Netflix and Amazon: Quite the co-opetition case study

Netflix and Amazon: Quite the co-opetition case study

Summary: On the surface, the fact Netflix is moving its entire infrastructure to Amazon Web Services looks a bit nuts given the e-commerce giant competes on streaming video. But it's business as usual for these rivals and partners.

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TOPICS: Cloud, Amazon, CXO, Storage
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Netflix and Amazon are fierce rivals on streaming video. Netflix is also moving its entire technology infrastructure to Amazon Web Services. Netflix CEO Reed Hastings is Amazon's most visible infrastructure as a service customer. On another front, Amazon is making storage cheaper for Hastings while raising Netflix's content costs through competition elsewhere.

Simply put, the Netflix and Amazon relationship is complicated, nuanced and in some regards just plain weird. The Netflix-Amazon relationship also highlights why Amazon Web Services (AWS) is successful. At the AWS re:Invent conference this week in Las Vegas, the Netflix-Amazon relationship was on full display.

But to hear Amazon execs and Hastings talk there's nothing out of the ordinary.

Hastings noted AWS price cuts and thanked Andy Jassy, senior vice president of AWS on Wednesday. Hastings also said Netflix's entire infrastructure will run on AWS.

On Thursday, Amazon CEO Jeff Bezos said:

We put just as much care into Netflix on AWS as we do Amazon retail. We may compete on Prime instant video, but we bust our butts every day for Netflix on AWS. The whole point of what we are doing is to standardize that layer. Amazon retail gets the benefit of standardizing that layer.

netflixcloud

 

The importance of this Netflix relationship can't be overstated. The Netflix case studies and ongoing collaboration allow AWS to be an option for many of Amazon's competitors. If the Netflix and Amazon partnership seems odd to some folks it can't be worse than Best Buy using AWS. Retailers use AWS. E-commerce companies use AWS. A bevy of startups and large enterprises are using AWS.

Many of these customers also compete with Amazon. In other words, AWS rivals/customers put a lot of trust in Bezos and the gang to keep its IT infrastructure unit separate and stay that way. That goodwill may be AWS' secret sauce in many respects. Belief that AWS is independent can allow it to fend off competitors who are just as surprised as Bezos at the traction Amazon has with enterprises, government customers and education institutions.

What remains to be seen is whether AWS is dented by encroachment from a bevy of rivals such as Rackspace. Rackspace has made a point of trying to poach retail customers from AWS. The Rackspace argument: Why would you give business to a rival? So far, the argument hasn't worked.

Adam Selipsky, vice president of product marketing, sales, and product management at AWS, said rivals will give business to the company because it meets their IT needs.

This co-opetition is "not uncommon at all," said Selipsky. Ultimately retailers or any other customer base will stick with AWS if it delivers strong performance, a good pace of innovation, value and good customer support. If AWS didn't operate independently customers wouldn't use its services, he added. "The only way to build a healthy large cash flow generating business is to focus on servicing customers," he said. "We and customers are comfortable with the long-term state of affairs."

More re:Invent coverage:

Amazon CEO Bezos: AWS is lean manufacturing, Kindle Fire for IT | Amazon Web Services launches Data Pipeline, EC2 instances for analytics | Amazon's Vogels: Next-gen IT architectures need to be 'cost aware' | Amazon Web Services: Rackspace's OpenStack low on customers' radar | Amazon Web Services launches Redshift, datawarehousing as a serviceAmazon Web Services cuts S3 prices, knocks old guard rivals | BitYota launches, eyes data warehousing as a service | NetApp, Amazon Web Services set hybrid cloud storage pact

Topics: Cloud, Amazon, CXO, Storage

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29 comments
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  • I hope it stays that way

    But if it comes to it the two should split into separate companies.
    T1Oracle
    • BTW, I mean Amazon and AWS.

      n t
      T1Oracle
  • The end of Borders

    When Borders linked all their sales thru Amazon, it was the beginning of the end for them. Same with Netflix??? Once a consumer is used to going to a competitor's site to buy your product, eventually they'll just figure "why deal with the middleman?
    Ira Seigel
    • Not quite

      The average Netflix customer won't know that the stuff they're downloading is coming from AWS.

