1 Pulls An Amazon In Its Quest To Dominate Netflix

What's all the hubbub about? It's just (Nasdaq: AMZN) being Amazon, right?

The tech world was abuzz yesterday when word first broke that the world's e-commerce top dog was toying with the idea of launching a free, ad-supported version of its current streaming service to rival Netflix's ascendance to the top of the streaming food chain. 

The move, which remains far from certain, would mark a considerable shift in strategy for the world's e-commerce giant, but one that could bring with it its share of benefits for Amazon shareholders, so long as it resonates with consumers. So keeping that in mind, let's run through the possible moves Amazon could make in its bid to control even more of our online lives.

Amazon's emerging media empire
According to reports, Amazon is considering unveiling both free streaming video and music services as part of a broader landgrab to tap into the $69 billion TV -advertising business, similar to recent moves by Facebook. The behind the scenes impetus driving all of this is Amazon stealthily attempting to monetize an advertising engine its been quietly building for some time now. In fact,

Source: Amazon

eMarketer estimates that Amazon will generate about $1 billion in advertising revenue this year alone.

And although odd from a historic perspective, a company like Amazon actually appears quite well-suited to create a new, yet dominant, online ad platform.

Remember, one of the key value-adds that online advertising holds over other forms of advertising is specificity. Browsing behavior is an outstanding indicator of consumer interest, and with its absolutely massive stockpile of users and their shopping histories, Amazon could prove a profitable ally for advertisers looking to reach their target audiences.

All Amazon needs now is a delivery mechanism for those advertisements, and that's where free video and music streaming services could potentially come in. Giving consumers free radio and video would be a perfect carrot to consumers to get consumers face-to-face with Amazon's new advertising platform.

Amazon keeps on getting stronger
Again, this seems like an odd move for Amazon at first mention, but it's really just an example of Amazon making the most out of what it already has, namely boatloads of consumer data that could yield impressive CPMs and a massive network of servers step to power the entire system.

There's also an attractive tie-in with Amazon's prime membership as well. Amazon will almost assuredly offer ad-free versions of these media platforms to Prime subscribers, which could also prove a huge win for Amazon's core e-commerce business as well. Amazon shoppers with a Prime subscription are estimated to spend twice as much on when compared to the average shopper, so creating the incentive to pay-up to forego advertisements on its video and music sites would still prove highly accretive to Amazon's core business.

So at first sight, this sounds like a way for Amazon to increase the competition against the likes of a Netflix or a Pandora Media, but it's actually likely much bigger than that. Amazon, king of playing the long game, would actually be eyeing a much opportunity set; one in which it still seems particularly well-suite to compete.

This is, of course, far from a sure thing. However, if this storyline proves more reality than fiction, it'll be Google and Facebook that really have something to worry about, and that's certainly worth noting today.

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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 March 30, 2014, at 6:21 PM, tpetaway86 wrote:

    I think it's a good move for them if people don't mind the commercials. I already have an account, so the only way it would effect me is if I decide to cancel the subscription; and that would only happen if they have a better system than hulu does for non-paying customers. I don't want to set through a commercial like I'm watching regular television. I recommend them do commercials before and after each show the consumer watches instead of in-between the shows. I don't want to wait until my main television shows go to netflix, so I put up with the huluplus commercial format. So, ultimately it will come down to if consumers care about the interruption they will get at amazon that they don't get at netflix; besides the fact that they both don't have the same shows.

  • Report this Comment On March 31, 2014, at 10:48 PM, annaarron wrote:

    Netflix is one of the first companies that successfully adapted its business model to the switch from traditional to digital media. Today, it is a major internet TV provider in the US, and, with its share price up 285% year to date, ranks as 2013’s hottest momentum stock.

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Andrew Tonner

Andrew Tonner is a tech specialist for The Motley Fool. He is a graduate of The University of Arizona with a degree in Finance.

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