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Netflix and Amazon Should File for Divorce in 2013

It's easy to see why Netflix (NASDAQ: NFLX  ) relies on rival (NASDAQ: AMZN  ) to deliver its streaming content.

Amazon's AWS, or Amazon Web Services, is the biggest and the best when it comes to cloud computing. If a company needs IT infrastructure services in the form of web services, Amazon is cheap, elastic, and secure.

It's also largely reliable, though that certainly wasn't the case for Netflix on Christmas Eve.

In an embarrassing gaffe, Netflix streaming was unavailable through many devices -- I can confirm the Wii U and Google TV on my end -- from the afternoon of Dec. 24 through early Christmas Day.

The timing for the outage couldn't be worse.

Netflix's digital library was stocked with everything from National Lampoon's Christmas Vacation to The Polar Express. There was even a popular video of a crackling fireplace to transform your TV into a seasonal conversation piece featuring a yule log ablaze.

This should've been the Christmas where families get together at the home of a Netflix subscriber, and convinced non-subscribers rush off to sign up themselves.

Well, it was never to be. Netflix showed every family clad in tacky holiday sweaters the limitations of streaming. In an ironic jab, Amazon's own streaming video service was perfectly accessible on AWS. Rival Netflix was the one that turned Christmas Eve into a silent night.

Now we know why we still keep holiday DVDs around, and why TBS plays A Christmas Story over and over.

Moving on
The ill-timed outage It was apparently Amazon's fault, but it's merely a coincidence that Amazon's own rival platform held up well relative to Netflix.

Still, should it ever come to that?

Earlier this year, Target (NYSE: TGT  ) -- and eventually Wal-Mart (NYSE: WMT  ) -- stopped stocking Amazon's line of Kindle products. It's not that the e-readers and entry-level tablets weren't selling well, though they probably weren't brisk movers. The discount department store chains realize that they compete intensely with Amazon for sales. Why arm a rival with the means to wean shoppers off physical media by introducing them to the Kindle ecosystem of downloadable books, video, music, and games?

Netflix is in the same boat.

Who cares if Amazon is the biggest and the best here? Rackspace (NYSE: RAX  ) has a thriving platform to host third-party cloud computing applications. Will it be as technologically adept and dependable as AWS? Probably not, but this isn't a time for Amazon's offering to be gloating.

Netflix needs to cut the cord, and do so publicly so that it embarrasses Amazon the same way that Amazon unintentionally humiliated Netflix.

Netflix and Amazon can't be friends anymore
We live in interesting times when allies are now competitors. Companies need to accept the circumstances when boundaries are redrawn, shifting allegiances accordingly.

Amazon and Netflix weren't enemies when Netflix began streaming nearly six years ago. Amazon actually avoided competing with Netflix by launching its DVD rental service overseas. However, as Netflix now competes with LOVEFiLM in the UK and Amazon's Prime Instant Video butts heads with Netflix streaming, these two can no longer be play dates.

It doesn't matter that Netflix is presently serving up 20 times more primetime video streaming traffic than Amazon. There is no such thing as a comfortable distance

With every content deal that Amazon strikes, Prime Instant Videos becomes that much more powerful.

Target and Wal-Mart realized this early on, though obviously it's a lot easier to cut off the market's leading e-reader at a discount department store than it will be for Netflix to migrate to a rival service. However, if there is no tech hosting platform that comes close to AWS on price and scalability, there better be one soon.

Amazon is no longer an e-tailer. CEO Jeff Bezos has built an impressive tech company that probably competes with nearly every major consumer-facing technology giant.

The sooner that Netflix realizes that it can no longer play in Amazon's sandbox, the better. The Christmas Eve outage was an unfortunate event for Netflix's reputation, but it should also be the warning bell that alerts CEO Reed Hastings that it's sleeping with the enemy.

Stream on
The precipitous drop in Netflix shares since the summer of 2011 has caused many shareholders to lose hope. Can Netflix fend off burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why we've released a brand-new premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. We're also offering a full year of updates as key news hits, so make sure to click here and claim a copy today.

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  • Report this Comment On December 26, 2012, at 6:18 PM, BankerMary wrote:

    TMF you just keep rubbing our noses in it. We pay for your services, you give us recommendations, then you want us to pay more for the premium information on the companies you recommen in your regular services. Since we are paying for your recommendations how can you even think about recommending a company, then tell us if you want our "premium advice" we have to pay more. Shouldn't all the info be included when you give a recommendation in one of your services? Isn't that what we are paying annual fees for? What exactly am I supposed to be getting when I pay for a newsletter and receive the "best buy now" recommendation? Does that mean if I don't buy the premium report I don't get all ypour insight and information on the selection? I feel like I am getting the royal shaft.

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