      It's not like the customer will go to Amazon's website to get their Netflix videos.

      However, it still seems like a strange idea. On one hand it's reducing Netflix's costs, allowing them to compete better with Amazon, but on the other hand Netflix are paying money to Amazon, allowing them to to compete better with Netflix.

      It'd be like Apple using Windows PCs in their offices (maybe they do, but I doubt it)
      pscs
      • Actually it is more like Apple

        using Samsung as its parts supplier. Though this is changing some after all the lawsuits, it is a little hard to find inexpensive quality components like Samsung makes. This is the same boat for Netflix, AWS is the inexpensive quality cloud services. If I was Netflix, I would look at using other providers as well, just in case things change.
        grayknight
      • In fact Apple does use Windows...

        ...in the Apple stores. They have this portable credit card thingy that the sales people carry around the store, and last time I was was there it was labeled as a Windows-based device.
        rmss
        • not in any Apple store I've purchased from...

          and that's quite a few. they use an iPod touch with a credit card sleeve. sign with your finger tip.
          myopinionrules
    • Why wouldn't Borders GAIN sales?

      Borders is a great place to shop when you have a lot of time. But if you don't, you want to see what it has ONLINE, that's a mess. So why wouldn't Borders benefit by having a storefront through Amazon, since its stuff is right there in the search listings, alongside everyone else? Especially, if one isn't already a Borders customer? If I go straight to Borders, I'm already familiar with it. But what if I weren't? Here in the South, there's not a lot of Borders stores, unlike Illinois. So then: Borders can expand its borders by being a storefront in Amazon.

      I don't see how it would lose sales. Lots of what it sells, no one else carries.
      brainout
  • As long as it works

    As long as their relationship works and the end consumer of Netflix or amazon prime video can watch their content with ease and not suffer outages and keep the price low then I for one will remain a loyal customer the people who should be worried is the cable companies and on demand services I refuse to watch commercial FiOS Tv anymore w/o first DVR the program so I can skip commercials and On demand is now trying to force people to buy the hot new movie but keeping it buy only for 2 to 4 weeks before letting it be rented Yo FiOS I will Never BUY a digital movie not with out the extras and special features at least VUDU (Walmart) gives you he special features
    KineticArtist
    • agreed

      I agree, .99 is a price point I can live with for music in a digital only format, but for exclusives (Hobbit Complete Soundtrack coming up for example) and for the cost of HD movies, I still desire the physical format for (almost) guaranteed future forwardness. If FIOS or UVERSE goes under will that content transfer from one device / service to another - no freaking way. I'm out.

      Even forgetting special features, digital movie cost needs to get more in line with the distribution cost ($15 for Avengers on iTunes when I can go purchase a DVD/Blu-Ray/Digital physical copy of for $15 on sale is not acceptable). Or maybe it's just a generational thing. (mid 30's here)
      nathankc
      • Yes indeed

        It doesn't make sense. I don't understand why people are so crazy with appel. I would definitely buy the hard copy.
        malon1
  • Why is this unusual?

    If Samsung can build screens for Apple, what is the difference, really?

    Dating back to ancient Greece, when it comes to doing business and making money, not much will get in the way. Back then, two countries could be at war with each other, but trade continued unabated.

    In this case, Netflix is going to stream movies regardless of the existence of Amazon. Amazon found a way to profit from this fact, and Netflix is rewarded with lower overhead (commensurately higher profit). It's win-win. Business doesn't always have to be a win-lose proposition.
    jvitous
  • This IS NOT co-opetition.

