Market Overview

The Cloud War

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Netflix (NASDAQ: NFLX) is poised to take over digital, music and video as it becomes mainstream. However, the company should still be concerned of its cloud reliability issues as it further considers future growth in its digital delivery. Netflix technology blog update states that in 2013, it will be working on ways of building cloud resiliency and extending resiliency to handle partial or complete regional outages. Last month, Netflix announced a $100,000 prize for developers who can improve open source tools for its features on cloud computing. There are 8 cloud-architecture tools presently available from Netflix. The company is also competing in price with rivals in video streaming.

Netflix is a company that has been set on Amazon Web Services (AWS). The company has experienced several cloud risk problems with AWS, having both minor disruptions and major outages. Netflix has been assertive with its consumer strategy, extending tools and code that are not good best practices for future cloud architectures.

Netflix has had a total of four outages in 2012 from its Cloud Computing v1.0 which have been key indicators for problem areas. Consumers lost trust, the company lost revenues. Netflix adopted AWS for its significant benefits in being able to reduce infrastructure costs, deploy and scale its service using the interfaces and cloud architectures.

The service interruptions had significantly disappointed consumers that trusted in Netflix cloud reliability. As a result, value, revenues were lost and customers were upset across the board. Customer retention due to unreliability issues could best be managed by maintaining revenue at low cost and increasing customer lifetime value metrics.

How can Netflix improve? The company will continue to invest in higher availability solutions to solve its cloud reliability issues. AWS reports “...data was deleted by a maintenance process that was inadvertently run against the production ELB state data”. This caused data to be lost in the ELB service back end, which in turn caused the outage of a number of ELBs in the US-East region across all availability zones starting at 12:24 PM on December 24.

Netflix competition and valuation is of concern. Redbox and Spotify are smaller companies in the market competing with Netflix. Netflix has much more of a greater cash position than smaller companies to continue growth in strategy, execution and acquisitions. Netflix’s main competitors include Amazon, AMC, Hulu and HBO. Netflix has an estimate worth of $10 billion, and Amazon is at $84 billion. The continued cloud outages may lead Netflix customers elsewhere.

Amazon.com’s two year old streaming video service Amazon Instant Video and Prime Instant Video, is part of its $79 annual Amazon Prime membership. The membership provides two-day free shipping and monthly Kindle e-book rental. Netflix says it expects to compete with Amazon.com the way HBO and Showtime compete — with TV dramas and comedies of their own. Amazon.com is competing with its television shows and movies to rival Netflix. The line up is not expected until fall this year. This is another indicator of the opportunities and advances in technology for streaming video. Recent deals shows signs of Amazon.com’s ambitions. Amazon is still embarrassed for its outages.

Redbox’s growth impresses as it plans to double its size with new ventures and new services in five years. Redbox Instant by Verizon was also announced last month. The service offers subscribers streaming movies and four nights of kiosk DVD rentals for $8 a month. Redbox Instant offers films from classics, MGM, Paramount and Lionsgate. Redbox has 38,500 DVD kiosks across the U.S.  Redbox Instant CEO Shawn Strickland is expected to discuss how the company will compete with Netflix at the upcoming Advertising Age's Digital Conference in New York on April 17. Redbox’s biggest challenge is figuring out how to market the service to the right customer.

Customer satisfaction in reliability is highly important if unreliability negatively affects the consumer. Cloud challenges are getting better. Today its also a benefit to know that the cloud challenges are more transparent in the industry and maturing. Netflix strategy is to isolate regions, so outages in the US or Europe do not impact each other.

As rivals race to compete with technologies, Netflix continues to be focused on being steps ahead of competitors.The outage was a failure but Netflix confirms it operates above 99.9 percent. Aside from its cloud reliability issues, consumers do benefit greatly from its convenience and overall service. Netflix US subscriber base is 27.15 million users.

Why Netflix? The company has had a past history of disappointing consumers. The potential damage these type of cloud issues and outages can do to Netflix is significantly hurt its customer base. “Winning” the cloud war over streaming video for Netflix today means its ability to deliver 30-percent plus of total internet downstream traffic. So far streaming has been a success. Netflix aims to provide quality experience to its customers.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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