The two most remarkable success stories since I started this blog four years ago have been Apple (AAPL) and Netflix (NFLX). Both have continued to hit new record levels of success long after the doubters predicted they would run out of steam. Certainly I regret not buying either stock — either at the beginning, or at least during the dip in late 2008.
However, to me their strategies seem fundamentally different. Apple is both vertically integrated and pursuing related diversification to create new markets; Netflix is finding other modalities to do the same thing.
On Saturday, the Los Angeles Times published a story highlighting NFLX's looming competition.
Now Apple (despite naysayers) has done a great job of fending off competition on iTunes, iPod and iPad — but obviously Android (GOOG) has had a big impact on its iPhone market share (if not its profits).
Netflix’s traditional business was threatened previously by Blockbuster (BBI) and Walmart (WMT), but so far the challenges have fizzled out (as Blockbuster continued its CFIT -- in this case Chapter 11). The LA Times is not really interested in another dot-com success story. Its interest, as the house organ in a company town, is on the effect Netflix has on the media industry. The movie companies don’t want Netflix to be their industry's monopsonist any more than the record companies wanted Apple and iTunes to be their industry's monopsonist.
So in the story is a bit of longing by the LAT’s sources — a desire by Hollywood to have more distribution options, even if the evidence thus far suggests that is a fantasy. To its credit, the story doesn’t take a position either way. After all, so far, it’s too hard to call. Everyone wants to dislodge Netflix — notably Amazon (AMZN), Walmart, Hulu and Dish Networks/Blockbuster (DISH) -- but so far no one has.
I particularly liked one line that captures the reality distortion of the SV view of Netflix:
Netflix has a number of advantages that make it difficult to challenge, such as sophisticated software to recommend what users might like to watch and a brand name that's becoming as familiar as Starbucks (SBUX).
But retailers and cable companies have their own marketing strengths and reach huge audiences, including many who don't live in affluent urban communities where the lack of a Netflix subscription can elicit gasps of surprise.