Amazon Launches Instant Streaming, Netflix Faces Precarious Partnership

After weeks of speculation, Amazon officially announced the launch of an on-demand streaming video service, free of charge for Amazon Prime members. Subscribers (who pay $79 per year for unlimited two-day shipping) will now have instant access to more than 5,000 movies and television shows. But can Amazon – a company that has recently branched out into new businesses – make any significant impact in a streaming video market dominated by Netflix?

Netflix boasts more than 20 million subscribers in North America and enjoys some of the highest customer satisfaction ratings in the country. CEO Reed Hastings has led Netflix to the height of corporate and consumer dominance, and in spite of the recent pullback in the company’s stock, the widespread growth is expected to continue. Netflix offers a massive media library of licensed content more than four times the size of Amazon’s, and with a growing number of instant streaming companies launching, the ability to host the most (and best) content is a key determining factor in the battle for customers. On the heels of the Amazon launch, Netflix announced a two-year, non-exclusive partnership with CBS that will bolster Netflix’s current content offerings.

NetflixLivingRoom

Many agree that while Amazon’s new streaming service will be a valuable deal-sweetener on top of the unlimited shipping, Netflix isn’t currently facing a significant threat from the market newcomer. Perhaps more intriguing is the precarious partnership that exists between Netflix and Amazon’s cloud infrastructure, Amazon Web Services (AWS).

In early 2010, Netflix transferred a significant portion of its Web technology to AWS, a move that brought the streaming giant from massive data centers to Amazon’s massive cloud service. The transition freed Netflix from the massive financial costs and resource allocation demanded by the Oracle and IBM data centers it had previously used. Amazon’s cloud service allows Netflix to focus its engineering resources on customer-facing innovations and more importantly, allows the company to scale more efficiently. AWS offers a pay-as-you-go model that allows Netflix to add and subtract capacity as needed, eliminating contract commitments and resource-devouring depreciation costs.

In light of Amazon’s push into the instant streaming market, the two companies now face an intriguing competitive partnership. For Amazon Prime subscribers, the new perk will serve as an additional fringe benefit, but Netflix subscribers aren’t likely to abandon the company they so passionately enjoy and support. Neither the content offering nor the price point from Amazon are currently compelling enough to initiate the switch. Can Amazon leverage its impressive distribution channels and massive network of users to lure consumers to the company’s new video service? Will Netflix look to Rackspace or Microsoft for its cloud computing needs as competition from Amazon strengthens?

The ties between the two company are significant and will undoubtedly play a role in the future of the video streaming market, but the extent to which these two industry titans will co-exist or compete remains to be seen.

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About Michael Dossett

Inactive since Sept. 2011

Posted on February 22, 2011, in Uncategorized and tagged , , , . Bookmark the permalink. 3 Comments.

  1. Netflix will confirm its worries about Amazon as a competitor if they switch. I am not positive Mr. Hastings will do that. He is one smart chief, so we indeed shall see. Good post.

  2. Thanks for the comment, Dindian! No questions Reed Hastings is a great CEO. Amazon could emerge as a serious competitor for Netflix if their content catalog is expanded and they come available on other devices like Xbox/BluRay/etc.

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