The 2 Reasons Google Should Own Netflix

People have been saying for years that Amazon.com (Nasdaq: AMZN  ) should buy Netflix (Nasdaq: NFLX  ) , typically just because the leading digital video service would give Amazon a head start in that very promising market. Others think Apple (Nasdaq: AAPL  ) should buy the company; if nothing else, it would be a good use of Apple's bulging coffers. Then again, it would make some sense to roll Netflix into Microsoft (Nasdaq: MSFT  ) , since the companies already share some technologies and Netflix CEO Reed Hastings sits on the board of directors in Redmond.

But those transactions won't happen, people. The one place where Netflix fits perfectly is Google (Nasdaq: GOOG  ) . Netflix and Google have a couple of very fundamental philosophies in common, which would make it very natural to fold the two into a single information-crunching behemoth.

Affinity No. 1: Same quick-fire approach to invention
They share the same approach to new products. Google is famous (or infamous) for rattling out new products and services at breakneck speed, then fixing them as needed. The search engine receives mostly silent and unheralded updates every week, Android gets a new major version every six months or so, and the Chrome browser moves to a new version every six weeks.

And here's what John Ciancutti, Netflix VP of personalization technology, says about his company's development habits:

Our core mandate is to relentlessly experiment with the technologies, features and experiences we deliver to our members. We test every new idea, so we can measure the impact we're having on our customers. Are they finding more content to watch? Are they enjoying the TV shows and movies they're seeing better?

If so, the idea is a winner and we quickly roll it out to every customer. This approach allows us to understand when we've gotten it right; or conversely to fail quickly and cheaply.

Rings a bell, doesn't it? Compare and contrast this with Apple, where products don't go out the door until they have been perfected as far as possible, and release cycles tend to be annual.

Affinity No. 2: Web content is the future
It should come as no surprise that Google loves online presentations: the Big G empire is built upon search engines, mail services, advertising, and more that are built for access through a browser. The company does have a couple of native applications under its belt, but the Chrome browser is a browser, and one of Picasa's best features is how seamlessly it pushes your photos into the online cloud. Google Desktop? Largely unsupported and nearly discontinued. Google is all about browser-based delivery whenever possible.

As for Netflix, Mr. Ciancutti also professes his love for HTML5 interfaces -- and it ties in neatly with the rapid development model:

The technology is delivered from Netflix servers every time you launch our application. This means we can constantly update, test and improve the experience we offer. [...] Our customers don't have to go through a manual process to install new software every time we make a change, it 'just happens.' This capacity for testing is so critical to how we innovate, we're willing to forgo having a native UI experience to accommodate it.

Netflix would do its entire movie delivery package in this format if possible, but it's hindered by incompatible technologies and a lack of copy protection features in the current state-of-the-art web technologies. So video streams lean on Microsoft's Silverlight product in desktop windows and on whatever native formats are available on your iPhone, PlayStation 3, Xbox 360, or Blu-ray player. But the user interface around it is all centrally managed, just like Gmail or Google Search.

The Foolish bottom line
If Netflix should become anything other than a stand-alone success, Google is the rightful home for it. The quick-release mentality that makes it a good it for Big G would never fly with Apple, and Microsoft isn't exactly known for quick release cycles. Amazon could do it, and Hastings clearly admires that company. But Amazon doesn't have the cash reserves to do anything but a stock-swap deal, and it's also busy moving in a different direction these days.

And what's in it for Google? An instant leadership position in online video, the opportunity to marry Netflix to YouTube somehow, and an enormously weighty asset to wield when discussing the future of Google TV with Hollywood studios. And it'd be a heck of a better use of the cash than throwing it away on Groupon.

Wouldn't Netflix be a terrific present under the tree for Google this Christmas? Discuss the possibilities in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (10) | Recommend This Article (14)

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 06, 2010, at 8:46 PM, joshpritchard wrote:

    This would make sense if it wasn't true that the content deals would all have to be renegotiated in the event of an acquisition.

    Google could get a lot farther by putting the 10+ billion dollars into content deals.

  • Report this Comment On December 06, 2010, at 8:48 PM, joshpritchard wrote:

    I should mention, I'm very bullish on Google and very bearish on Netflix. I'd be very concerned with Google if they tried to buy Netflix at the valuation it's trading at today.

  • Report this Comment On December 06, 2010, at 9:39 PM, FrankDip wrote:

    I do not think Amazon could ever buy NFLX under current tax law. I believe NFLX's DVD distribution centers would give Amazon a physical presence in a number of states that collect sales tax. I also believe this would cause Amazon to have to collect sales tax for anything it sold in those particular states.

    As for Google buying NFLX I am not sure, however I do believe NFLX will be acquired before the end of 2011.

    Regards,

    Frank

  • Report this Comment On December 06, 2010, at 9:55 PM, expoiltthespread wrote:

    well...why would GOOG spend $10 billion when they can replicate the business model themselves for about $1 billion? it sounds like you guys are pumping NFLX

  • Report this Comment On December 06, 2010, at 10:34 PM, Tryinman11 wrote:

    Let's see, those were great reasons Google should NOT own Netflix

    1) Netflix did not invent anything, which is why everyone's copying the streaming model at will

    2) Web content has always been the future, duh! Getting it from the computer to everyday living rooms was the challenge. And as another post pointed out, Netflix doesn't own content and distribution deals are not transferable.

    How about Google spending a $1 billion on creating a company, sign three $1 billion deals for content and give away $2 billion worth of $7.99 subscriptions for 20 million Netflix subscribers for 12 months. They'll still have $4 billion left over vs buying NFLX.

    You all need to quit pumping NFLX which is a shell of a company with just a name, and look at the fundamentals.

  • Report this Comment On December 06, 2010, at 11:05 PM, sir12volt wrote:

    I lean far more to apple buying netflix. It seems like netflix would be the only aquisition that really makes sense for apple. Hmmmmm....Why did apple put netflix support into apple tv?

    Thouroughly testing hardware and doing the same with software are too different things. Somehow I think they could work that out. Marry all that apple hardware and itunes with netflix. It sounds like a perfect marriage. Yes, there does seem to a good amount of cash on hand at apple with no place to go!!!

    Please buy Netflix Steve and dominate video the way you dominate audio!!! Geeze would the ftc step in? I hope not.

  • Report this Comment On December 07, 2010, at 12:10 AM, Rouleur wrote:

    I agree volt.

    I love how there is no mention of YouTube in this article. That was googles foray and not on a budget. :)

  • Report this Comment On December 07, 2010, at 10:47 AM, griffjj wrote:

    "...the opportunity to marry Netflix to YouTube somehow..."

  • Report this Comment On December 07, 2010, at 11:26 AM, Pandorabelle wrote:

    Agree with JoshP.....and MF needs to stop the desperate NFLX pump if it wants to keep credibility. It's time to sell, Fools.

  • Report this Comment On December 07, 2010, at 5:28 PM, Pandorabelle wrote:

    Looks like the CFO just bailed in a hurry...duh. The party is over. Bye-bye Netflicker.

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