Putting all your eggs in one basket is never a good idea…

Those who know even anything about basic investing understand that you “don’t put all your eggs in one basket.”  Translated, it’s probably not a good idea to purchase a single security (e.g. stock, bond, ETF, etc.) on the hope that single investment will “blow up” and make you rich.  On the contrary, making such bets in money management generally go the other direction and wind up in a loss.  Stated another way, putting all your eggs in one basket is never a good idea.  So why is it that in technology, senior managers seem to make the same mistake (and continue to keep their jobs)? 

Case in point:  If you are Netflix subscriber—and I am—chances are you may had problems streaming movies via the Internet on Christmas.  Why?  Because some I.T. executive decided it was a good idea to have ~95% of their services delivered through the cloud service, Amazon Web Services (AWS).  TheWall St. Journal reports that this was because the cloud services for Netflix are out of a single data center.   Say what???  To be fair, Netflix was not the only AWS client that was affected.  Amazingly though, Amazon’s competing web streaming service was not affected during the same period.  Coincidence?  You be the judge.

 Now far be it from me to suggest that AWS would sabotage a competitor.   That never happens in the cut-throat world of I.T. with slim profit margins and where service snafus affect market share.   And I would never suggest that contracting delivery of an overwhelming percentage of your services through a single vendor—never mind a direct competitor—would fall into the “bonehead move” category.  More important folks have been fired for less.   But given the flak Netflix received earlier in the year—recall: splitting the DVD mail service (Qwikster) from the streaming service—one would think that this is not the type of mismanagement publicity it would want.  

Part of the balance of minimizing risk is diversifying your portfolio—or in the case of I.T., planning for the inevitable and certainly not having effectively all of your services delivered through a competitor.  All that said, I like Netflix’ current delivery model, but I’m bracing for what happens when competitors with deeper pockets decide to step in.  Say, Google (or some other tech company sitting on a cash hoard) buying Blockbuster and begins streaming in earnest at a more competitive price point.  Apple already streams films via iTunes, but it hasn’t quite penetrated the way Netflix has.  Netflix has an app on effectively every “Smart” TV on the market, streaming device (e.g., Roku), and  on Apple’s own Apple TV product.  

Rumors of Apple’s entry into the smart TV market continue to swirl, so it’s just a matter of time before Netflix becomes the next Sony—a technology giant that becomes an also-ran overnight.  Anybody remember Betamax or the Walkman™?  Both have gone the way of the do-do bird thanks to DVD and the Apple iPod family, respectively.  Sony has effectively fallen and can’t get up as its proprietary technology was not supported by the music or movie industries and it now innovates in nothing.  As long as Netflix depends substantially upon its competitor, it’s only a matter of time before it becomes a dinosaur as well.

Enjoy Netflix while you can still get it, streaming fans.  Something better should be just around the proverbial corner.

 ‘Nough said,                                                                             

+THINKER