So the web is abuzz about Amazon’s new streaming movie service designed to take on Netflix in a bitter war of who can get the most subscribers and the biggest library for the world’s next digital media transition.
While the back and forth between Amazon and Netflix is interesting from a corporate overview, more attention need be paid to the strategy Amazon employed to steal this market right out of Netflix’s hands.
Amazon Prime: How it Works
Amazon’s new streaming media service is solely for Amazon Prime customers. Prime is paid status that costs some $79.99 per year and allows all Amazon customers free 2-day shipping on all products shipped from an Amazon warehouse with the option to upgrade to overnight shipping for just $3.99.
That’s a pretty good deal in itself; however, the best is still yet to come: prime customers can now enjoy a library of 5,000 movies for instant streaming. That puts Amazon’s library close to the Netflix library in size, with a few minor exceptions: Starz and Epix won’t be found on Amazon’s new streaming deal, and neither will ABC nor NBC TV. Of course, ABC and NBC TV shows are already free with Hulu.com
Amazon’s Aggressive Strategy
Not only is Amazon taking on the leader in this space, but it is doing so with a strategy that I believe to have been devised several months ago. The company opened up a free year of Amazon Prime to any college student (or anyone for that matter) with a .edu email address in July, 2010. That move allowed the company to enter the college textbook market like gangbusters.
But was the free Amazon Prime about more than just texbooks?
It appears that yes, in fact, it was—it was an excellent way to roll students into Prime, expose them to the awesomeness of 2-day shipping and then “WHACK!” throw a hard-sell proposition of extra value added—streaming content—just a few months before those free, one-year trials ended.
Not only has Amazon now effectively cornered the textbook market, the collegiate online shopping market, and soon the online textbook rental market (yeah, they’re doing that soon, too), but they’ve also cornered the market for digital media among 20-somethings. And yes, we do consume a lot of media.
Netflix Demographic Data
Unfortunately, collecting data on the internet can be a pain in the bum. For one, online purchases cannot be made in cash, thus anyone who does any ecommerce transaction is at least 18 years old by official measure. Obviously there are exceptions—I’ve been 18 on the internet since I was twelve!
I could use Alexa, but seeing as it is weighted toward webmasters it also skews younger, whiter, and more toward the male end of the spectrum.
- Over 35 female
- Family income of $75,000 or less
Not as enlightening as I had hoped, and unfortunately the data is older than dirt, as far as statistics go. (The 2006 article).
I still think we can draw three broad conclusions:
- That data is mostly accurate today as expansion of Netflix streaming to Wii probably aged their customer substantially.
- Netflix customers are “older” as far as electronics go
- The “older” age of a Netflix customer is likely the result of an inability for many minors to shop online, so those who use Netflix the most are probably not the same people who pay for it.
Smart Thinking, Amazon
Amazon obviously realizes where the easy growth is: the younger end of the market.
In the coming years we will see, I believe, a net reduction in the age of the average digital media subscriber as the billing statements start coming in the name of the Y generation instead of their baby-boomer parents.
Amazon found a perfect niche in media consumption; hit Gen-Ys pocket the second they transition from living at home to living at school/going to school/making more of their own decisions about where they allocate their money, and do so with a deal Netflix can’t match: free shipping on online purchases, and a mostly similar online library of free-to-stream content at a lower price.
Should Netflix Re-Evaluate Streaming-Only Delivery?
I have to question what this means for Netflix. Given their desire to cut to the cord on DVDs-by-mail, Amazon has definitely thrown a fork in any future projections.
- If you’re Reed Hastings, do you forgo the $1 billion in annual cost-savings in postage for the last remaining value proposition you have?
- Or do you go for broke, instead accepting that you’ve effectively locked down enough of the streaming devices (Wii, PS3, Xbox360) and thus enough of the market? But wait, why can’t that the company that made the Kindle make a media player?
I wouldn’t want to be making that call. But if I had to, I’d say, “keep the billion, we’re sticking with DVDs.” It’s Netflix’s last card, and they have to play it. Media is what it has always been: a race to the bottom.
Questions for readers:
Are you currently an Amazon Prime/Student member? Do you use it? Will you use your membership for online streaming of media, too?
What would you do if you were Netflix CEO? Would you be worried? Maybe reconsider the switch to a streaming-only model?