Netflix should become a tech company.
I hear the obvious response already: Jimmy, Netflix is already a tech company!
Counterpoint: Is it though?
Somehow, after two dot-com booms, the markets still have an aesthetic-based definition of what constitutes a “tech company”: If a company – any company – has an expensive enough app, and if its founders talk enough about “disrupting” industries, then it is a “tech company” and is therefore entitled to a valuation completely disconnected from its actual industry. Think WeWork – and think what happened to it as people gradually realized it wasn’t an exciting tech start-up but rather a quite boring real estate company. Turns out, you don’t need an expensive app to run a coworking space.
A friend of mine pointed this out to me recently, claiming that the whole concept of a tech company was a façade. WeWork was the obvious example, but there are others: Uber and Lyft are taxi dispatchers, GrubHub (known in NYC by its other brand, Seamless) is a take-out catalogue, and Netflix is a premium channel. And Amazon’s more famous business (more on this later) is to be a retailer: its competitors are Wal-Mart and Target, or else mail-order catalogues.
Sure, all of these companies use phones and apps to do their thing better, sometimes uselessly (like WeWork), sometimes “disruptively” so, genuinely transforming the industry (like Amazon or Uber). But their thing is something that people have done before them, and will continue to do after them. At this point, doing something “with an app” should be as surprising as doing that thing “over the phone” or “using writing.”
Another class of companies is harder to categorize. Facebook and Twitter are doing things that would be impossible before the web, but fundamentally are not about providing technology either. They manage and organize content, and in so doing, get the ability to suggest sponsored content, to – as Zuckerberg informed the Senate – sell ads. They are content companies or web companies.
But, as I pointed out to my friend, this doesn’t mean there’s no such thing as a tech company, whose job is to provide technical infrastructure in the computing world. These tend to be older names: There’s IBM, which makes mainframes and whose subsidiary Red Hat maintains a Linux distribution. There’s Oracle, which licenses its database software that underpins a shockingly large slice of our economy. There’s Microsoft, which still maintains Windows even though it isn’t cool anymore, and Excel, the most popular programming language in the world that isn’t even branded as a programming language.
So now that we’ve established this dichotomy between true “tech companies” and “companies that do their business with an app,” let’s look at the corner cases:
Google in my mind straddles the line between content management – e.g., YouTube, GMail, Search (I would argue) – and tech – e.g, Android and Chrome – with the odd caveat that the tech is what they give away for free and the content management is how they make their money.
Amazon, in my mind, is a more interesting corner case. Their famous retail website, amazon.com, is, like Uber or AirBnB, an example of a normal business, but with an app. However, their app required so much technology that they have a major business in providing some of that technology to others as a cloud company: AWS. Whether or not “the cloud” is overhyped – and I think it really is important – a cloud company is definitely a technology company.
And this leads me back to my title topic: Netflix.
Netflix has been having a rough couple months. At the time of this writing, it has lost 72% of its valuation in the past 6 months, which is a lot even for this recent bear market; in the same time period, the NASDAQ index only lost 28.18%, and the S&P 500 only 13.84%. It lost subscribers for the first time in its history, and for many, it’s clear that the writing is on the wall.
And this corresponds to a frustration with Netflix as a content platform that I’ve noticed anecdotally among my friends. It’s been a long time since it’s been the go-to for streaming, when almost every show was either on Netflix or not streamable, and most popular shows were on Netflix: “What service is it on?” is now a more common question than “Is it on Netflix?” And many people I know anecdotally are questioning whether Netflix, now one premium channel among many, is even worth keeping in their streaming portfolio. Do we really still like its TV shows, or do we just keep it on there out of loyalty to what it used to stand for?
And Netflix will soon force many people to make that decision, by cracking down on password-sharing. Well, Netflix, you might not like the results. You’re coasting right now, and you might be out of gas; now might be a bad time to put on the breaks.
But oh, how the mighty have fallen! Netflix was a smashing success as a company when streaming was a novelty. As the Internet developed the necessary bandwidth – as Netflix helped force the Internet to improve its infrastructure – streaming exploded. Most people pirated for convenience rather than to save money, and streaming was even more convenient without any of those pesky moral concerns.
At the time, the goal clearly was for Netflix to be the sole streaming provider, licensing from traditional channels and movie producers, and being the one subscription every household needed, simultaneously creating and monopolizing the concept of streaming.
And it worked, for a while, but the traditional content providers were not so easily displaced, and competition was not so easily avoided. HBO was one of the early competitors, but now they are legion: Hulu, Disney Plus, Amazon, Apple TV, YouTube TV…
The new streaming market was too big for Netflix to hold onto. When streaming was a novelty used by a significant but not overwhelming number of households, it made sense for content creators to work through Netflix to reach that slice of customers. Now that almost everyone streams, it’s not just a slice of the market anymore, and it makes more sense for content creators to try and work around Netflix’s attempted monopoly and make their own streaming service.
And that’s a shame. Don’t get me wrong, I have no love for monopolization. But Netflix’s technology is simply better than all the other streaming companies'. Every single other provider simply has a worse user experience.
If you’re a regular streaming user, you’ll have already noticed this, since the Netflix apps work, and the others are merely workable enough. Glitches, lags, buttons that don’t work right plague the other streaming apps, whereas Netflix just works, especially on the web (SmartTV platforms sometimes have other issues).
And not only has Netflix spent more money and done a better job at polishing the user interface, they have worked really hard to collaborate with ISPs to store your videos as close to you in the network as possible, speeding up loads, decreasing lag, and increasing video quality. Other video streamers have not caught up, and I fear they will never do as good a job as Netflix – each one individually simply would not have the same bargaining power with ISPs that Netflix once had, and “good-enough” tech will be the standard at companies like Disney and HBO that never considered themselves tech companies.
As a programmer, I’ve heard great things about their tech, and heard it’s a great workplace for programmers (as opposed to content creators), but if I worked there, it would make me sad to know that my work, rather than improving everyone’s streaming experience, would only improve the experience on one second-rate streaming channel.
What if – and hear me out now – what if Netflix licensed its technology to other streaming providers? What if whenever you used the Disney Plus app or the HBO app, Netflix code ran and cached your content on Netflix colocated servers and played it in Netflix’s video player? I wouldn’t want it to be every streaming provider, but enough that the quality could go up. The OG Netflix could just be one premium channel “by Netflix Technologies” among many. In fact, the company could even split, so that potential clients don’t think that the original Netflix channel would get preferential treatment.
It would take time to do this transition. Maybe the channel should keep the original name for momentum, and the tech spin-off adapt a new name. Maybe it can start talks with the other platforms immediately about technology sharing. If I were in charge of another streaming platform, I’d definitely want a slice of that tech.
And maybe it wouldn’t work. Maybe the other streaming providers think their crappy streaming technology is “good enough.” This pivot would be a risky move, but the current stock price calls for it.
I understand why Netflix hasn’t done this before now. Monopolizing streaming seemed like a realistic goal for most of its history. But in the end, it failed. It would be a shame for its excellent technology to fail with it.
Disclosure: I own no position of NFLX whatsoever, but maybe I should get myself a short position, because I know they won’t do this. I just really wish they would. Goodbye, Netflix! We’ll remember you fondly!