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The highlight of this month’s Wired magazine is a profile of Netflix and its CEO, Reed Hastings. The theme is Netflix’s strategy to thrive even as their business model changes (e.g., as on-line streaming replaces DVDs by mail).

The opening paragraphs document an impressive willingness to change course:

It had taken the better part of a decade, but Reed Hastings was finally ready to unveil the device he thought would upend the entertainment industry. The gadget looked as unassuming as the original iPod—a sleek black box, about the size of a paperback novel, with a few jacks in back—and Hastings, CEO of Netflix, believed its impact would be just as massive. Called the Netflix Player, it would allow most of his company’s regular DVD-by-mail subscribers to stream unlimited movies and TV shows from Netflix’s library directly to their television—at no extra charge.

The potential was enormous: Although Netflix initially could offer only about 10,000 titles, Hastings planned to one day deliver the entire recorded output of Hollywood, instantly and in high definition, to any screen, anywhere. Like many tech romantics, he had harbored visions of using the Internet to route around cable companies and network programmers for years. Even back when he formed Netflix in 1997, Hastings predicted a day when he would deliver video over the Net rather than through the mail. (There was a reason he called the company Netflix and not, say, DVDs by Mail.) Now, in mid-December 2007, the launch of the player was just weeks away. Promotional ads were being shot, and internal beta testers were thrilled.

But Hastings wasn’t celebrating. Instead, he felt queasy. For weeks, he had tried to ignore the nagging doubts he had about the Netflix Player. Consumers’ living rooms were already full of gadgets—from DVD players to set-top boxes. Was a dedicated Netflix device really the best way to bring about his video-on-demand revolution? So on a Friday morning, he asked the six members of his senior management team to meet him in the amphitheater in Netflix’s Los Gatos offices, near San Jose. He leaned up against the stage and asked the unthinkable: Should he kill the player?

Three days later, at an all-company meeting in the same amphitheater, Hastings announced that there would be no Netflix Player.

In short, Reed Hastings is not a man who gets locked in by sunk costs: he’s willing to kill projects (or, in this case, spin them off) even if he’s got years invested in them. A good example for my students when we discusses costs in a few weeks. And just another example of the strengths of Netflix’s culture.

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The magazine Wired regularly publishes some of the most interesting articles about economics and the modern world. Last month, for example, they had a great article about the antitrust threats looming over Google. The month before, it covered the economics of Somali pirates, which I never found time to write about. And the month before that, it discussed how Google, not eBay, is really the master of auctions.

This month, Wired provides an in-depth look at craigslist.

For those who don’t already know, craigslist is the place to post classified ads on the web. According to Wired, it is the world’s “most popular dating site,” “the most popular job-search site,” and “the nation’s largest apartment-hunting site.” Not to mention the myriad other things you can buy, sell, trade, give, receive, etc. on the site.

How did craigslist achieve this dominance? The article doesn’t provide a crisp answer, but it does offer some gems about how the company operates.  You should read the article for the full effect, but here is a sample:

On innovation:

Think of any Web feature that has become popular in the past 10 years: Chances are craigslist has considered it and rejected it. If you try to build a third-party application designed to make craigslist work better, the management will almost certainly throw up technical roadblocks to shut you down.

(more…)

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The slide deck describing the culture at Netflix has some real gems (ht kottke.org).

For example, here are three elements of the company’s compensation practices:

Unlike many companies, we practice “adequate performance gets a generous severance package.” (slide 26)

Netflix vacation policy and tracking: “there is no policy or tracking” (“There is also no clothing policy at Netflix, but no one has come to work naked lately.”) (slide 68)

Big salary is the most efficient form of compensation. (No bonuses, no free stock options, etc.) (slide 106)

Well worth a read.

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