The way I see this, it’s a little bit like peanut butter and chocolate, two great tastes you might not expect to go well together. People are talking about the possible acquisition of video company Netflix by Amazon, and they are speculating that it has to do with movies and streaming media. Maybe, but I don’t think that’s why this acquisition would be so powerful, and I am frankly surprised I haven’t heard more people talking about this.
Here’s why.
One of the biggest mistakes I think Amazon has been making all along is ignoring the buying history of customers. They never recommend anything to me based on my buying history. They tell me what other people have bought when I buy a certain book or a tent or a squash racket, but they don’t seem to really pay attention to what I buy and what I like. And I buy a LOT on Amazon. They are crazy to have ignored this for so long.
By contrast, Netflix has the most incredible recommendation process ever. While I do have to make the effort to rate movies I have watched (irrespective of whether I watched them through Netflix) based on what I have liked and what I haven’t liked, they have the ability to say, for example, that for a movie like Pulp Fiction, while the average viewer gave it three and a half stars out of five, based on my history and preferences, they think I would like it much more, on the order of four and a half stars. What’s amazing to me is that they are always right, and I have really unusual taste in movies.
Back to peanut butter and chocolate – if Amazon could use the Netflix recommendation engine to do a better job of tracking my purchases and preferences and recommending everything from books to movies to music to running shoes, it would be amazing.
Is it worth it? Well as of today, Netflix is worth about $3.22 billion, according to Wall Street, and Amazon is about 16 times bigger at $52 billion and to have this incredible way to connect with customers and help them find what they will really like even before they know about it, that would be a huge, much needed, boost for Amazon. The lift in revenue would be significant – just ask anyone in retail about how much upselling is done at the point of purchase.
Overdue rethinking at Amazon, but a great match. I really hope it happens.
-Ric
P.S. It makes for an interesting side note if Amazon does buy them, that probably puts founder and CEO Reed Hastings on the board, and he’s already on the board of Microsoft. Would he stay on the board of Microsoft?
Or they could just acquire better recommendation technology without spending $3.22 billion.
Regarding the recommendations on the item pages, they employ “item-based collaborative filtering” to associate items to items without actually taking in your particular history (there’s lots of reasons to for this, one of them is performance over creating a new recommendation set for every single visitor looking at that page).
Yet in their “recommendations just for you” section: https://www.amazon.com/gp/yourstore, they do attempt personalized recommendations, but it’s quite shallow and rife with problems that have been reported by others. I figure the conversion rates are lower using this method to warrant greater integration.
But thankfully, there’s better recommendation solutions, especially ones for media, using newer technologies. There’s lots of activity in this space, with us being a new entrant. So you never know — they may wake up and employ one of these… cheers,
Gary
Well buying a successful and growing internet business is pretty good gravy to get if your primary goal is a better recommendation engine . . . but I agree, it probably wouldn’t cost $3.22 billion just to buy that, but with time value of money, who knows how long it would take to get as far as NFLX has gotten with it.