Pando

Overstock's plan to take on Amazon with streaming video isn't as crazy as it sounds

By David Holmes , written on January 20, 2015

From The News Desk

In the new era of digital capitalism, it's never surprising to hear that a major tech company is launching a vertical in an ostensibly unrelated space. Google making cars? Why not. Uber launching a delivery service? It's all just, "logistics" and exploiting workers, right? Amazon drones? Those are both words.

And so when online retailer Overstock.com announced today that it would launch a video-on-demand and streaming service to better compete against Amazon, the correct reaction is, "Sure, why not?" But this particular land grab isn't just another example of startup Mad Libs. With online video increasingly becoming a commodity, and with Overstock's claim that it will offer 30,000 titles, the plan isn't as crazy as it sounds.

Overstock says it will offer the streaming service as part of its loyalty program, which is a direct competitor to Amazon Prime. While Prime offers free shipping, Overstock offers "5 to 25 percent back on what you spend." Right now, the program costs $20 a month, but the company says an additional fee will be required to tack on video streaming.

While it's true that Overstock lacks the inventory breadth and name recognition of Amazon, if it can beat Bezos on price then it can take away a number of potential Prime customers. At last count, Amazon said it offered 40,000 videos, but the difference between 30,000 and 40,000 isn't likely going to be noticeable for most customers. Overstock won't "beat" Amazon by any means, but with Bezos' razor-thin margins he needs every subscriber he can get.

That's where original content is going to play a huge role. Nobody cares if they watch some old Steven Seagal movie on Amazon or Netflix or Overstock. Seagal flicks are a commodity, and customers will go where the price is best. It's like watching Air Force One on a Sunday afternoon on TBS versus TNT. But with the critical and popular success of Transparent and the announcement that Woody Allen would write a series for Prime, Amazon has finally gained some momentum with its original offerings -- though it took years. Producing great television requires a learning curve, and Overstock will sink or swim in this regard.

But Overstock doesn't need to "beat" Amazon for this announcement to make sense. A study found that Amazon Prime members spend almost twice as much as non-members, which suggests that increasing subscription rates are an end in itself. Anything Overstock can do to make its loyalty program more appealing -- which in turn raises both subscription revenue and overall sales -- is a win for the company.

And the last thing that makes this announcement interesting is Overstock's early adoption of bitcoin. Not only does that open up this new video platform to a whole new audience of bitcoin early-adopters -- or erstwhile bitcoin enthusiasts trying to unload the currency -- it also creates some interesting opportunities around micropayments. With bitcoin, there are no (or low) transaction fees, unlike credit cards which have fees upward of 3 percent. If Overstock has a ton of customers buying movies for $0.99 or $1.99 each, those credit card fees add up. Bitcoin makes these smaller payments more economically feasible for Overstock.

Overstock's content ambitions may well crash and burn. And again, few think that the two-decade-old company will ever be some kind of "Amazon-killer." But there's nothing random or ridicule-worthy about offering a video service in 2015, no matter the company.