If Netflix planned to grab media attention the way it has in recent weeks, it certainly has succeeded brilliantly, multiple times. While the real stories may not be known for a while yet, one thing is certain: Netflix has made itself a permanent case study in business communication classes.
Confusion and mishaps aside, Netflix did succeed in carrying out a couple of major tasks: it separated its DVD by mail service financially from its streaming service, and it raised the price of both its services significantly.
Recently, there have been rumors of a failed courtship between Netflix’s and Amazon. Wall Street speculates that Netflix split up in order to sell, and reversed that decision when the merger fell through. While nothing can be confirmed, the sudden announcement of Qwikster and the subsequent hasty change of heart certainly suggests there was perhaps more drama behind the scenes than what the audience saw.
While many view Amazon as one of Netflix’s strongest competitors, very few in the media have paid much attention to the technology side of the story; namely, that Netflix runs much of its customer facing infrastructure on Amazon’s cloud.
In late 2010, Netflix listed reasons why it decided to put its infrastructure on Amazon’s cloud in its blog: “We could have chosen to build out new data centers, build our own redundancy and failover, data synchronization systems, etc. Or, we could opt to write a check to someone else to do that instead.”
That someone is Amazon, the leader in enterprise cloud services. Netflix does not own content, nor does it own much infrastructure. Netflix’s greatest asset is its brand and subscription base. It has been facing increasing pricing pressure from its content providers. Its recent price increase may have retained its content acquisition power, but it may have paid a high price for that.
On the flip side, Netflix is one of Amazon’s largest “cloud” customers. For the time being, the two still need each other. But no matter how things unfold, Amazon seems to be in the driver’s seat. Quietly, the king of online retail has also become a formidable force in media.
This puts Netflix in an awkward position, as it has danced closely with its main rival. The recent turn of events at Netflix, together with Amazon’s increasingly more attractive subscription-based streaming service and recent Kindle Fire introduction, makes the future between the two anything but predictable.
Netflix may be down, but it is still at the very center of a media revolution. Netflix’s future will almost inevitably involve some form of partnership or merger. To get out of the uncomfortable liaison with its chief rival, would Netflix be looking into another cloud, or even get much closer to another powerhouse, such as Microsoft or Google? Time will tell, but at least for the foreseeable future, the name on those familiar red envelopes will be Netflix not Quickster or even Amazon.
Netflix photo by Andre Alforque.