Parks Associates estimates the market for streaming media players will grow 23% annualized between 2013 and 2018 as more of us get used to tuning in on-demand.
Naturally, Netflix (NASDAQ:NFLX) stands to benefit from this shift. So does Google (NASDAQ:GOOGL)(NASDAQ:GOOG) via YouTube. But Amazon.com (NASDAQ:AMZN) might see bigger gains than either of them. Why? Amazon Instant Video is gaining popularity.
Amazon's streaming traffic volume, as measured by Qwilt last March, increased by 94% over the previous 12 months. In some U.S. operator networks the increase was nearly 300% over the same period. Once fifth among the major media delivery services, Amazon now consumes more video-delivery bandwidth than Hulu or Apple (NASDAQ:AAPL).
Fire TV: A catalyst in the making?
What makes this data interesting is that it accounts for usage in the year before the launch of Amazon's Fire TV set-top box, which Qwilt said has several advantages over the competition. From a blog post by Qwilt Vice President of Marketing Mark Fisher:
The Fire TV product offers a few interesting points of differentiation, according to the press release. First, it has 3x the performance of Roku and Chromecast. Second, Amazon seems to have dramatically reduced or even eliminated online video stream buffering before the movie starts. And finally, Fire TV offers a clever voice search feature which aims to save us from paging through all those annoying grids of movies as we search for the show we want to watch.
Turns out he was right to be bullish. Fire TV is the second-best-selling streaming player at Amazon. At Best Buy, Apple TV nabs the highest rating -- averaging 4.7 out of 5 stars over nearly 8,000 reviews -- versus 4.6 for the Roku 3, 4.5 for the Fire TV, and 4.3 for the Chromecast, which happens to be Amazon's best-seller in streaming media players.
That the Fire TV is already selling well suggests Amazon is gaining steam as a Netflix alternative. But the story is bigger than that. As I see it, Amazon is creating an entire entertainment ecosystem that is boosting results in three ways.
1. Programming might be helping to sell devices such as the Kindle and the Fire TV. Have you seen the programming lineup at Amazon? Full seasons of HBO originals sit alongside a slew of Amazon-funded pilots and other exclusive networking programming, including the USA Network's hit Suits and CBS' Under the Dome. Netflix might still be the king of streaming content, but Amazon looks like a powerful usurper.
2. Amazon's data might be more valuable than the data that Google is getting. Netflix won't sell ads. Amazon hasn't sold ads yet. But what if it did? We already know from Hulu's experience with Hulu Plus that premium channel viewers are willing to accept some advertising. Amazon could take the process a step further by using real shopping data to develop targeted campaigns, and then charge a premium for the added precision.
3. Amazon Web Services (AWS) is the most important segment of the business. The pressure to deliver content and recommendations quickly and relevantly will increase as Amazon's digital inventory grows. Fortunately, the company has years of experience scaling clients on AWS. Lessons from those deployments will help bulletproof Amazon's internal designs.
As stand-alone products, Amazon Instant Video and Fire TV aren't breakthroughs. But it doesn't matter. Amazon has bigger ambitions: building an always-on, access-anywhere entertainment ecosystem tied to the world's largest retail platform. How or even if the e-tailer plans to cash in on this connection isn't yet known. But when it does -- and I believe that it will -- the TV business will never be the same.
Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Apple, Google (A and C class), and Netflix at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+, Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.
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