Favorite Entrepreneur Revision

Wilmot Reed Hastings, Jr. is the founder and CEO of Netflix, an online video rental company. He was born on October 8, 1960 in Boston, Massachusetts. Hastings earned his first bachelor’s degree from Bowdoin College in 1983 where he studied mathematics. During his college years, Hastings decided to serve his country by joining the Marine Corps in their Platoon Leader Class. He spent the summer between his sophomore and junior year in boot camp at Quantico, Virginia. Unfortunately, Hastings found that the Marines were not to his taste and later joined the Peace Corps after his graduation from college. From 1983 to 1985 he volunteered in Swaziland teaching mathematics. In 1985, Hastings decided to go to graduate school in computer science (Zipkin). After graduating from Stanford, Hastings founded his first business in 1991. The company, Pure Software, “was one of the nation’s 50 largest public software companies” and was later bought by Rational Software in 1997 for $750 million (Hamilton).

After the purchase of his company, Hastings “found himself a bit adrift…Armed with a fortune but without a target, Hasting felt his public-service side stir” (Hamilton). Interested in educational reform, Hastings enrolled into Stanford’s School of Education and in 2000, Gov. Gray Davis appointed him to the State Board of Education. The next year Hastings became its president (Hamilton). “His activism advanced California’s charter school movement and he was instrumental in the passage of Proposition 39 In November 2000. That ballot measure lowered… the level of voter approval that local schools must garner to pass construction bond issues” (Hamilton). Unfortunately, Hastings ran into trouble when powerful legislators challenged his “advocacy of more English instruction and language testing for non-English-speaking students. This led to his resignation in 2005.

The idea for Netflix came to him after he incurred a late fee of $40 at Blockbuster for the movie “Apollo 13.” He figured that there must be a better way to earn money from movie renting without “gouging customers with late fees” (Hamilton). As all good entrepreneurs, he saw the future of movies in the internet and the DVD format provided a light and durable means of distribution. “Reed Hastings founded Netflix in 1997 and launched the subscription service in 1999” (“Netflix-Management”). His initial target market consisted of DVD player owners in the San Francisco area. Using the terms from Crossing the Chasm, this market consisted of the innovators and early adopters of the DVD player market. At that point, the DVD format was relatively new and DVD players were still very expensive. Hastings hoped that the low selection of DVDs at conventional video stores would help him to promote his fledgling business.

In May 2000, Netflix “announced plans for an initial public offering (IPO) of $86.25 million worth of common stock but withdrew it in July. Investors had become increasingly skeptical of the e-commerce business model, and Netflix's lack of profits was a red flag to many” (“Netflix, Inc.”). Netflix continued to expand its library and customer base, and in December revenue sharing agreements were reached with Warner Home Video and Columbia Tri-Star. “In exchange for a percentage of rental receipts, the movie studios gave Netflix better prices on large quantities of DVDs, which the firm needed to have on hand to fulfill requests for new releases” (“Netflix, Inc.”). Agreements with Dreamworks and Artisan were soon reached as well. In the beginning of 2001, Netflix found great success in foreign and independent films because their subscription model made subscribers feel better about taking chances with unknown titles (“Netflix, Inc.”). In September, Netflix partnered with Best Buy to “create a co-branded DVD rental service in the company’s 1,800 stores and on its Web sites” (“NetFlix, Inc.”). Hastings predicted profitability by the time the subscriber base reached 500,000. That figure was finally attained in February 2002 and in March “the company revived its plans for an initial public offering (IPO), and when it sold 5.5 million shares in late May it raised $82.5 million, more than some had expected” (“NetFlix, Inc.”). Today Netflix boasts over 100,000 DVD titles and a growing subscriber base 9.4 million (Netflix). What makes Netflix special is the sheer amount of documentary, foreign, and independent films as well as TV series that are available to rent. The incredible selection as well as its ease of use led to Netflix ranking number one in customer satisfaction in five consecutive surveys over three years (“Netflix-Management”).

When Reed Hastings founded Netflix, he was acting as a visionary. Crossing the Chasm describes visionaries as a “rare breed of people who have the insight to match an emerging technology to a strategic opportunity” (Moore p.33-4). Hastings used two technologies, the internet and the DVD format, to follow a vision where people did not have to suffer lines, late fees, and poor selection that often plagued the current video rental stores. The DVD was still very new and Hastings took a significant risk in adopting this new technology before it was fully proven. In the end, I believe that he managed to “achieve breakthrough improvements in productivity and customer service” (Moore, p.34).

There are several things I admire about Reed Hastings. First is his love and appreciation of education. I also view education as an invaluable resource and try hard to do well in school. I believe that many of the world’s problems can be helped or partially solved through education and so I really respect Hastings’ work in Africa as well as the United States. But most of all, and I won’t lie here, I admire Hastings for creating Netflix because his service has provided me with many hours of entertainment, ranging from foreign films to the TV series I missed. Netflix, in my opinion, is a service before it is a business because it was created to give people a better means of movie rental instead of a means of gaining profit. After all, Hastings hardly needed the money at that point.

Bibliography:

Hamilton, Joan O'C. "Home Movies." STANFORD Magazine. Stanford Alumni Association. 02 Feb. 2009 http://www.stanfordalumni.org/news/magazine/2006/janfeb/features/Netflix.html.

Moore, Geoffrey A. Crossing the Chasm : Marketing and Selling Disruptive Products to Mainstream Customers. New York: HarperCollins, 2002.

Netflix. "Netflix Announces Q4 2008 Financial Results." Press release. Netflix Media Center. 26 Jan. 2009. Netflix. 7 Feb. 2009 http://netflix.mediaroom.com/index.php?s=43&item=304.

"Netflix, Inc. -- Company History." FundingUniverse. 08 Feb. 2009 http://www.fundinguniverse.com/company-histories/Netflix-Inc-Company-History.html.

"Netflix - Management." Netflix - Overview. 02 Feb. 2009 http://ir.Netflix.com/management.cfm?bio=8195#8195.

Zipkin, Amy. "Out of Africa, Onto the Web." The New York Times 17 Dec. 2006, sec. Job Market. The New York Times. 17 Dec. 2006. 2 Feb. 2009 http://www.nytimes.com/2006/12/17/jobs/17boss.html?_r=2.