Monthly Archives: February 2012

Netflix cloud strategy

MBA is full of case analysis and here I come across a case on Netflix’s cloud strategy. Why did Netflix make such a big decision to move to Cloud completely¬† and that to choose Amazon. Is Netflix not confident on its own business, is it scared of investing in infrastructure with the fear of it being a dead investment. Netflix is moving most of its online business to cloud infrastructure with only corporate IT being operated from its own data center. Given the exponential growth the company is witnessing in streaming business, it makes a good business sense to adopt cloud but what is scaring is the 100% adoption of cloud and completely moving away from its own datacenter. Is company saving money or risking itself.

Cloud adoption saves a company in terms of infrastructure setup, IT staff and maintenance but will put it at a risk of many factors which are beyond the control of the company. Once the company’s data is in cloud, it poses higher risk interms of data security and also higher dependence on the cloud vendor to provide a uninterrupted service. In future Amazon may increase the prices of its cloud offerings or there might a hacking community backlash against amazon web services taking the whole amazon data centers down. How is Netflix positioned to handle this. Given the existing situation where Netflix has completely¬† migrated to cloud based infrastructure, in a extreme scenario if Netflix had to provide a similar level of service from its own datacenter then it would take Netflix a minimum of 3 to 4 months. Is Netflix prepared for this, well Amazon, Hulu and other players will grab the market and Netflix would be out its business for sure. According to Netflix, infrastructure is only a small component of its business and hence is not heavily focused on setting up the datacenters on its own, but I believe that Netflix should rethink about infrastructure. Even though bigger challenges for Netflix are the content and agreements. At the end of the day, consumer consumes the product through streaming service and if there is any interruption to that, it would not be accepted well.

Netflix believes that by spreading the content across all of the Amazon datacenters, it is protecting itself against any adversities. But in my view to protect itself from all the adversities, I believe that Netflix should have atleast one data center of its own, which would be similar to the multiple Amazon datacenters which Netflix uses. This way, Netflix would not be 100% dependent on a cloud vendor, this would also help Netflix develop its technology in a manner where it is not tightly coupled with Amazon web services. In future, when demand is predictable then Netflix can scale up its own datacenter and migrate from Amazon cloud.

May not be a big issue, but it also needs to be considered that Amazon Prime video is a competitor to Netflix’s streaming business. Fair and ethical play can be expected¬† from Amazon, considering that Netflix is a major consumer of Amazon web services hence success of Netflix’s cloud adoption is crucial for the success of both the companies. But again 100% dependency on a cloud vendor is not acceptable.