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Netflix: The Next Microsoft.

|Includes: AAPL, GOOG, MSFT, Netflix, Inc. (NFLX)

I was not even a fifth grader when Microsoft became a public company and it shares started skyrocketing few years later. Even after a lost decade for Microsoft, its stock is around 300 times what it listed for. I never witnessed that monstrous growth and came to know about Microsoft only around 1996/97. By then it was the super leader of PC industry. Apple failed in that time frame. Many analyst call android as the next windows but I would differ from that view point (I guess that will be my next article).

Based on my understanding (which might not be complete) of both companies I see signs of Microsoft in Netflix today. And I haven't even considered the fact that Netflix CEO Reed Hastings sits on Microsoft's Board. Here are the aspects that lead me to my conclusions:

1. Consumer Electronics Boom: In the last couple of years, there has been tremendous boom in connected devices("Smart" devices connected to Internet). These include all kinds of connected HDTVs, Smart phones, Tablet computers (as of now, only iPad has a worthwhile presence in this category), Video gaming consoles etc. All of them still have lots of growth ahead of them. Manufacturers of these devices are increasingly looking for differentiating their products by providing additional features. Since everyone loves Netflix, adding a Netflix app to any device is a no brainer. This bears resemblance to one of the reasons of Microsoft's success where all the PC manufacturers wanted windows on their products. Although Windows was not as flawless as Netflix service, still it became de-facto choice of PC manufacturers due to one reason or the other.

2. Perceived value by consumer: When computers were becoming popular, consumers didn't know what new technologies will come up in a couple of years which will make their investment in PC today worthless. So they went with the cheapest option. Similar consumer mentality goes in today's Netflix subscriber. Streaming movies is still in its infancy and consumer does not want to go to pricey piecemeal digital rentals or digital downloads for now. The digital download market is still fragmented and which creates confusion in consumers mind(same as the confusion between HD-DVD and Blu-Ray 3 years back) which in turn creates delays in adoption.

What future holds, no one knows. The dynamics of the industry are still very fluid. But looking at Netflix's Management and its past record it seems like they will be able to navigate through it deftly.

Disclosure: I am long NFLX, AAPL.