Why Netflix should fear its inferior competitor, Amazon Prime

Netflix CEO Reed Hastings isn’t one to pull punches when talking about competition from other streaming video services. Such was the case when Hastings was recently asked about Amazon Prime Instant video service.

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“In the U.S., our content budget is about three times [Amazon’s], and we’ve got about three times more content. And what our customers tell us is they want Netflix to have more content, not to have two-thirds less at a lower price,” Hastings said in an interview with the Wall Street Journal yesterday.

“[Amazon has its Prime membership service] and it’s really about low-cost shipping, but why is video in there? It’s kind of a confusing mess,” he added.

Hastings also elaborates on how much better Netflix’s video recommendation algorithms are compared to Amazon Prime because the company focuses solely on building a video service, unlike Amazon. In my experience, I’ve found that the best recommendation tool for watching Amazon Prime is when I’m searching for something I’ve discovered Netflix doesn’t have available.

In addition to Netflix recommendations, the service is also superior to Prime in plenty of other ways, including its user interface, video playback, and video queue management. Obviously, Netflix has the better service. That much can hardly be denied — even if Amazon manages to make its content library nearly identical to Netflix.

But the one thing that Netflix should fear is Amazon’s ability to withstand years of competition at a loss, while slowly building its Prime Instant video service into a worthy rival.

In the interview, Hastings rhetorically asks what “video” is doing in Amazon’s Prime Membership service, but I think he’s well aware.

Amazon is using streaming video to lure more people to its digital media stores and 2-day “free” shipping discounts on physical products, (which in turn drives consumers to spend more money buying things on Amazon.) And as Hastings points out, Netflix’s business is wholly tied into streaming and DVD subscriptions, which doesn’t exactly represent a diverse business model for generating revenue. Amazon doesn’t have that problem, and as such, can afford to wait it out.

This doesn’t mean Netflix is destined for failure. As VentureBeat previously pointed out, the company is concentrating on growing the business in two very crucial ways: developing HBO-quality original TV content and aggressively pursuing international expansion — which Hastings reiterates in his interview with the WSJ.

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That said, not fearing Amazon Prime Video would just be foolish, no matter how much better Netflix currently is.

Photo via Netflix