Mail time at my house is always a happy time -- not counting tax season, of course. My three-year-old son sings that catchy ditty from Blue's Clues, and we're off to the mailbox looking for slender, red envelopes. Maybe there's another clue in this one!

Those envelopes are the hallmark of Netflix (NASDAQ:NFLX) videos, and we keep the rotation going as fast as we can. It's like having a Blockbuster (NYSE:BBI) store right in my front yard, except that Netflix has about 50 times the selection of your average neighborhood video store, and each rental comes out to less than $1 for people with my obsessive viewing habits.

Legend has it that CEO Reed Hastings came up with the Netflix business model when he was charged $40 in late fees for Apollo 13. Being an engineer by trade, he proceeded to optimize the end-user experience to the max, and that obsession with top-notch usability resulted in excellent word-of- mouth marketing, very low customer churn, and a sizable, patented moat around the business. The nationwide network of shipping centers is an important ingredient in Netflix's secret sauce, and for a company so dependent on efficient mail traffic, it's smart business to hire a former U.S. Postmaster General as COO, as Netflix did.

In 2004, Wal-Mart (NYSE:WMT) gave the video rental market a scare by starting up its own Netflix lookalike service. You'd think that the Bentonville giant's massive purchasing and negotiating power would combine with its massive distribution network to form an unstoppable colossus in this arena, as in any other. But a scant year later, the company threw in the towel, handing all of its online rental customers to Netflix.

Blockbuster came late to the game, and its online service is but a shadow of Netflix's intuitive masterpiece. I've tried both and reported my findings. There's no meaningful competition left for the video-by-mail pioneer, and it's suing Blockbuster for encroaching on its patent-protected territory.

Some people say that video on demand will kill this market entirely, expecting the likes of Apple (NASDAQ:AAPL) or (NASDAQ:AMZN) to step in with a killer service any day now. They've worried about this for at least a year now, and no serious threats have yet emerged. Instead, Netflix has started its own VOD service as a free bonus for by-mail subscribers. I'm anxiously awaiting the day when that rollout reaches my account, so I can form an educated opinion about its quality. But it isn't in Hastings' blood to release a half-hearted effort.

If the team behind that service is half as talented as the company's web developers, Netflix could very well become the VOD service to beat, even when everyone from Amazon to Barnes & Noble and your local cable operator have entered the fracas. The lessons learned from recommending and mailing physical discs should translate very well into a purely online model.

Will Netflix rise to new heights in 2007? I think so. If you agree with my assessment, let us know in our Motley Fool CAPS investing community. Just rate Netflix "outperform," and fill out your virtual portfolio with a few more of your best -- or worst -- ideas. (If you think Netflix's days are numbered, don't hestitate to rate the company an "underperform" instead.) Make your mark today, and don't forget that you can add your own opinions on any stock along with your rating. Based on your thoughts, we'll declare the best e-commerce stock of 2007 early next week.

See all our Foolish candidates for 2007's best e-commerce stock, then add your own ratings in Motley Fool CAPS.

Netflix and Amazon are Motley Fool Stock Advisor recommendations, and Wal-Mart is a Motley Fool Inside Value pick. Take any of our newsletters for a spin for 30 days, no strings attached.

Fool contributor Anders Bylund is a Netflix subscriber and shareholder, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always available in glorious hi-def.