How Roku used the Netflix playbook to beat bigger players and rule streaming video
When Netflix founder Reed Hastings spun off the streaming video box he was developing to a little-known start-up called Roku in 2008, he thought it would probably fail.
"There was Xbox and PlayStation and Samsung and Apple TV," Hastings said in an interview. "Frankly, we didn't think Roku had much of a chance."
After first meeting at a conference, Roku CEO and founder Anthony Wood pestered Hastings for months to let his company make a streaming video box for Netflix. Hastings at the time wanted to build the box in-house at Netflix. So the two struck a deal -- Wood took a part-time job at Netflix to make the device while remaining CEO of Roku, which had about 15 employees.
That experiment lasted nine months. Hastings wanted Netflix to be available on all sorts of streaming devices, such as Microsoft's Xbox, Sony's PlayStation, and Apple TV. Those companies felt Netflix's hardware posed a threat to their own businesses. Moreover, people surveyed in focus groups said they wanted a box that could stream more than just Netflix.
So Hastings decided to spin out the division to Roku. Wood received an unfinished device, patents, 20 to 30 Netflix employees (more than doubling the size of Roku) and some cash. In return, Netflix received about 15% of Roku's equity.
