Amazon almost bought Netflix in 1998— and it inspired Netflix to drop the only profitable part of its business model

Business Insider Lifestyle 2 months ago

In 1998, two months after Netflix was launched, cofounders Marc Randolph and Reed Hastings were called to a meeting with Jeff Bezos.

In Randolph's new book, " That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea," he describes the meeting that could have altered the fate of both companies.

Bezos was most excited to hear about Netflix's launch day

Bezos was most excited to hear about Netflix's launch day
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Both companies used a bell on their launch days that rang every time a customer made an order.

Bezos and Randolph also compared notes on their beta names. Netflix used to be called Kibble, and Amazon was Cadabra.

Amazon offered around $15 million for Netflix, which Hastings thought was too low

Amazon offered around $15 million for Netflix, which Hastings thought was too low
Reed Hastings.

When Amazon said they were thinking of an offer in the "low eight figures," Hastings hesitated, according to the book. Randolph writes that Hastings thought that Netflix had "real potential," higher than that offer.

Randolph was fine with the money; selling would let them sidestep the issue that they weren't making money.

But, ultimately, while the two knew Amazon would eventually become a competitor, they decided it wasn't the "right moment to give up."

Meeting with Amazon inspired Randolph to propose getting rid of DVD sales altogether, which was the only profitable part of Netflix

Meeting with Amazon inspired Randolph to propose getting rid of DVD sales altogether,  which was the only profitable part of Netflix
Netflix DVDs return mailers are shown in a mail box in Encinitas, California Oct. 21, 2013.

When Hastings and Randolph met with Amazon, rentals only made up 3% of Netflix's revenue. But Randolph writes that meeting with Bezos reminded him that they could "never compete in the DVD retail sales market."

However, pivoting fully to rentals eventually led to the subscription model that became the foundation for modern Netflix.

Amazon and Netflix actually had a short-lived partnership

Amazon and Netflix actually had a short-lived partnership
The two sites actually linked to each other.

Even though the Netflix team didn't ultimately sell to Amazon, they did have a brief partnership. Netflix would include Amazon links for users to buy DVDs from, which, according to Randolph, sent Amazon "tens of thousands of customers." But while Amazon did link to Netflix for rentals, the links were "lackluster and hard to find," only sending Netflix hundreds of customers.

Hastings decided to quietly end the partnership, which led to another push for Netflix to focus on rentals. This one led to the end of the late fee.

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