    Geez Larry (and Adam and anyone else who thinks this is co-opetition). Go take some businesses classes. This is absolutely not a case of co-opetition. Amazon and Netflix do not have a competitor/partner relationship, they have a competitor/customer relationship. And BTW, I'm sure Netflix feels quite comfortable with having their infra be in the AWS cloud. AWS competes with other cloud service providers, not retailers or video streaming providers. That division looks at Netflix completely neutral. They are bound to provide the same secure services they provide other companies, and will damn well make sure Netflix gets the best service possible.

    They are not a competitor, they are a customer.

    BTW, Amazon's operating model should almost appear as if Amazon and AWS are two seperate companies. That's the way business is done.

    And, Larry... "the Netflix and Amazon relationship is complicated, nuanced and in some regards just plain weird"? What's with that? Must be a slow news day to have to generate a sentence like that. Nothing complicated. Nothing weird. No matter how much you try to make it appear.
    greg_nw@...
    • To me this equates to Samsung and Apple

      as Apple buys parts from Samsung manufacturing but competes with Samsung electronics (or whatever the names of the divisions are). Now that Samsung electronics and Apple have been in lawsuits, there is movement from Apple to find other parts. So even though the divisions were separate, they weren't separate enough. And so it is possible that AWS and Amazon could become less separate and be a potential problem for Netflix.
      grayknight
  • Corporate identity crisis

    Whether this makes sense for Netflix is a function of how it identifies itself as a company. If it is primarily a sales oriented company, this allows them to dispense with many of the back office operations. If it is a service-oriented company (e.g. sign up for Netflix because it's streaming is of a higher quality than its competitors) than Netflix may have shot itself in the foot (again).

    I have no doubt that this will lower overhead costs for Netflix and can possibly be a win-win solution for both companies, but effectively giving up on the quality of service difference may be another step towards market irrelevance.
    sthayes
  • Not Quite Ready for Prime-Time

    The Prime Video experience still doesn't fully compete with Netflix yet - lack of captioning and catalog issues (although, in some cases Amazon will have a catalog item that Netflix doesn't yet: Downton Abbey S2 for example) but no player on Android is hurting Amazon as well as the upcoming exclusives (House of Cards / Arrested Development).

    Not sure if competition in the space actually helps consumers. It may drive licensing costs down for the service companies but am I really seeing that savings if I have to maintain Hulu Plus, Amazon, Netflix, HBO Go subscriptions to get the various content?
    nathankc
    • Ahh, exactly my problem

      How do I get all the content I want? I maintain multiple subscriptions: Xbox Live, Netflix, Hulu Plus, Amazon Prime, Optimum (cable), and various others available via Xbox or Samsung TV apps. Probably 75% are rentals with 25% being digital purchases, and the DVR gets a workout. What I really dislike is that stuff disappears from one and there is a lag before it is available elsewhere (in streaming/digital download formats). So if I want it then, too bad, or go to a store and buy the physical DVD/Blu-ray.
      grayknight
  • Not That Weird

    There is a simple term for this in the real world. It's called "Conflict of Interest". The relationship's viability will rely completely on the integrity of those at the top as well as those in operations.

    Also, NOTHING works without some small or not-so-small hitches and glitches. The first time that Netflix customers experience outages for some technical reason, costing Netflix a little payola, the suggestion that AWS the provider/competitor was culpable won't be too far behind.

    This ought to be rich.

    As an operator under the same conditions as Netflix, but in a smaller market profile, we'll be watching.

    EZWebPlayer . com
    StuEZWebPlayer
  • Keep your enemies close !

    Keep your enemies close !

    Indeed it is worse than that, as in the UK and some other parts of Europe, Netflix is the newcomer upstart to the long established market leader LoveFilm, an Amazon company.
    neil.postlethwaite
    • Yep and then gobble'em up

      and become one big happy family. ;) Sure, it's just netflix using AWS for service but that's where the takeovers start. As some form of partnership. The writing is there, only time will tell.
      Free Webapps