Gina Keating's New Book About the Rise of Netflix

Gabriel Johnson

Gina Keating

In Gina Keating's new book, Netflixed: The Epic Battle for America's Eyeballs, the story of the rise of Netflix sounds almost as juicy as those in the movies it rents out in those signature red envelopes: Two Silicon Valley tech dreamers turn a DVD-by-mail service into a $3 billion empire. Along the way they slay an entire industry and make a few enemies. But only one of the pair survives to emerge a star.

Curious about the real genesis of the Internet giant, Keating, a Pasadena-based freelancer and former Reuters staff writer, set out to chronicle Netflix's evolution. She started off by interviewing little-known co-founder Marc Randolph.

Randolph helps Keating debunk the company's most pervasive myth: that CEO Reed Hastings single-handedly dreamt up the idea for Netflix after incurring a $40 Blockbuster late charge for a copy of Apollo 13. It made for a nice David-and-Goliath story. But the reality, according to the book, was that Hastings and Randolph conceptualized their plan during their morning commute to work in Santa Cruz in 1997, a time when most homeowners didn't own a DVD player. After testing the durability of sending compact discs through the mail, Netflix launched in 1998.

Keating's book covers the startup's shabby beginnings in dingy offices and its early strategies to lure subscribers. Among them was Netflix's monster inventory -- the biggest on the Web -- but paramount were its consumer instinct and technological might. The marketing staff would cold-call customers for feedback and even visit them at home to observe their viewing habits.

"Unlike a lot of web companies, they built the website so they could really test things as they went in real time, and make decisions about the business using data instead of hunches," Keating says in a phone conversation. "They were very flexible, and they could back up all their decisions with numbers."

Keating describes Randolph's and Hastings' partnership as "Lennon and McCartney"; Randolph was the creative, consumer-oriented one, Hastings the numbers guy.

"They were the perfect fusion for that type of business," Keating says. "Marc was very customer-oriented and fascinated with people. The customer experience was his baby. Hastings took all of Randolph's ideas about what customers wanted, and he made them into beautiful software that functions so perfectly."

Hastings also comes off as a bit more ruthless, once even laying off a staffer in front of her coworkers. Randolph left (or was squeezed out) in 2004. The rest of the founding team, except Hastings, eventually would follow.

But Netflix's biggest showdown was with then-rival Blockbuster, and Keating amps up the corporate catfight with painstaking, page-turning details about rival bosses, dueling websites and price wars. Blockbuster argued until the bitter end that brick-and-mortar stores would stick around. We all know how many of those are left. And Blockbuster's own online rental arm would only further bleed the company dry: It filed for bankruptcy in 2010.

Even as Netflix remains the dominant source of home entertainment, it's not without its troubles, including last year's price hike, which alienated users. Subscribers still looking to rent DVDs now have to pay for a hybrid plan that also includes video streaming -- a growing demand that threatens to send compact discs down the same path as VHS.

Netflix may have been founded on video, but the future portends a new business model.