Netflix wasn’t always an entertainment behemoth. In 2000, it was an unprofitable startup offering DVD rentals via postal mail, challenging Blockbuster, whose ubiquitous stores were then a fixture of American life. Marc Randolph, who cofounded Netflix with Reed Hastings in 1997, this week recalled some key moments in the company’s history, in light of the company launching its website 25 years ago today. One of them: In 2000, the two tried to sell their startup to Blockbuster for $50 million.
They were flat-out rejected. John Antioco, CEO of Blockbuster, deemed Netflix a niche business and said “the dot-com hysteria is completely overblown,” according to a 2019 book Randolph wrote about Netflix’s beginnings.
Antioco was right, of course, about the dot-com hysteria, as the subsequent bust demonstrated. And since Netflix was unprofitable at the time, $50 million might have sounded too high.
Blockbuster executives “laughed us out of the room,” Randolph recalled on Twitter on Thursday. But now, “the company that once had 9,000 stores, is down to a single one,” he noted.
Looking back more than two decades later, Randolph writes:
“I think the more important lesson—a lesson that Blockbuster learned too late—is simply this: ‘If you are unwilling to disrupt yourself, there will always be someone willing to disrupt your business for you.’”
At Facebook, a similar refrain appeared in the “red book” of company values employees received around the time it reached a billion users in 2012: “If we don’t create the thing that kills Facebook, someone else will.”
The late Clayton Christensen, author of the 1997 classic The Innovator’s Dilemma, described Netflix as a good example of disruptive innovation.
He wrote in Harvard Business Review in 2015 that Blockbuster’s decision to ignore Netflix might well have proven correct, given that the two companies filled different needs for different customers. The startup’s DVD-by-mail service “appealed to only a few customer groups—movie buffs who didn’t care about new releases, early adopters of DVD players, and online shoppers.”
But then new technologies let Netflix shift to streaming video over the internet, and the startup “did eventually become appealing to Blockbuster’s core customers,” he wrote. Netflix, he added, “got there via a classically disruptive path” with its movement from the fringe to the mainstream, eroding first Blockbuster’s market share and then its profitability.
While it’s notable that Blockbuster turned down the offer to buy Netflix for a mere $50 million, it’s also worth pointing out that Randolph and Hastings themselves also seemed unaware of how valuable their startup would become. Little did they know then, as suggested by their low offer to Blockbuster, that their venture would become worth more than $150 billion.
But they did know they were on to something. Randolph added on Friday, “I’m proudest of the fact that I didn’t listen when everyone—and I mean everyone—told me ‘That Will Never Work.’”