In a move to compete directly with Netflix Inc. (Nasdaq: NFLX), Amazon.com Inc. (Nasdaq: AMZN) confirmed that it will offer unlimited, commercial free instant streaming of more than 5,000 videos and TV shows to customers, subscribed to its $79 per year Amazon Prime service, which provides free two-day shipping and reduced one-day shipping rates on items purchased on its site. The Wall Street Journal reported last September that Amazon was working on such a combination.
The new service is called Amazon Instant Video. This service is reportedly cheaper than Netflix's Watch Instantly service which costs $95.88 per year.
This decision is expected to further popularize Amazon's Prime service and attract more customers to its online shopping platform. The customer draw towards Amazon's shopping service should help the company gain market share from online retail competitors like eBay as well as traditional brick and mortar players Wal-Mart, Costco and Best Buy.
In the past, Amazon has initiated some programs to attract new customers, like the Amazon Prime, which was well-received by the customers and successful in attracting businesses to its online shopping platform. Recently, the company expanded its free shipping program to offer the same day delivery for an additional $6 a month to Amazon Prime customers. These initiatives have helped Amazon gain share in the online retail market. In 2010, its online shopping market share increased to 6.5 percent from 2.5 percent in 2006. The company expects it to increase to 13.5 percent with the launch of the new Amazon Instant Video by the end of FY 2011.
However, Amazon still has an uphill battle, as its streams are available on several devices, like Roku, Tivo (Nasdaq: TIVO) and Google's (Nasdaq: GOOG) Google TV Box, which have a lower ownership base than the Video games consoles. Netflix streams videos on Wii, PS3, and Microsoft's (Nasdaq: MSFT) Xbox systems. Netflix also streams on the leading smartphones and tablets. In order for Amazon to gain popularity, it will have to get in deals with the manufacturer of these products.
Based on the new launch and looking at the growth prospects of Amazon.com Inc. I set a one year target price of $205. Amazon's stock closed lower by 3.26 percent to $180.42 on Tuesday.
