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Editors' note: Contrary to reporting in a previous version of this article, the first generation of Netflix's Watch Now video streaming service was powered by Microsoft's Windows Media Player software. The Fool regrets the error, but the point that Silverlight threatens Flash for online video use still stands.

One company's internal affairs can speak volumes about where a few other businesses are going. That's the crazy, interconnected world we live in.

This year, movie-rental maven Netflix (Nasdaq: NFLX) rewrote its streaming video service under a new toolset. There was much rejoicing as Microsoft's (Nasdaq: MSFT) Silverlight service has become easier to use. Some Netflix employees probably think it's too good, even.

Over the weekend, company spokesman Steve Swasey announced that Netflix doesn't need 50 of its 300-odd customer support people anymore, because the Silverlight application simply doesn't need a whole lot of support. Swasey said that it's "sad to let go of good people," but with fewer problem reports, some tech support staffers have nothing to do anymore, other than watching movies and knitting sweaters out of pocket lint. Might as well release them back into the wild, in the interests of cost controls and career development. It sounds like they leave on positive terms and can expect letters of recommendation from a highly respected technology-oriented business.

Investors should sit up and take notice for two reasons.

  • Netflix cares deeply about getting good returns on its investment in human resources and is willing to make hard decisions when appropriate. The Silverlight changeover just freed up some financial and talent capital for deployment elsewhere.
  • Microsoft seems to have hit a home run with Silverlight and is currently rounding the bases. If the product really is that much smoother and easier to support, then I can only think that Adobe (Nasdaq: ADBE) might have a true challenge lurking around the corner. Don't expect Google (Nasdaq: GOOG) to convert YouTube into its archrival's pet format anytime soon, but we might see changes in other video streamers like Viacom's (NYSE: VIA) MTV Videos or Hulu.com, a joint venture between News Corp. (NYSE: NWS) and General Electric's (NYSE: GE) NBC Universal.

I didn't know what to think when Microsoft first decided to challenge the Flash hegemony of digital video. Now, it's clear that Silverlight is no laughing matter. Thank you for clearing that up, Netflix.

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Microsoft is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers pick. Netflix is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google and Netflix, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio. The Motley Fool is investors writing for investors.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 08, 2008, at 4:06 PM, markm72homeruns wrote:

    Yeah, and that is why MLB.com decided to go back to Flash after dealing with Silverlight right? Come on, either way one customer does not make a trend...

  • Report this Comment On December 08, 2008, at 4:13 PM, lepewncharlie wrote:

    netflix has never used flash. netflix went from WPF to silverlight. if it ever switched to flash i suspect it would have stayed with it.

  • Report this Comment On December 08, 2008, at 4:33 PM, kevinlynch1 wrote:

    Hi,

    There appears to be a misunderstanding in this article. NetFlix had not been using Flash for streaming their video, and it was not replaced. JD has more on this at http://blogs.adobe.com/jd/2008/12/netflix_flash_silverlight_...

    Flash is doing great and continues to be incredibly successful for delivering video on the Web. Over 80% of video streaming today is using Flash, and we're working hard to continue enabling great video experiences across the Web.

    thanks

    Kevin

    Adobe

  • Report this Comment On December 08, 2008, at 4:52 PM, TheGreenField wrote:

    Anders,

    Check your facts. It appears you have been drinkin' too much of the fool-aid.

    Long live Flash!

    TheGreenField

  • Report this Comment On December 08, 2008, at 5:01 PM, Twinsen2009 wrote:

    Well that sure was a Bylunder.

  • Report this Comment On December 08, 2008, at 6:56 PM, unavail wrote:

    Guess motley fool must have had editorial lay offs.

  • Report this Comment On December 08, 2008, at 8:19 PM, jmfamp wrote:

    Motley Fools...aptly named I'd say. I sure hope they investigate their stock picks more carefully.

    I think maybe Microsoft wrote it...what a bunch of idiots...hope they make zero tech stock picks!!

    I hope they read comments and fix this hogwash...

    Mark Fuqua

  • Report this Comment On December 08, 2008, at 8:31 PM, skeptic0 wrote:

    Nice try guys. As the above posters pointed out, they NEVER used Flash. (Too bad, too).

    Reed Hastings, CEO of Netflix, sits on the board of directors at Microsoft. That also might explain why you can only watch Netflix movies "instantly" using IE.

    One wonders about Netflix, at this point. Why would they would issue such inaccurate information in relation to a material event at their company?

  • Report this Comment On December 09, 2008, at 10:13 AM, markm72homeruns wrote:

    I find it very amusing that this kind of crap can pass for advice. Many of the articles on TechCrunch, SeekingAlpha and MotleyFool have become this kind of useless blabbing. For once I would like to see someone really go in depth to the issues and give some real commentary.

  • Report this Comment On December 09, 2008, at 10:34 AM, TMFZahrim wrote:

    Ahem. I do apologize for the factual errors, as noted above. The fact that SilverLight improves greatly on the usability and support needs of running WMP videos is still important, and I do think that Adobe needs to respect this thing. One swallow does not make it springtime of course, but every journey starts with a first step.

