That Will Never Work

by Marc Randolph

  All our budgets are based on a 32-cent postage stamp. That’s what you need for a one-ounce letter in 1998. That’s what we’d been aiming for when we designed our mailers. But Jim’s latest analysis shows that only a handful of the previous month’s rentals had made the one-ounce cutoff. Worse, more than half of our mailings had clocked in at two ounces or more.

  “It gets worse,” Jim explains, pulling another page from his folder. “Look at our packaging costs.”

  My eyes scan the numbers. We are wildly over budget. Our original test—that Patsy Cline CD, stuffed into a greeting card envelope—had been the guiding force behind our budget, but it is clear now that as we moved from concept to scale, it had been a gross oversimplification.

  Although I’m upset, I’m not entirely surprised. The second your dream becomes a reality, things get complicated. You simply can’t know how things are going to behave until you’ve actually tried them. Go ahead and write up a plan, but don’t put too much faith in it. The only real way to find something out is to do it.

  We’d been lucky that the CD had arrived unscathed at Reed’s house. But when you ship thousands of DVDs across the country, you can’t rely on luck. To protect the DVD from scratches, fingerprints, and other general abuse, the disc needs to be in some sort of sleeve. The plastic sleeve we’ve decided on is sturdy, reusable, and transparent. But it is also expensive and heavy. And it has gotten even heavier (and more expensive) with the addition of a 3″ × 3″ paper label for the movie info and unique serial number.

  The mailing envelope has evolved from a simple pink greeting card envelope into a total chimera, made up of disparate parts and scraps. We’ve moved from paper to heavy cardboard, adding a third layer of paper that doubles as the return envelope. The current version, in stacks in the vault behind Jim, has two adhesive strips, and has grown in size (and weight) to accommodate multiple DVDs if needed.

  Jim gives me a sheepish grin. “Just one more thing to worry about,” he says, picking up his pizza and turning back to the safe.

  I grab one of our mailers, walk across the office, and settle into one of the aluminum lawn chairs that Eric Meyer uses as his “guest chair” next to his desk. Above me, cables snake down through a crack between two ceiling tiles. “There has to be a better way to do this,” I think to myself, idly passing the mailer from hand to hand, opening and closing the flaps.

  The flaps. Maybe they could be a different shape. I rifle through Eric’s desk, pulling open a drawer to look for scissors or a knife, or anything I can use to make cuts in paper. No dice.

  But I have an idea.

  Out in the parking lot, I open the back hatch of the Volvo and grab the beach bag tucked behind the rear seat. Lorraine and I call it the “restaurant bag.” It’s stuffed with all the distractions needed to get through a meal in public with three children under the age of seven: crayons, coloring books, scissors, tapes, modeling clay, pipe cleaners, construction paper, and cardboard. Lots of cardboard.

  I tuck the bag under my arm and head into my office, ducking briefly into the warehouse for another handful of mailers. I pour the contents of the restaurant bag onto the conference table, find the cardboard, pull out some scissors, and get to work.

  10:00 p.m.

  Jim is still bent over the workstation, stripping DVD cases of their cellophane, pulling out DVDs, inserting them into sleeves, adding labels, and neatly hanging them in tight rows on the Peg-Board. A pile of discarded DVD cases lies at his feet. He’ll take them out to the Dumpster at the end of the night—there’s no room for them here, and no reason to keep them.

  Jim looks up as I drop my cardboard mock-ups on his desk. “Meet Frankenstein’s mailers,” I tell him. “Or the turducken, if you’re still hungry.”

  The new mock-ups are crude: flaps torn off, taped into new positions, new folds made, windows roughly cut, crayon markings—but they’re enough for Jim to go on. He can use them to have some real mock-ups made, weighed, and priced.

  I’d had an afternoon espresso and a cup of coffee after dinner with Lorraine, but by now my eyes are drooping, my brain fried. It’s time to go home. I hadn’t even meant to work on the mailers when I returned to the office. But that’s how things are—there is always so much to do that making plans and to-do lists is a waste of time.

