Some analysts see this as a direct attack on Netflix. The New York Post on Friday cites Wedbush analyst Michael Pachter: “If they [Amazon] do an ad-supported service, they will decouple it from Prime and that is a Netflix killer. … Who wouldn’t switch if you were poor or you’re a cord cutter?”
What makes more sense, at least we think it makes more sense, is that the ad-supported video is a flank attack on Google Inc.’s (NASDAQ: GOOG) YouTube. How serious a threat, really, is Netflix to Amazon? Amazon’s market cap is seven times that of Netflix, but less than half that of Google. If an ad-supported streaming video service destroys Netflix’s business, that’s just collateral damage — YouTube will still be number one by a wide margin.
Amazon is all about scale, and besides Google there is really only one other company that Amazon competes with: Apple Inc. (NASDAQ: AAPL). Amazon’s big problem is that its competitors make money and are sitting on piles of cash. The issue for Amazon is what it can do to take cash and profits out of the game and make its rivals compete on its own terms.
Amazon has acknowledged that the reason its Fire phone was a dud is because it was priced too high. Amazon will avoid making that mistake again in a battle with YouTube. Free — or at least cheap — is the great leveler to the cash hoards at Google and Apple, and those are the only companies Amazon cares about.
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