Here’s why the rumor that Microsoft may buy Netflix could be valid.
The heartbeat of the embedded industry these days is galvanized by content provided to consumers anywhere they want it. This lub-dub mantra creates smartphones, tablets, Ultrabooks, 4G/LTE, digital medical records, home health care, the Smart Grid, and on and on.
Rumor late last week was that Microsoft might acquire Netflix. This isn’t such a crazy idea, since if Microsoft wants to play with Amazon, Apple and Google – three companies who drive embedded around like a child’s Tonka truck — it’ll need a meaningful content strategy that goes beyond Bing, Hotmail, MSN, and Live! (And SkyDrive, which is really your content.) Microsoft certainly has the reach to blanket the planet and play with these other three guys if they have significant skin in these critical areas:
On the hardware side, the XBox 360 (and the masterful Kinect) are non-trivial nodes in a possible Microsoft strategy, though efforts like the Zune are not. The new Surface tablet family (running either Windows 8 or Windows RT, I’m still trying to figure it out) might be the beginning of MSFT signaling they want to get into the hardware game (though only Apple seems to make any money at it). In fact, over the weekend I read multiple reviews by Engadget, CNET and other techies who generally said nice things about Microsoft’s Surface and Win8 launch last week.
Buying Netflix would amp up their content strategy big-time. It’s undeniable that a huge majority of the Internet’s traffic is video bytes fed by Netflix and other content providers. A Netflix play would give Microsoft a better negotiating position at the MPAA table. After announcing less-than-stellar earnings on Tuesday (see “cliff” in Figure), the Microsoft rumor brought Netflix stock above where it started to fall.
But what of connectivity? Apple has the carriers over a barrel with its hot-hot iPhone 5 (a barrel that started with the original iPhone). Google has Fiber back East and owns Motorola Mobility, and a bunch of FCC licenses for RF spectrum in case they want to become a wireless carrier. Amazon could use a connectivity strategy; they’re rumored to be interested in some part of Texas Instruments’ wireless product line.
I don’t believe Microsoft needs a carrier or will be forced to buy their own RF spectrum or bid for their partner Nokia (but don’t discard that idea, either). Instead, if you go back a year and look at Microsoft’s not-well-articulated strategy in embedded, the company wants a piece of all the Internet’s traffic. With their central role in servers, Microsoft has stated that merely touching and monetizing the data moving across the net is where they want to play. So one might not need “connectivity” per se if you still control and make money on the data flowing over someone else’s pipes.
So the Netflix/Microsoft rumor is an interesting one. If it turns out to be true, add Microsoft into the triumvirate that drives embedded: Amazon, Apple, and Google. It just might be crazy enough to make sense.