Netflix Inc. (NASDAQ: NFLX) management said the reason part of its service was out on Christmas Eve was that the technology and hardware owned by Amazon.com Inc. (NASDAQ: AMZN), which powers the video firm’s streaming product, were “broken.” That does not matter to Netflix customers who have no idea how its technology partnership with Amazon works. The customer blames Netflix, because he pays Netflix and expects to get what he pays for.

One of the greatest problems consumer companies have is that when their products are not working, the consumer does not understand that those products may depend on outside vendors. If AT&T Inc.’s (NYSE: T) 4G service goes down, smartphone and tablet customers who use it do not care whether the cause is an overload from data used by Apple Inc.’s (NASDAQ: AAPL) iPhone, or products from Samsung, or other companies that provide handsets that work on the system. If the AT&T service does not function, it is AT&T’s fault. The same principle extends to automobiles, airlines and almost any other consumer purchased products that are supposed to work as advertised.

The only complete solutions to these problems is for companies like Netflix to take over all the elements that make their services work. Netflix would need to build server and e-commerce systems to replace those that Amazon provides. This likely would cost several hundred million dollars. Netflix would have to build its own telecom or cable broadband service, nationwide, to replace infrastructure provided by companies that include Verizon Communications Inc. (NYSE: VZ) and Comcast Corp. (NASDAQ: CMCSA). That would cost tens of billions of dollars.

Netflix’s name is on the service it provides. Amazon’s is not. It may give Netflix management some comfort to blame Amazon for its service interruption, and Amazon was indeed at fault. However, the Netflix customer does not concern himself about that at all. He just wants his streaming service to work every time he uses it. If he is unhappy, he does not cancel some Amazon infrastructure service. He cancels his subscription to Netflix.

Douglas A. McIntyre

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