After 25 years, Netflix is closing down its DVD-by-mail service for good.

In 1998, Reed Hastings and Marc Randolph launched Netflix as an online DVD rental service. They believed this to be the right business model for where Internet bandwidth was at that time. According to Netflix, the first DVD it shipped on March 10th, 1998 was Beetlejuice. Since then, the company has shipped over 5.2 billion DVDs.

Yet, from the start, the founders had a vision of transforming Netflix into a video streaming platform. In the early days, Netflix invested up to 2% of its revenues to develop its streaming service and waited for the moment when increasing internet bandwidth made its service sustainable.

In 2007, Netflix successfully shifted from low tech to high tech, slowly replacing physical DVDs with online streaming. Without the scalability constraints of shipping physical DVDs, the streaming business grew rapidly. By 2018, 96% of Netflix’s revenues came from streaming.

In 2013, Netflix further shifted its model and began creating original content.

Netflix first announced that it would be shutting down its DVD-by-mail service in April. This makes the business model shift 100% complete. With this shutdown, Netflix has totally moved away from the business model that launched its success.

This is a remarkable example of being an invincible company. Very few companies can execute a successful shift from one business model to another and become a more valuable company in the process. But those companies that can do it well are more likely to survive and thrive for decades.

As a final surprise gift to its customers that still subscribe to DVD-by-mail, Netflix has promised to send them up to 10 extra discs before it ends the subscription service. An email posted on Reddit from Netflix to customer’s announces that:

This is a wonderful way for Netflix to delight its customers, while it is shutting down the service. It also solves a problem for Netflix - how to deal with warehouses that have lots of DVDs that will become obsolete after September.

To the lucky people that will receive these DVDs and the red envelopes - please hold on to them and look after them well. They will become valuable nostalgic keepsakes for those of us who have a keen interest in the historical evolution of business models.