Microsoft's Netflix Formula: Promise Big and Don't Compete

Microsoft surprised the industry Netflix chose the Redmond company for its advertising ambitions, but Microsoft had a winning formula.

Netflix has been working to unveil an ad-supported tier as it looks to revitalize its subscriber growth. The company turned in its first subscriber drop in nearly a decade and sees an ad-supported tier as a way to attract new customers. Google and NBCUniversal parent Comcast were seen as the front-runners to assist Netflix, but Microsoft swooped in seemingly out of nowhere to secure the contract.

According to Business Insider, there were a combination of factors that led to Microsoft’s win, not the least of which was what the company was willing to promise. Google pulled out all the stops in assembling a team that “went to the top of the company” but couldn’t meet Netflix’s expectations.

“We got feedback from Netflix that our number was underwhelming,” Insider’ssource revealed.

Much of the problem stemmed from Google hedging its bets over fears Netflix would eventually abandon it in favor of an in-house solution.

“This deal only made sense for Google to put the effort and reconfigurations to go to market if Netflix was going to permanently outsource it,” the source continued.

In contrast, Microsoft approached the deal with a far more optimistic view, meeting Netflix’s targets — reportedly revenue in the “billions” — and viewing the new relationship as a way to eventually poach Netflix as a cloud customer from AWS.

“What I see is Netflix is testing the Azure/Microsoft waters with a feature or two first,” a Microsoft employee told Insider.

Another factor — and one that is becoming a major one for companies choosing a cloud provider — is that Microsoft doesn’t directly compete with Netflix. AWS parent Amazon has Amazon Prime, Comcast owns NBCUniversal and its Peacock streaming service, and Google owns YouTube TV.

Ultimately, when taken together, Microsoft had the right attitude, approach, and circumstances to pull off the advertising coup of the year.