Market Overview

Netflix has a Bone to Pick with Amazon

For many individuals, Christmas is a time for family. For some, it is an excuse to gather around the TV and watch movies.

When an unexpected outage took down Netflix (NASDAQ: NFLX) for an undetermined number of users on Christmas Eve, Netflix subscribers were left without a streaming video option. Some likely wondered if they were smart to cut the cord.

"I came home to relax and watch movies; I tried several times, but I gave up," one subscriber told The Wall Street Journal. In the absence of Netflix, he was forced to watch Christmas specials airing on TV.

At the same time, millions of Amazon Prime (NASDAQ: AMZN) subscribers were free to watch Thor, Deep Impact, Everything is Illuminated and a hodgepodge of other films and TV shows. They did not encounter any technical problems on Christmas Eve or Christmas Day.

This is significant because of the source of Netflix's problem. According to Reuters, Netflix is blaming Amazon for the outage.

While this might sound like an interesting case of corporate sabotage, Netflix is actually a customer of Amazon. The video rental giant uses Amazon's cloud services to deliver online content.

Amazon is unlikely to risk damaging its reputation by purposely ousting Netflix on Christmas. However, the outage does beg one question: will the cloud ever live up to its reputation?

Tech companies want investors to believe that cloud-based computing is the future. They insist that everything will be done through the cloud. For that to occur, however, they must first show that it is a stable and reliable platform.

Thus far, the cloud has been nothing more than a cost-effective disappointment. It has saved companies millions while providing billions in additional revenue to a few key players. At the same time, cloud users have endured painful outages that have raised questions about its usefulness. Is it safe for a company to put all of its eggs into one basket -- or one cloud, if you will?

Amazon has had number of outages this year, which could inspire a transition for the industry. Smaller firms may attempt to offer a backup service to supplement the cloud options provided by Amazon and other large corporations. It may not work; users may resist the urge to use multiple cloud services. Even if they don't, there may still be problems.

Looking ahead to 2013, Netflix might want to reconsider its unusual partnership with Amazon. Right now, Barnes & Noble (NYSE: BKS) does not use Amazon's marketplace to sell books. Best Buy (NYSE: BBY) does not use Amazon to sell electronics. Why should Netflix be any different? Why should the company pay a competitor to deliver streaming videos?

Follow me @LouisBedigianBZ

Posted-In: Amazon NetflixNews Tech Best of Benzinga

 

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