  Before I leave, I catch Jim walking over to the back of the office. Suresh is there, printing packing slips—I hadn’t noticed him earlier. Next to him is a woman wearing a Salwar kameez and headphones, watching DVDs on a portable player. I’ve encountered her before—she’s Suresh’s wife. A month before launch, Suresh had surprised Eric by saying that he needed to fly back to India to get married. Ever since then, when Devisree, his wife, knows it will be a late night, she keeps him company in the office, sometimes sleeping on one of the couches near his workstation.

  True love, startup style. It makes me smile.

  I’m lucky to have a much shorter commute to see my family. I drive back home, winding my way up the hill and down the long driveway until the house comes into view. Lorraine has left the porch light on for me. It casts light on the new orange trees I’ve planted in the back, near where I think a garage might eventually go. But all that is far, far in the future.

  I sneak inside, taking my shoes off at the door. The house is quiet—the kids are asleep, the kitchen is clean, and Luna, the useless guard dog, is curled at the foot of the stairs. I step over her and skip the fourth step, which always squeaks. Still, Lorraine stirs and opens her eyes as I climb into bed. “How did it go?”

  “Making progress,” I say as I put my arm around her. I’m drifting off. But suddenly I have a premonition: Hunter in his crib, in less than six hours, throwing animals over the bars and onto the floor. I nudge Lorraine.

  “Your turn tomorrow,” I remind her.

  10.

  Halcyon Days

  (summer 1998: two months after launch)

  “JESUS, REED, WHERE ARE you taking us?”

  The street we were walking on looked like a movie set of skid row. There was trash on the sidewalk, broken glass in the window casements. Most of the businesses were closed, or if they were open, it was hard to tell: Liberty Loans Pawn Shop. Fair Hair Wig Store. And then, a few doors down, a plain doorway with a red awning reading ADULT ENTERTAINMENT CENTER.

  “Joy said 1516 Second Avenue,” Reed replied, squinting down at the map he’d printed out that morning. “Should be right around the corner.”

  I glanced toward a group of shabbily dressed young men huddled in the doorway of a large building. The sign on the window read DEPARTMENT OF PUBLIC HEALTH—NEEDLE EXCHANGE PROGRAM. “Somehow I think I expected something a little more…I don’t know, modern?”

  “There it is,” Reed said, pointing to a run-down four-story brick building across the street. The windows were dusty and streaked. A faded sign over the front door said COLUMBIA. Maybe this building had once housed a world-changing company, but it was clear that if so, it had been many years in the past. “See! 1516.”

  We crossed the street and Reed stepped up to the door. He seemed unsure now, less certain—despite what his map told him—that this could actually be the place. I leaned in toward one of the tall glass windows that made up the front of the building. If I cupped my hands around my eyes, I could just see into the dimly lit lobby. On the wall, behind a faded wood desk, was a large sign reading AMAZON.COM.

  Reed had gotten the call a few days earlier from Joy Covey, Amazon’s CFO. She wondered if we would be interested in coming up to Seattle to meet with her and Jeff Bezos, Amazon’s founder and CEO. She didn’t say why she wanted to meet, but she didn’t need to. It was obvious.

  Although Amazon was only a few years old, and still strictly a place to buy books, Bezos had decided early in 1998 that his site wouldn’t just be a bookstore. It was going to be an everything store, and we knew that music and video were going to be his next two targets. Although it was unlikely that Jeff would be interested (or foolish) enough to rent
DVDs, it was clear that he was soon going to start selling them. And once that happened, we’d be out of business. Fast.

  We’d also heard from our VC connections that Bezos planned to use a good chunk of the $54 million raised during his company’s 1997 IPO to finance an aggressive acquisition of smaller companies. That’s normal—most companies looking to enter a new business arena do what’s called a “make-or-buy analysis,” in which they consider the cost, timing, and difficulty of starting a new business from scratch, then evaluate whether it would be cheaper, faster, and better to simply buy another company that’s already doing it.

  With that in mind, it didn’t take us long to figure out why Jeff and Joy wanted to meet. Netflix was in play.

