SAN FRANCISCO (Business 2.0 Magazine) - When the DVD first came out, Netflix founder and CEO Reed Hastings had a key insight:

The plastic disc's light weight and small size would make it cheap and easy to send through the mail, letting him create a cross between Blockbuster (Research) and Amazon.com (Research). By taking advantage of the U.S. Postal Service, it could send rental DVDs to customers through the mail - and accept returns the same way.

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But before Netflix (Research) became a dotcom darling with millions of subscribers, it had to figure out the details of how to mail DVDs cheaply and economically. Learning the ins and outs of the post office's operations was key: Every ounce of weight in the mailer added to postage costs - but if the mailer was too flimsy, DVDs broke in the mail.

Additionally, the mailer had to last long enough for reuse as a return envelope.

Years of experimentation went into creating the perfect DVD envelope. In 1999, Netflix started out with a heavy cardboard mailer. With only 100,000 subscribers, costs weren't a concern yet. Then the company experimented with plastic envelopes, which proved not to be recyclable, and padding, which added too much to postage costs. Both top-loading and side-loading envelopes made an appearance.

Seven years of tweaking have paid off: Netflix's low-cost mailers have helped it fend off competition from Wal-Mart (Research) and Blockbuster. How well those iconic red envelopes will help the company fend off the newest threat - video-on-demand - remains to be seen. For a gallery illustrating how the envelope evolved over the years, click here.