Don’t Just Enter a New Market — Create One

There’s a popular story about the founding of Netflix. In it, the company’s co-founder, Reed Hastings, came up with the idea after accruing a $40 late fee from Blockbuster for the movie Apollo 13.

But according to recent reports, that story might not be entirely accurate. The company’s co-founders Hastings and Marc Randolph simply wanted to come up with a company that didn’t fit into any existing category. So, they decided to start an ecommerce company for DVDs.

In an interview with CNET, Gina Keating, author of Netflixed said:

“Randolph told me that Reed began circulating that story when he was still with the company and Reed explained that this was just a way to explain how the company worked — like the Pez dispensers at eBay. It didn’t really happen, but the founding story is long and complicated and is not a lightning strike. Initially the tale was sort of a marketing tool. It tells you everything about how Netflix works.”

While the story of the Blockbuster late fee has become iconic, Randolph’s account isn’t anything to be ashamed of either. Starting a business that doesn’t fit into any existing category is definitely a risk, but one that can pay off big time if successful.

For Netflix, the concept of renting DVDs by mail for a monthly flat rate was a gamble. But customers, many of whom had experienced the late fees at businesses like Blockbuster, realized its value. And since then the company has evolved while still maintaining its perch atop the industry that it basically created.

In a post for ReadWrite, Christopher Lochhead wrote:

“Every year in the technology industry, hundreds of companies launch thousands of new products. Most of these new products are pointed at existing categories. The thinking here is the bigger the market, the greater the opportunity. While some of these new products will find traction, many won’t. Because the technology industry is generally a winner-take-all game. And once a Category King is crowned, it is almost impossible to dethrone them.”

Image: Netflix