Netflix is entering into partnership deal with Microsoft for its plans to launch ad-supported subscription plans. Wow! I am not excited about this news. I have always been fond of Netflix, its innovation, vision, and execution of brilliant business decisions. I have expressed my thoughts regarding this in Netflix - Impressive Business Decisions from a few months ago. I have even promised to never cancel my Netflix subscription regardless I use the service or not. This has been a pioneer and is a special kind of a company that I could stand by as a loyal customer.
This new partnership with Microsoft and their plans to launch ad-supported subscription tier may just be a deal breaker, and I will have to retract my never-ending support for Netflix. I don't like both parts of this deal. I absolutely dislike ads and commercials. I believe they are deceptive and intrusive. I do, however, I understand the need for marketing and advertising. They can be useful if done right. There is long overdue need to reinvent how advertising is done. One of the main reasons I think Netflix have become successful and earned respect around the world is because they resist the path of using ads and commercials for a long time.
As companies grow and become bigger, their original vision gets lost and forgotten, not because original innovators and visionaries are gone. But mainly the focus shifts to making investors happy and a lot of decision making is done by company boards. Company boards are another thing I dislike. They are not the pioneers, visionaries and innovators. Their priority usually is maximizing the profits and when they become bigger voices in decision making they tend to move away from what made these companies great in the first place.
One example is how the board fired Steve Jobs at Apple. This is a great story that demonstrates when original long term vision is lost, and companies start focusing on short term profits, they are doomed. It may have took decades for Apple coming close to bankruptcy, it has been clear that it stopped innovating after Steve Jobs was fired. At the same time Steve Jobs went on building other companies and contributing to innovations even more. When Apple finally was going bankrupt, it was Steve Jobs who came back to save it. Not only he was able to save the company, he made Apple one of the best innovators again.
Netflix and Microsoft partnership reminds me of another company, Nokia. Remember Nokia? Company that once was the pioneer and innovators in telecommunications space. Nokia was the top cellphone makers for a very long time. Even during the transition from flip phones to smartphones time, Nokia was still leading. It was Nokia who produced first smartphones, had app store that allowed users to install mobile apps. It has a mobile OS that developers could build mobile apps for. I believe this was all being innovated even before iPhones.
Their doom came with their arrogance of being the leader in the space and declining to pivot. The biggest mistake was when they chose resistive touch screens over capacitive touch screens. They just couldn't imagine the powerful nature using multitouch gestures with fingers, zooming in/out. Another mistake was their failure to understand that physical keyboards were no longer needed. The insisted that physical keyboards on smartphone would always be needed. lol.
They eventually realized their mistakes, but it was too late. We can see the clear contrast between a company who was as successful in cellphone space but was able to pivot at the right time, even if they had to engage in plagiarism. That was Samsung. Samsung was so smart to go with the flow and see where the future was heading, and they ended up producing the best Android phones.
Back to Nokia. So Nokia failed, or was failing. Who came to the rescue? It was Microsoft. First they entered into a partnership deal. Microsoft also made blunders in their attempt to grab market share in the smart phones space. They failed at delivering Windows mobile. It is just incredible to think about it in retrospect. This is a company who concurred the world with their operating system and became the top brands in computer technologies with their Windows OS. The richest software company in the world with all the resources you can wish for when building new things and innovating couldn't succeed in delivering a mobile operating system. They didn't even see this coming. They too became too obsessed with profits and pleasing investors, and lost their ability to innovate. They were playing a catch up game.
So, two companies who failed in smartphones space, came up with a brilliant idea of partnership, lol. But failure plus failure doesn't result in success. It was a desperate move. What was even more desperate when Microsoft bought Nokia or part of it, to continue their push to grab some market share. They spent a lot of money and the end result was nothing. This may even be the most unsuccessful partnership attempts.
When I see Netflix and Microsoft partnering to regain their momentum in streaming space, my worry is that this journey may end up becoming another failure. Could this be the beginning of the end of Netflix? I tend to think so. I hope I am wrong, and it will work out great for Netflix.
Streaming space has become very competitive in recent years. I think we will see more merges, and partnerships. But Microsoft entering this space is unexpected. One of the reasons and predictions I have read is this might be an exit strategy for Netflix. Their end goal may be to be acquired by Microsoft. That would be a worse outcome for the platform, but shareholders will probably make some profits. I wouldn't be surprised if this is what board members have come up with behind the closed doors.
Netflix has been struggling as of late. They have been losing subscriptions. Netflix stock price dropped from $700 to $174 in less than a year. But many tech stocks have dropped in price in recent months. Stock prices go up and down. I doubt Netflix was one of the companies that would disappear in the future. They always had a good business model and kept coming up with good business strategies to stay as the best streaming service. I think if stayed the course and focus on their core long term mission, they would just be fine. Their stock prices would go up again eventually. They would gain more subscribers in time as well. It seems to me they are choosing an easy solution and short term recovery which completely goes against their original vision.
One thing Netflix could learn from Apple is, Apple is great in building loyal customer base and continue focusing on high quality products. For this reason Apple has nothing to worry about. Instead, Netflix chose to learn from Microsoft, a company that usually plays a short term game. Remember Microsoft Zune? That's a story for another time.
What do you think? Is Netflix and Microsoft partnership a brilliant business decision or is it just desperate reaction to stock prices and fear of competition in streaming space?