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Netflix Is Dependent On Amazon.Com, And It Is Not Alone

16 February 2016

From Seeking Alpha:

Netflix has finished its “cloud transition,” the company says in a blog post.

But there is a more important story here. That story is the Netflix-Amazon.com  alliance, an alliance that only seems to have grown stronger with time. And the fact that it is just one of many such alliances.

Netflix has not always felt easy about having its service served by a primary competitor. The company created its own Open Connect Network, a standard designed, in part, to make it less dependent on Amazon, better able to move traffic and storage to other cloud providers that might provide it with a better deal.

Netflix now accounts for 37% of the Internet’s traffic during peak viewing times – you can think of it as the 900-pound gorilla of Internet streaming. But after a seven-year transition, during which it did everything it could have done, technically, to reduce its dependence on Amazon Web Services, Netflix is signaling that it’s more dependent than ever.

. . . .

 Despite Microsoft’s efforts to compete with Amazon on price regarding bare bones infrastructure, Amazon’s lead there continues to grow. Netflix might love to be less dependent on Amazon infrastructure, and it has spent hundreds of millions of dollars preparing to be less dependent on it. Yet it is dependent on it.

. . . .

But Amazon’s lead now has less to do with raw capital power and more to do with hard-won lessons learned in making that investment. Cloud has consolidated, and Amazon is the winner.

This is not a box Netflix can get out of. The company reported revenue of $1.8 billion last quarter, against $35 billion for Amazon. It has about $1.8 billion of cash on its books, but it has committed that cash into its work in building a studio to rival Viacom’s Paramount, Disney, Fox, Time Warner and Comcast’s Universal. That is its strategy, and throwing $1 billion/quarter into data centers would, at this point, make it impossible for the company to free itself from those content suppliers. Thus, Netflix has chosen to remain dependent on its primary competitor in net streaming.

What is true for cloud infrastructure is also true for commerce infrastructure. Amazon has several billion-dollar “competitors” who use its delivery infrastructure to serve their customers. It has many other companies using its payment infrastructure, especially now that sales taxes on online sales are becoming routine, raising the cost of compliance beyond what many small players can afford.

Amazon is an infrastructure company. Do not analyze it as a retailer. Do not analyze it as a streaming company. Don’t even analyze it based on cloud revenues. Amazon is infrastructure, infrastructure on which global commerce is increasingly dependent.

Link to the rest at Seeking Alpha


9 Comments to “Netflix Is Dependent On Amazon.Com, And It Is Not Alone”

  1. Do not analyze it as a retailer. Do not analyze it as a streaming company. Don’t even analyze it based on cloud revenues. Amazon is infrastructure, infrastructure on which global commerce is increasingly dependent.

    Interesting. I agreed with the post PG featured a few months back characterizing Amazon as a venture capital company. I think I would characterize its infrastructure arms (cloud computing, robotic warehousing, delivery systems by air and truck, etc.) as simply more developments by that VC core.

  2. Here is an interesting take on the Netflix/Amazon AWS partnership as well. http://www.businessinsider.com/netflix-intuit-juniper-go-all-in-on-amazon-cloud-2016-1

  3. Netflix is dependent on Amazon only because Amazon is providing great service, prices, etc.

    If Amazon were to behave as the big bad monster so many seem to think it is, then no one would be dependent on them.

    Amazon knows this.

    I wish pundits and publishers would figure it out.

  4. A lot of companies run on Amazon’s servers. And this is news how, exactly?

    Amazon’s server crash last September took down Tinder, Product Hunt, SocialFlow, GroupMe, Viber, and Mediacom. An earlier crash took IFTTT, AirBnB, Vine, Netflix, and Instagram offline.

    In short, Seeking Alpha just told us something we knew since 2011.


    • Its paying a direct competitor that is news. Its not common, prior to this situation. Netflix had this issue first with Comcast, and it WAS an issue. Congress had to step in.

      When your digital product relies on the pipeline of a direct competitor, its generally not considered a good business strategy.

      In this particular case, though, Amazon Prime Video and AWS are practically separate companies. My understanding is that Prime Video actually has to pay AWS for service. That’s also not uncommon. I work for a video production team in a large multinational manufacturer. Our clients are the product managers for each individual product, and they have to pay for our services out of the product development and marketing budget.

  5. And they are dependent on MicroSoft because lots of them use Windows.

  6. In the tech world, Coop-petition is a common, every day reality. Companies routinely compete in one arena while cooperating in another and nobody wastes time of effort on high-minded pronouncements or angsting about being over-reliant on one partner.
    (You only see that in publishing.)

    As the article makes clear, Netflix had a choice between investing its money in generating content or in building infrastructure. They chose content, logically. After all, content is a profit center and infrastructure is for them a cost center–if Amazon can support their system for less than it would cost to build and run their own they get a better return on investment putting the infrastructure savings into growing the profit center. And if it means giving money to a competitor, so be it. They’re still ahead of Amazon and Hulu and everybody else so maintaining/building up that lead is a strategic win.

    As PG has pointed out, both Netflix and Amazon have been outbidding old media for new content (much as “Indie, Inc” has been outbidding tradpub for new content) and in the process they reduce old media’s leverage come contract time so Amazon’s own streaming benefits from Netflix’s strength and Netflix benefits from Amazon’s growth. More, as cord-cutting gains momentum, old media will have to go to the streamers for access to the eyeballs they need, thereby undercutting cable, a common enemy of both Amazon and Netflix.

    An alliance of frenemies that benefits both.

    Contrast this to traditional publishing’s reaction to Amazon growing the market for books by drawing in more creators, more/different voices, and drawing in more readers to sell those added books to.

    Small wonder trade publishing is a stagnant business while tech giants expand their reach and influence.

    • This is very true. In this case, ripping people away from Cable is more important than directly competing with Amazon. But that won’t always be the case, and once again, Amazon has positioned itself to be the winner down the road, because they are the only company not relying on anybody else.

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