Sometimes, the technology industry can seem somewhat weird when you think about the relationships that some companies have with one another.
Business at Netflix, Inc. (NASDAQ:NFLX) is booming, but it is doing so well that others are paying close attention. The problem is that some of the companies Netflix relies on to conduct its business are now angling to get a piece of the streaming video pie.
Consumers looking for video content have moved beyond relying on cable television. People want to watch shows when they want, and whenever they want to. As a result, Netflix has done very well over the years at the expense of cable providers. And the investment prospects for Netflix, Inc. (NASDAQ:NFLX) look quite good.
Revenue for the company is up, but Netflix needs to keep expenses in line. As expenses have been rising, income has been going down.
It’s a concern, and makes one think twice when considering Netflix, Inc. (NASDAQ:NFLX)’s stock. The precarious situation it has been put in is related to other businesses it has had good relationships with also is a warning flag.
Google Inc (NASDAQ:GOOG) is in the business of selling video to consumers as well. It does so through Google Play, where is sells both rentals and straight-up purchases of movies and television shows. And since the company also owns YouTube, providing select streaming content for a fee makes good business sense for Google.
What’s interesting is that Netflix, Inc. (NASDAQ:NFLX) gets a lot of its customers from Google Inc (NASDAQ:GOOG). How do people find out about Netflix? Well, it is generally through advertising. Google is the largest advertiser by far on the internet today. That’s what makes it such a good investment because its business is booming. But its awkward when you consider that Google and Netflix are competing and working with one another at the same time.
Amazon’s cloud situation
Retailing colossus Amazon.com, Inc. (NASDAQ:AMZN) is in a position to know a lot about you. If you purchase items from them, they know what you like and even when you like to buy them. That’s valuable data. Their Amazon Prime service allows customers to get free two-day shipping on products for a yearly $79 fee. And guess what? Now subscribers with Prime also get unlimited instant streaming of tons of content.
What’s interesting about this is that Netflix, Inc. (NASDAQ:NFLX)’s business is actually built on Amazon.com, Inc. (NASDAQ:AMZN)’s infrastructure. Remember when Netflix had a big outage? It was on Amazon’s cloud servers, which is a growing component of the company’s overall business. This diversification is what makes Amazon’s stock a resounding buy. Nevertheless, this must seem a bit cumbersome when dealing with Netflix directly. Amazon is hosting Netflix’s streaming service, yet is building a rival product!
We’ve been hearing a good degree of noise recently about how millions of people possibly watch Netflix for free. And when you think about it, there’s a darn good reason for that. Unlike Google and Amazon, Netflix doesn’t offer devices to play their content. They should, however, when you see that the competition is heating up. Netflix, Inc. (NASDAQ:NFLX) devices would enable the company more control and increased profits.
Of course, they still need to watch their expenses. Those need to come down to more realistic levels. Long-term, streaming will be a good business to bet on. Let’s just hope Netflix CEO Reed Hastings mitigates some of these overall risks in his business model.
The article Netflix and Its Frenemies originally appeared on Fool.com and is written by Daniel Cawrey.
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