  I’d be lying if I said that the feeling—although thrilling—wasn’t also a little bittersweet. In the summer of 1998, we’d finally gotten the engine to turn over, and we were just starting to pick up some speed. I wasn’t quite ready to put it in park and hand over the keys.

  But when Amazon calls, you pick up the phone. Even if it’s 1998, and Amazon is nowhere near the powerhouse it is today.

  The building we were winding our way through certainly didn’t look like it belonged to a powerhouse. The stairs to the second floor were warped and creaky. The reception area was cluttered and dusty. Piles of Amazon boxes were pushed into the corners. The chairs against the wall were mismatched. On the desk was a telephone with a printed directory of numbers under a piece of glass. Reed leaned over, squinted at the glass, and dialed a number.

  Within seconds, Joy swept into the lobby, giving Reed and me huge smiles, like we were long-lost friends. Pretty and athletic, with shoulder-length dark-blond hair falling over a string of huge pearls, Covey was younger than either of us. But she was already a respected and successful businesswoman, a dynamo who had taken Amazon public just twelve months ago, convincing skeptical investment bankers that a company that wasn’t remotely profitable—and didn’t plan to be anytime soon—was worth $20 billion.

  Joy was sharp. She reportedly had an IQ of 173. She’d dropped out of high school at fifteen, bagged groceries to pay her bills, gotten her GED, and then graduated from Cal State–Fresno in two and a half years. After a brief stint as an accountant, she’d gotten dual master’s degrees from Harvard, in business and in law.

  When Bezos had recruited Covey to Amazon, she’d casually mentioned that after college she had managed to get the second-highest score in the country on the CPA exam—a test taken by nearly seventy thousand other aspiring accountants. When Bezos had teased her—“Really, Joy? The second-highest?”—Covey had shot back, “I didn’t study.”

  As Covey led us back into the warren of cubicles that made up the Amazon offices, it was hard for me to believe that this was the company reinventing e-commerce. The carpeting was stained; the partitions used to separate the cubicles were dirty and torn. Dogs roamed the hallways. There were multiple people per cubicle, desks under the stairs, desks pushed to the edges of hallways. Almost every horizontal surface was covered: by books; by gaping Amazon boxes; by papers, printouts, coffee cups, plates, and pizza boxes. It made the green carpeting and beach chairs of the Netflix offices seem like the executive suite at IBM.

  We could hear Jeff Bezos before we saw him. He-huh-huh-huh-huh. Jeff has a…distinctive laugh. If you’ve seen any video of him speaking, you’ll have heard a version of it—but not the true, untamed thing. In the same way that he’s definitely hired a personal trainer since the late nineties, I think he’s also worked with someone to tame his laugh. Now it’s polite, a little giggly. But back then, it was explosive, loud, hiccupping. He laughed the way that Barney Rubble laughs on The Flintstones.

  He was in his office, just hanging up the phone when we walked in. His desk, and the desks of the two other people he shared the office with, were made of doors that had been mounted atop 4 × 4 wooden legs, braced with triangular metal pieces. I suddenly realized that every desk I’d seen in that office was the same: all made from doors, all on top of simple repurposed 4 × 4s.

  A short man, Bezos was wearing pressed khaki pants and a crisp blue oxford shirt. He was already well on his way to being completely bald, and the combination of the huge forehead, a slightly peaked nose, a shirt that was a little too big for him, and a neck that was a little too small all had the effect of making him look like a turtle that had just popped its head out of its shell. Behind him, hanging from an exposed pipe in the ceiling, four or five identical pressed blue oxford shirts fluttered in the breeze provided by an oscillating fan.

  After the introductions had been made, we filed into a corner of the building where enough space had been cleared to fit a bigger table with eight chairs around it. This table, too, was made from recycled doors. I could clearly see where the holes that used to hold the doorknobs had been neatly patched with circular plugs of wood.

  “Okay, Jeff,” I said, grinning. “What’s with all the doors?”

  “It’s a deliberate message,” he explained. “Everyone in the company has them. It’s a way of saying that we spend money on things that affect our customers, not on things that don’t.”

  Netflix was the same way, I told him. We didn’t even provide chairs.

