Netflix was founded in 1997 in Scotts Valley, California by Marc Randolph[12][13] and Reed Hastings, who previously had worked together at Pure Software along with Mitch Lowe. The idea of Netflix came to Hastings when he was forced to pay $40 in overdue fines after returning Apollo 13 well past its due date.[14] The Netflix website launched in April 14, 1998 with only 30 employees and 925 works available for rent and brought a more traditional, online pay-per-rental model (US $4 per rental plus US $2 in postage; late fees applied).[15] Netflix introduced the monthly subscription concept in September 1999,[16] but then dropped the single-rental model in early 2000. Since that time the company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping and handling fees, or per title rental fees.
Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5.5 million shares of common stock at the price of US $15.00 per share. On June 14, 2002, the company sold an additional 825,000 shares of common stock at the same price. After incurring substantial losses during its first few years, Netflix posted its first profit during fiscal year 2003, earning US $6.5 million profit on revenues of US $272 million.
In 2005, 35,000 different film titles were available, and Netflix shipped 1 million DVDs out every day.[17]
Netflix developed and maintains an extensive personalized video-recommendation system based on ratings and reviews by its customers. On October 1, 2006, Netflix offered a $1,000,000 prize to the first developer of a video-recommendation algorithm that could beat its existing algorithm, Cinematch, at predicting customer ratings by more than 10%.[18]
In February 2007, the company delivered its billionth DVD[19] and began to move away from its original core business model of mailing DVDs by