    Again, apologies all around,

    Anders

  • Report this Comment On December 09, 2008, at 12:05 PM, DanRayburn wrote:

    You have to wonder how much any writer, or editor for that matter, really covers this space when they can't even spell "Silverlight" correctly. Why is the L in Silverlight in caps all throughout the article? Microsoft does not capitalize it. It's simple things like that which shows readers right away that the writer doesn't really know or follow this market.

  • Report this Comment On December 09, 2008, at 12:48 PM, unavail wrote:

    Anders,

    Oh, puh lease. Why don't you rename the article "Microsoft finally works after months of fumbling" and see how long it takes for your friends at MS and Netflix to retract your article. Maybe another title could be "Microsoft's Silverlight requires 300 technical support staff just to get off the ground..." Your very premise is entirely false and manipulative.

  • Report this Comment On December 09, 2008, at 12:54 PM, storydavid wrote:

    Dear sirs,

    You should apologize for the entire article, bluntly, and retrain that "editor." Anyone who is not afraid of a monopolist leveraging their influence is an idiot, and Adobe folks are no idiots.

    The headline in particular is ridiculous. Please change it to what the reality is: "Microsoft WPF/Windows Media video replaced by new technology" and go get some facts about how terribly bad the prior experience was.

    You should remove the words Flash from what is essentially a "fix" for non-working MSFT technology.

    Dave Story

    Adobe Systems

  • Report this Comment On December 09, 2008, at 1:35 PM, ParadiseFH wrote:

    good lord what a bunch of dribble this is. perhaps you could piece together a decent article from all the comments above ... i doubt you will but the least you could do is spell "Silverlight" correctly (the 'l' is not capitalized!).

  • Report this Comment On December 09, 2008, at 2:42 PM, pbaird00 wrote:

    Your editor's note states "but the point that SilverLight threatens Flash for online video use still stands".

    With all due respect, the fact that Netflix has switched from one Microsoft technology to another has nothing to do with Adobe or Flash. In contrast to your comment, Adobe Flash for Video usage has actually gained web market share since the introduction of Silverlight, and most of the "paid experiments" that Microsoft sponsored have switched to Flash, including MLB and NBCSports (Olympics having reported abysmal web viewership numbers, NFL Game Day now running in Flash). Even Amazon OnDemand has dropped Microsoft Technology in favor of flash video. To the contrary of your assessment, I see much more abandonment of MSFT web video technology than I do adoption.

    I also have serious doubts about the analysis that someone like hulu.com would risk their business on an unproven and non-ubiquitous technology any time soon given its successes with their current approach.

    There's no doubt that Silverlight aims to compete with Flash, and that Adobe is aware of that competition. But to say that Netflix's transition from one MSFT technology to another supports in any way a headline so alarmist as "Adobe Running Scared" is just shoddy journalism and FUD.

  • Report this Comment On December 09, 2008, at 3:27 PM, jamiemcd wrote:

    I read Motley Fool in my local newspaper and have used CAPS as a reference for doing my homework on stock purchases.

    This article about Netflix, Microsoft, and Adobe has made me raise an eyebrow at Motley Fool. I usually like their humor, but this article had a sensationalist title (not even a play on words) AND was highly erroneous. On this one, the house made of adobe stands, while the house made of joker cards collapses.

  • Report this Comment On December 09, 2008, at 4:47 PM, TheGreenField wrote:

    Anders,

    Microsoft and Adobe, two software giants, will continue to figure out how they will win their portion of the digital media marketplace for years to come.

    I do have a quesion - This Swallow you refer to, is it laiden or unlaiden? African or European?

    Maybe the Montey Python Movie reference has more correlation than you first think. Better humor than The Motliest of Fools, NetFlix can rent it to you if you wish.

    TheGreenField

  • Report this Comment On February 09, 2009, at 11:38 AM, og06 wrote:

    I am just a consumer of netvideo - both through hulu/nbc.com, youtube, and netflix streaming. I actually signed up for netflix to try its online video service. Here's my verdict.

    I have basic DSL. I suspect most people do. On that speed connection, there is no contest between the two technologies. For video, Flash is terrible over the basic broadband like DSL. The video/audio skips terribly, sounding like a broken CD. Over half the time I try to watch "The Office" it is completely unplayable. When it works, it looks fine, but there is a huge digital cliff.

    Netflix, and I guess whatever Windows streaming tech they use, is much, much better. I almost NEVER have a skip in audio/video. Instead, the software seems to automatically downgrade the quality so that it keeps up with my connection. Sure, it gets fuzzy sometimes, but compared to broadcast TV, it's fine and perfectly watchable. I am pefectly willing to trade quality for the ability to watch it at all.

    I wish all internet video used Netflix's software. All I want is smooth video, and Netflix, and I guess Windows, wins hands-down.

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