it again with Amazon, so this is the, and I see what’s going on here. Okay.
So, so he made this deal with Amazon that um, there would be two buttons. Yeah. This is what finally did me in. Um, yeah, there’d be two buttons. And so you know, they had their choice and what we would receive income from Amazon based on how much would click through.
Marc Randolph Interview with Gina Keating
So what about Amazon?
Amazon was way earlier. Yeah, ’98 maybe early ’99. It was the same thing, we got on their radar—they were going to enter video so they were interested in whether they could leverage us to jumpstart themselves into video. Because they were going to buy us to start their video wing and we flew up and they were still in the old book depository—in some weird warehouse building—all sawhorses and doors and this little room and Jeff ran the meeting. He was there. And it was really cute—I really remember it because I was describing our first day and I go, I’m kind of embarrassed, it was only 100 orders that first day. And he said, don’t, I remember it so clearly. We used to have a bell that rang, Jeff was telling me this. He goes, every time a book got ordered a bell rang and we’d all get all excited. It was so cute and he was much sweeter and he was saying yeah we think we can buy you—it would only be $6-8 million something like that and he was interested in the people and we went back and we were going well do we fold it now—that’s not a bad return but then we said, nah! The problem with all these people, whether Amazon or Blockbuster or Wal-Mart, is that it looks so easy. The idea is extremely simple. Doing it for were it costs less than someone is willing to pay for it is extremely hard and no one realizes that. They, we were a software company, not a video rental company, not a retailer. We were a software company and everything went into how to optimize it—that’s extremely hard.
Te Smith Interview with Gina Keating
By the end of that first year you had a million dollar run rate company. So that was pretty amazing.
Yeah, we were pretty proud of that.
At that time I think probably you were in talks with Amazon.
There were talks, early, early on. I remember Mark coming and saying, because he was out all one day and we didn’t know where he went. And he came back and said, I think they’re on a private plane, and Pete’s flying commercial. And we were all, we hadn’t even launched yet. I don’t even think we had launched because, or we had barely launched. Because we were all like, but we just did it. They can’t buy it. I think Reed decided that he didn’t want to sell it yet, which was the right decision for sure. There’s a lot more potential there.