Netflixed: The Epic Battle for America's Eyeballs

by Gina Keating

The first thing that happened, as word of the Blockbuster Online beta spread, was that Netflix’s stock price tanked—again. Netflix investors, now enjoying a brief honeymoon, were notoriously wary. In mid-2002, Netflix’s stock dropped to five dollars on the news that Walmart planned to launch an online DVD rental service. When Walmart launched the site in late 2002, and Netflix’s marketing and analytics staff had had a chance to dissect it, they were underwhelmed. Even before Walmart rolled out its service, at one dollar below Netflix’s subscription price, Netflix had predicted that any entrant into online rental would struggle to replicate the pioneer’s customer experience and functionality. The tiny graphics, the lack of flow, and the clunkiness of the Walmart site revealed its creator’s failure to grasp the idea that an online store had to be more than an animated catalog—it had to engage customers’ imaginations and spark longings strong enough to compensate for the lack of a tactile shopping experience. The market had apparently reached the same conclusion, and slowly bid Netflix’s stock price back up to past its IPO price, to nearly forty dollars a share by early 2004.