Amazon.Com Plans to Beat Netflix by Bundling Streaming Video with Amazon Prime

You heard it here first! On January 7 I suggested that the way for Amazon to beat Netflix at streaming video was to bundle streaming video with Amazon Prime (free 2-day shipping), thereby offering a service that Netflix could not match. We learned today that Amazon is implementing that precise strategy.

The advertised deal for consumers was $79 for a full year of streaming video content plus Amazon Prime (i.e., free 2-day shipping). The offer appeared on Amazon.com briefly over the weekend and was removed. So, obviously the deal is not available yet, and it is not yet clear what the exact terms will be if and when the deal is offered. [Source: Szalai, George. "Amazon Previews Rival Streaming Service to Netflix," HollywoodReporter.com, 2/1/11. Downloaded from: http://www.hollywoodreporter.com/news/amazon-previews-rival-streaming-service-95069]

It seems likely that we will see that deal soon. At an absolute minimum, though, the brief presence of the advertisement indicates that Amazon is considering the exact strategy I suggested - beating Netflix at streaming video by offering a free perk that Netflix cannot possibly offer, specifically Amazon Prime's free two-day shipping on Amazon orders.

How could Netflix react to such an offer? It could lower its price, but competing on price is a dead-end strategy. Netflix's best reaction would simply be to offer a superior product (i.e., a greater selection of shows, better resolution, ability to watch on multiple devices simultaneously, etc.). Currently, I think most people would agree that Netflix has a superior product, but Amazon is catching up. Another potential strategy would be for Netflix to form an alliance with another corporation (e.g., it could get Groupon to offer an additional 10% discount on all products for customers who have subscribed to Netflix).

Would you sign up for Amazon Prime to get free streaming video? I have an Amazon Prime account, and I like it even more than I expected to. Throwing in free streaming video would make it even sweeter. My impression, however, has been that most people are unaware of Amazon Prime or underestimate the benefits of the service. If Amazon video has an inverior service to Netflix, it is unclear whether a significant number of people would switch to Amazon solely for the Amazon Prime perk.

Whether this streaming-video/Amazon Prime bundling idea is the overthrow of Netflix or not, though, it is an indication that Amazon is on the right track; Netflix should be thinking long and hard about its strategy going forward.

Sources

Szalai, George. "Amazon Previews Rival Streaming Service to Netflix," HollywoodReporter.com, 2/1/11. Downloaded from: http://www.hollywoodreporter.com/news/amazon-previews-rival-streaming-service-95069