  He laughed. “It’s like this building. It’s a mess. We barely have room to turn around in it. But it’s cheap. I’ve held out as long as I can, but even I admit that we need more space now. We just signed a lease on what used to be the Seattle Pacific Medical Center. It’s huge—but we got a great deal, because no one else wanted it.”

  I wasn’t surprised to hear any of this. Bezos was notoriously frugal—even cheap. He was famous for his “two-pizza meetings”—the idea being that if it took more than two pizzas to feed a group of people working on a problem, then you had hired too many people. People worked long hours for him, and they didn’t get paid a lot.

  But Bezos inspired loyalty. He’s one of those geniuses—like Steve Jobs, or like Reed—whose peculiarities only add to his legend. In Jeff’s case, his legendary intelligence and notorious nerdiness mix into a kind of contagious enthusiasm that pushed him headlong into every challenge. He didn’t look back—or, as he put it, he “evaluated opportunities using a regret minimization framework.” He showed Reed his wristwatch, bragging that it updated itself thirty-six times a day by picking up the radio signal from the national atomic clock in Fort Collins, Colorado. A Star Trek fan, Bezos had spent his entire childhood acting out scenes from the show with his friends. His pals would play Kirk or Spock. Jeff was always the Enterprise’s computer.

  When he spoke, I noticed that unlike me, Jeff didn’t gesture with his hands. Instead, he used his head for emphasis, lifting his chin up for questions, dropping it down suddenly for emphasis. Twisting his head at a 45-degree angle meant he was curious. At thirty-four, his demeanor still retained a strong dose of “gee whiz” enthusiasm, but all the childlike delight in the world couldn’t mask the analytical and ambitious brain constantly at work behind his unblinking eyes.

  As I started to bring Jeff up to speed about Netflix, detailing the efforts we’d made to get the site off the ground, he peppered me with questions. How could I know that I had every DVD? How could I forecast expected turns? What did I expect the ratio of sales to rentals to be? But it was clear to me that what he was most excited about were the stories about launch day—particularly, the story of that ringing bell.

  “That’s fantastic!” he exclaimed, so excited that he almost moved his hands. “We had the exact same thing! A bell that rang every time an order came in. I had to stop everyone from rushing over to the computer screens to see if they knew the customers.”

  We traded beta names: he laughed at Kibble and told me that Amazon had originally called itself Cadabra, which he had thought evoked the sense of magic that online shopping could produce. “The problem is that Cadabra sounds a little too much like cadaver,” Bezos said, barking out a laugh.

  Although Amazon was still relatively small in 1998, they already
had over 600 employees and were doing more than $150 million in revenue. They were a real company now, with real pressures, but as Jeff and I chatted about our launch days, I could see in his face and hear in his voice that in many ways he missed those simpler, more exciting times.

  Reed, on the other hand, was obviously bored. Forget “regret minimization framework”—Reed has never been someone who dwells, at all, on the past, so these stories of early struggles and frenetic launch days were of little interest to him. His placid stare had turned stony, and he was impatiently jogging his leg up and down. He wanted, I knew, to direct the conversation to the topics at hand: what Netflix was doing, how it could potentially fit with what Amazon was doing, and how some kind of “arrangement” could be a win-win situation for both parties.

  I was just finishing bringing Jeff and Joy through my professional résumé, and was about to brief them on Christina, Te, and other key members of our team, when Reed decided he’d had enough.

  “We don’t need to go through all this,” he said, exasperated. “What does this have to do with Netflix and Amazon and possible ways we can work together?”

  Everyone stopped. It was quiet.

  “Reed,” I said after a few seconds. “It’s obvious that Amazon is considering using Netflix to jump-start their entry into video. Our people would be a huge part of any possible acquisition, so it’s entirely appropriate for them to want to understand who we are.”

  I was relieved when Joy jumped in to help. “Reed,” she suggested, “can you help me understand a bit better how you’re thinking about your unit economics?”

  This was exactly what Reed wanted to hear, and with obvious relief that we were finally on topic, he began running Joy through the numbers.