If you were Netflix, would you care that Amazon had just begun to offer unlimited, commercial-free, instant streaming of movie and TV titles to its Amazon Prime members? I would – even if the catalog being offered by Amazon is only 5,000 titles deep at this stage.
Amazon is a dangerous competitor. A pioneer Web 1.0 company that has survived and thrived better than anyone else – with the possible exception of eBay – it has massive brand penetration, a huge range of integrated services and an enormous established user base to sell to. And Netflix is much more vulnerable than it appears to be.
Netflix has lots of problems. Testy relationships with content suppliers who feel threatened by new rental distribution models are presenting in high content costs. Established competitors such as Hulu (Plus) and iTunes are burrowing into its market share. And it’s entangled in a complex bandwidth problem because of the huge amount of internet traffic it generates (especially for a paid service) and because of its involvement in the dispute between Level 3 Communication and Comcast.
It gets worse. Now, it transpires from a Netflix 10-K form recently filed, that the company depends on Amazon for a significant strategic activity – Netflix has outsourced “the majority of our computing” work to Amazon Web Services. In other words, Netflix is dependent on one of its new competitors for a core part of its operations. And that’s not something that can easily be switched for a company that operates a major commercial activity inside the “cloud.” Lots to think about for Netflix.