In light of Apple’s announcement that it was working on “Planet of the Apps” series, in August 2016, I wrote about why I thought Apple should buy Netflix. It led to an enthusiastic exchange of arguments with my dear friend John Gruber. Fast forward to 2017, and suddenly everyone is talking about Apple buying Netflix. Above Avalon’s Neil Cybart published a long analysis of why Apple doesn’t need to buy Netflix.
He makes a great case for why Apple should do it alone and they have the money and resources to get it done themselves. It is a fair point — but there is an advantage to thinking about buying Netflix, and no, it isn’t the usual reasons.
My reasoning is networking and data infrastructure — or Netflix’s network infrastructure, data deterministic software platform, embedded presence into multiple end points at various network providers. That advantage can’t be overstated enough — because it helps Apple’s cloud efforts immensely to have such depth in its infrastructure. For Netflix, it is a chance to say goodbye to AWS. As I explained:
What does Apple get with Netflix? It gets a large library, and a company that has presence on all major platforms and has partnered with most (if not all) major entertainment hardware makers and is well represented in the Android ecosystem. It has established relationships with top broadband providers and has a big infrastructure to support its nearly 83 million subscribers. It already is an established brand—but most importantly, it brings some much-needed Internet DNA into Apple. Netflix’s engineering and cloud teams are amongst the best in the business and have contributed to the modern cloud movement. In more ways than one, they could help add the vital Internet and cloud DNA to Apple, which seems to be fairly serious about its services business.
Apple has problems when it comes to its Internet infrastructure and more importantly lacks the cloud-and-data-native thinking that is crucial for success in the post device world. None of Apple’s senior management team are Internet native and they need to kickstart the cultural shift to a more data centric, Internet native company.
Internet services and infrastructure are its Achilles heel. They are in tough competition with services provided by Internet native giants like Google, Amazon and Facebook. Even Microsoft has decided that desktop is their past. Ask around the cloud-circles, and even the most generous souls give Apple’s infrastructure and its growing army a “B” at best. Whether it is Siri or Music or even the always syncing desktops, Apple’s infrastructure has to work flawlessly – and not go off for hours at length.
In addition to all those advantages, Netflix is also a standard feature on connected televisions and available on Android, which in theory can be good to boost Apple’s presence across platforms. Not to mention opportunities to cross sell Apple Music to Netflix customers for extra few dollars a month!
Addendum: Macquarie Capital analyst Ben Schachter believes that Apple’s future is services and it could be the big driver of growth for the company. In a recent note to his clients he wrote:
…with the numbers and commentary on Services this quarter, we think all AAPL investors will have to pay much more attention to it going forward. Adjusting for last year’s one-time Services rev gain, Services grew 30% y/y, driven primarily by the App Store (Music, Apple Pay, Apple Care, and others contributed). While we are likely the most bullish on The Street regarding Services growth and its potential impact to the AAPL model, mgmt guidance that it intends to double Services revs over the next four years exceeded even our estimates. It implies that Services will post a CAGR of ~16% FY’16 -FY’20.
Netflix acquisition can help the company accelerate its “services” ambitions.