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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