3. Develop 3-Step Solutions

When I worked at Intuit in the early days, co-founder Scott Cook used to espouse the value of 3-step or less solutions. Many high-tech products build in unnecessary complexity for consumers. By contrast, the most successful products take tedious and difficult chores and make them easy-so easy that consumers can solve their problems in three steps or less.

A great example of Netflix's 3-step solution is the now famous and patented Subscription Queue. We knew our success would be limited if we required customers to come back to our website every time to place their next rental order. Our research told us the average video rental customer rented between 5-7 movies per month. Why make that customer come back to our website each and every time to rent something they already knew they wanted and could simply put on a list? So, in 1999, we created the first ever online queue - a list of movies that customer knew they wanted to eventually watch. Within a few short months, our customer base had an average of 20-25 movies in the queue - the research was right! Of course, now, we literally had to re-customize our operational software and website to enable this new subscription queuing process. Our new ability to automatically send out the next movie on the list also served another key customer goal of reducing delivery time and always ensuring a customer had at least one Netflix movie to watch at all times. This offered service customers could get nowhere else. It was fast and it was easy.

4. Copy the Best

Why reinvent the wheel if someone has already come up with an easy-to-use, useful, and elegant solution? When designing the Netflix website, we turned to the best: Amazon. Some of the ideas we adapted for the Netflix website included:

Product and button placements
Overall color schemes
Size of DVD images for fast page loading
Customer reviews and movie reviewer articles
Easy-to-use search with categorized searching by movie genre
Overall website navigation

5. Focus on Rabid Early Adopters

It's hard to believe, but Netflix launched and operated for the first five years without spending any significant advertising money. We had two secret weapons. First, we had a meaningful connection with the rabid early DVD adopters on Usenet groups, the equivalent of early 90's bulletin boards and today's blogs. When we launched our website, we made no public announcements. We hoped this soft launch would bring in volumes of more than ten or so "friends and family" orders per day. Unexpectedly, five hundred orders arrived the first day, almost exclusively from our Usenet advocates who noticed the site was live and announced it to their networks. Within thirty days, we were consistently processing 1,000 orders per day, within three months over 2,000 orders per day, and thereafter continuing ahead of Amazon's historical growth curve.

Our second key weapon was securing a coveted "ten free rental" coupon in every single DVD player sold by the big three manufacturers: Panasonic, Sony, and Toshiba. Together, these big three had 85% market share combined. Ordinarily, it is extremely difficult to persuade major manufacturers to put promotional material in their packages. But at the time, these DVD player manufacturers were actually in fear of becoming another failed LaserDisc or Betamax. It was far from a foregone conclusion that DVD would catch on.

By offering ten free rentals to consumers when they opened up their new DVD players, we gave consumers access to a breadth of titles that were very hard to find in traditional retail stores. We paid nothing out of pocket for the placement of the 5" x 7" purple branded coupon inserts. It was in the manufacturers' interests to promote our service so that DVD technology wouldn't die. We made sure the coupons were the "last in" on the assembly line and therefore one of the first items a consumer would see upon opening their new DVD player.

Today word-of-mouth still drives over 80% of all new customers. The customers are no longer early adopters but they are just as rabid. We started with an initial company goal of being bigger than the biggest single Blockbuster store in the U.S. Today, the company's market value is twice as big as Blockbuster's. Netflix now boasts over 4 million customers and a market value of over $1.5 billion. Eight years later, the company is still quite young and services only 4% of all U.S. households. While the company faces many competitive pressures and a changing landscape of digital movie delivery, one thing is clear: Netflix's relentless focus on customer-driven innovations will continue to provide the golden keys to unlock its revolutionary and evolving business.

About the Authors:

Jim Cook is a Netflix co-founder and Managing Partner at BenchBoard Financial Management. Contact him via jcook@benchboard.com or visit www.benchboard.com

Suzanne Taylor is a marketing strategy consultant and co-author of Inside Intuit. Contact her via staylor@serrano.com or visit www.suzannetaylor.com