Netflix has been using Amazon Web Services (AWS) to run its massive cloud computing business since 2006, and that could mean big cost savings in the future. According to the Wall Street Journal, Netflix has begun to look at ways it can set up its own AWS-like infrastructure based on open source software and self-hosted hardware. The plan would allow Netflix to control its own costs, as well as potentially enabling it to make changes to AWS without having to wait for Amazon’s approval. If successful, Netflix will have more control over its future and may even be able to pass these savings on to customers. Netflix Wants to Control Cloud Computing Costs With Amazon Web Services

Why Netflix decided to move

The third-party service that Netflix uses for cloud computing is a prime example of the ballooning cost of modern technology. A number of providers compete for this type of business, which can lead to steep price competition and high prices. What makes the story of Netflix’s contracting with AWS more remarkable is that it was not initiated by Netflix but by another major customer who needed AWS’ support. Even still, Netflix was forced to justify why they should get a deal, rather than going with one of their competitors.

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What are AWS instances?

A virtual server is the smallest possible independent unit of a computer system, containing its own software and data. AWS instances are virtual machines that can be assigned one or more CPUs, memory and storage resources. There are two types of AWS instances: General Purpose and Specialty Instances. General Purpose Instances allow for greater flexibility in the specification of CPU power and memory capacity, but require more specialized configuration tasks to get the best performance.

Netflix Wants to Control Cloud Computing Costs With Amazon Web Services
Netflix Wants to Control Cloud Computing Costs With Amazon Web Services

Why is it a big deal?

For those unfamiliar with the cloud, it is a delivery of computing services over the internet, including software, platforms and applications. Essentially, these services allow Netflix to store their data outside of their own servers. So what does this mean for Netflix? It could potentially save them millions on cloud-computing costs each year.

How does this affect potential subscribers?

The ability for Netflix to minimize their cloud computing costs could save them anywhere from $100 million to $200 million per year. This could be the deciding factor for many potential subscribers trying to decide between Netflix and a competing streaming service.

Will this affect others?

You could view this move as either self-serving or a clever business tactic. On the one hand, Netflix is trying to cut down on expenses. And it makes sense that they would do this with a service where costs are high, such as cloud computing. However, on the other hand, customers may be put off by not being able to use any services from providers besides AWS – there’s less incentive for people who want cheaper rates or certain features like artificial intelligence (AI) at their disposal.

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Why didn’t Netflix use their own servers like Apple, Google, Microsoft, and Facebook?

These companies use their own servers so they can be in control of the process. Apple, Google, Microsoft, and Facebook do not want a company like Amazon having access to the content that’s hosted on their servers.

Netflix Wants to Control Cloud Computing Costs With Amazon Web Services
Netflix Wants to Control Cloud Computing Costs With Amazon Web Services

Details about the transition plan from AWS

Netflix is set to offload its cloud computing needs for much of its video streaming services. The company will migrate a large part of their technical operations over the next year onto a platform operated by Amazon. Going forward, Netflix will run on multiple clouds as we continue experimenting with the best cloud for various workloads and getting cost efficiencies by running them in different environments, reads the company’s statement.

Frequently Asked Questions

Is there a future in controlling cloud computing costs?

Most businesses in the 21st century rely on at least some cloud computing services. A business’s storage or processing needs can rapidly increase and most companies would rather not build out their own data centers. In many cases, it is cheaper for a company to purchase an off-the-shelf cloud service than it is for them to implement and maintain their own data center on an ongoing basis.

Is Netflix looking to control cloud computing costs with Amazon?

Netflix recently announced that it is expanding its reliance on AWS. Netflix wants to use cloud computing services as much as possible, so they want their own data centers to be used only when needed. The new AWS-powered Netflix model will begin in January 2016, which may entail a decrease in net income for the company’s fourth quarter this year and fiscal year 2017.

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Will Netflix’s cost-cutting measures hurt its relationship with Amazon Web Services?

Yes, but it might not matter in the long run. Netflix’s decision not to renew its AWS contract means that the company will need to find an alternative for the management of its streaming services and content delivery infrastructure. Plus, considering how much effort Netflix is putting into its own open-source cloud initiative (called Marathon), it might prefer that idea going forward.

Netflix Wants to Control Cloud Computing Costs With Amazon Web Services
Netflix Wants to Control Cloud Computing Costs With Amazon Web Services

Is Netflix’s focus on Fiscal Responsibility a threat to AWS?

It is clear from their announcement that Netflix values the concept of fiscal responsibility and wishes to reduce its costs wherever possible. As such, it would be unsurprising if they were looking for a way to escape the high costs of AWS and find an alternative. Unfortunately, AWS has been seen as a big part of Netflix’s past success, so there is concern about how an increased effort on fiscal responsibility might impact their future success with AWS.

What is Netflix doing to cut costs?

It is easy to cut back on costs, but it is not always possible to control prices. As such, when cloud computing costs become too high, Netflix has gone from using third-party cloud providers like Microsoft Azure and Google App Engine to using the low-cost competitor, Amazon Web Services. Now that Netflix has experienced firsthand how cutting back on its operational costs can benefit the company’s bottom line.

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