How Amazon Outflanked Netflix

There is always some gap in your product for some customer relative to some competitor. This leads to the inevitable conversation “A competitor just did X. How should we respond?”

Being deliberate about how to consider competitors is critical to product discipline. Without it, you are destined to being a follower. The two most common approaches I have seen in reacting to competitors are contradictory:

1. We should be more inclined to invest in X because “we have to close the gap with a competitor”.
2. We should be less inclined to invest in X because “we need to focus on more differentiation”.

Instead, the better answer is to invest based on your vision of the future and your customers. That’s not to say that you should ignore competitors. You want to understand your current and future competitors as part of defining your strategy. But beyond that, reacting to competitors through product investments often indicates a lack of focus.

However, sometimes a feature gap reveals a broader challenge to your own strategy. A recent example that I came across was offline viewing announced by Amazon Video relative to Netflix.

Amazon Announces Offline Viewing

Amazon Video introduced offline viewing to Android and iOS devices in November 2015. Offline viewing was previously available for Kindle devices, but with this move they opened it up to the broader market.

Offline viewing is significant because it enables a full solution in a mobile first world. Connectivity & cost have been issues from the very first day of cell phones and will be for the foreseeable future:

• Connectivity. There are many circumstance in which connectivity is missing or inadequate. This includes airplanes, subways, long commutes, out of coverage areas, etc. Netflix currently has no solution for these scenarios, leaving it open to competitors.
• Cost. Even when you have connectivity, data plans are expensive and many people need to manage their bandwidth. Netflix even warns about data usage on their site. Eating through a GB of data per hour would quickly kill most monthly plans.

Watching movies or TV shows on Netflix uses about 1 GB of data per hour for each stream of standard definition video, and up to 3 GB per hour for each stream of HD video. This can create headaches for Netflix members who have a monthly bandwidth or data cap on their Internet service.

— From https://help.netflix.com/en/node/87

The launch of offline viewing has been met with generally positive reactions. Amazon Video has started winning reviews, journalists have been asking Netflix when they will close the gap, and users on Twitter are tweeting their hopes that Netflix offer something similar.

Analyzing Netflix’s Position

So far, Netflix’s has not had a product response. For example, in the Gizmodo article “The Real Reason Netflix Won’t Offer Offline Downloads” Netflix says:

“Undoubtedly it adds considerable complexity to your life with Amazon Prime — you have to remember that you want to download this thing. It’s not going to be instant, you have to have the right storage on your device, you have to manage it, and I’m just not sure people are actually that compelled to do that, and that it’s worth providing that level of complexity.”

— Netflix, Chief Product Officer, Neil Hunt

Offering download alongside streaming is not unique to video. In music, Spotify offers “Play music with no phone service” as one of the four reasons to upgrade to Spotify Premium as presumably it is something music listeners want. Podcast apps similarly offers a download option alongside streaming and subscribing.

A test of Amazon Video reveals how simple it is to use. To download, you find the episode you want to download and click on the download icon. That’s it. It is then available when you are sitting on a plane or on your commute.

So, what’s the deeper reason?

“I think a much more interesting proposition is, can we make streaming work better in more places that people want to stream? As an example, what if we can put Netflix in a rack box that essentially contains all of Netflix content that you could imagine putting in an airplane server, right along with our existing offerings?”

— Netflix, Chief Product Officer, Neil Hunt

Netflix is framing the job-to-be-done as “How can I serve streaming video to consumers?” The streaming focus has obviously served Netflix shareholders well, but “streaming” is more of a technology than a customer framing. It worked well in the Blockbuster vs. Netflix world where it was primarily about substitution in the home and streaming wasn’t limiting. Amazon is framing the job-to-be-done as “How can I serve video to consumers anywhere?”

In addition, I expect that it would require alignment and prioritization across most groups across Netflix. They may need to renegotiate multi-year content licenses, change tbilling system to accurately pay content providers, change subscription plans which are based on concurrent streams, rethink architecture which is optimized for streaming, rework UX in applications, and change how they collect data from devices that aren’t connected.

The Decision

So, what is the right decision?

For Netflix, there should be little impact to subscriber numbers in the near-term. However, the lack of offline viewing will drive more of their users to look for something that can solve that gap in Netflix’s offering. Those users may shift from only using Netflix, to using both, to eventually dropping Netflix.

While you want to play your own game and not react to competitors, there are moments when a competitor does something that forces you to re-evaluate your strategy. As an outside observer, it seems that Amazon Video has done this to Netflix with respect to offline viewing. Netflix has an interesting decision here between:

• Redefine their strategy from “streaming” to “everywhere”. This would be a huge decision and I expect they would want to avoid it if possible. But can Netflix afford to cede airplanes, commutes, low-coverage areas & limited data plans to Amazon Video?
• Double down on “streaming”. Or should Netflix maintain their focus on streaming-first perspective which has worked so well for them to this point. For example, investing deeper in unique content to keep people hooked to their service.

If I were making this decision, there are two data points I would want to get some intuition about:

1. What % of users are actually view this as an important scenario. Tweets provide anecdotal data, but Netflix and Amazon Video likely conduct various prioritization studies with their customers to get a real handle on this.
2. What will those users do if Netflix doesn’t meet their need? Will those customer churn from Netflix or maintain Netflix alongside another service that can fill in those gaps in their days.

Conclusion

What will force this decision is if Amazon Video starts seeing faster uptake and starts marketing this difference more aggressively. Personally, I have been impressed with the progress that Amazon Video has been making on the content side, but offline viewing is what pushed me over to actually try it out.