Netflix vs. Amazon Unbox: Netflix still wins

Posted by Tom Moertel Sat, 07 Apr 2007 16:20:00 GMT

When Amazon.com announced its its Unbox video-download service, I was skeptical. Compared to the reigning champion – the DVD – Unbox looked like a loser:

  • Unbox burdened its customers with DRM and the annoyances that come with DRM
  • Unbox required the use of a Windows-only player application
  • Unbox movies lacked “standard” DVD features such as surround sound, alternative audio tracks, commentaries, and bloopers

The first two points were deal-breakers, so I wrote off Unbox and did my best to ignore it.

And then Amazon hooked up with TiVo. Beaming movies directly into my TiVo box eliminates the need to deal with DRM and Windows annoyances. My two big concerns sidestepped, I decided to give Unbox another look. I still wouldn’t want to buy Unbox-to-TiVo movies because they lack the typical DVD extras and would tie up storage space on my TiVo, but Unbox might be a decent way to rent the occasional movie – if the price were right.

Is the price right?

That depends on how the price of Unbox compares with the price of my current rental option of choice, Netflix. Both services offer immediate access to good movies: Unbox by on-demand downloads, Netflix by ensuring that I almost always have a DVD or two in the house.

To compare Unbox with Netflix, I had to figure out how much a rental costs me with each service. With Unbox the figuring was easy because each rental has its own price tag, typically $3.99.

With Netflix, it’s a bit trickier because the rental price depends upon how many DVDs I rent in a month. I pay a monthly fee of $17.99 and can rent as many DVDs as I want, at least until the infamous Netflix rate throttle kicks in. To determine how many DVDs I rent during the typical month, I had to download my rental history. (If you’re a Netflix subscriber, you can get your history from the Returned Rentals page.) After downloading my history, massaging it into the desired form, and loading it into R, I generated a stem-and-leaf plot to visualize the number of DVDs I have rented during each of the 76 months I have been a Netflix subscriber:

> stem(monthly.rental.counts, scale=2)

  The decimal point is at the |

   1 | 0
   2 | 000
   3 | 0000000
   4 | 00000000000
   5 | 000000000000
   6 | 000000000000000
   7 | 0000
   8 | 000000
   9 | 00000
  10 | 0000
  11 | 0
  12 | 00
  13 | 00
  14 | 00
  15 | 0

It looks like I have rented as few as one and as many as fifteen DVDs in a month. Most months, however, I rent between three and ten DVDs. On average, I rent about 6.4 DVDs per month:

> summary(monthly.rental.counts)
   Min. 1st Qu.  Median    Mean 3rd Qu.    Max.
  1.000   4.000   6.000   6.408   8.000  15.000

Thus my average rental price is about $2.80 per DVD:

> 17.99 / 6.4
[1] 2.810937

Now I can make my Unbox-vs-Netflix price comparison. For me, it looks like Unbox is about 40 percent more expensive than Netflix:

> 3.99 / 2.81
[1] 1.419929

So the price of Unbox is not right, at least for me.

Testing Unbox-to-TiVo rentals

Because Amazon is offering free $15 credits to TiVo owners, I decided to give Unbox a test drive. My test rental was The Illusionist. Renting the movie was easy (just one click), and shortly thereafter Unbox automatically downloaded the movie to my TiVo box. When I played the movie, however, I was disappointed with the video quality. I easily noticed banding artifacts, which were distracting at times. On the whole, the viewing experience was inferior to watching a DVD.

Netflix still beats Unbox

For me, then, Unbox is still a loser. It costs more and delivers less than DVD rentals via Netflix.

A note to my friends at Amazon.com

I would be happy to give you my business, but right now you’re not earning it. If you want me as an Unbox customer, here is the recipe for winning me over:

  • Let me easily download movie rentals to my TiVo. (Check.)
  • Offer true DVD quality or better. (You’re not there yet.)
  • Sell the rentals for less than $2.80. (You’re not there yet.)

Until then, I’ll have to give my money to Netflix.

Cheers,
Tom

Update: edits for clarity; added tags.

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Amazon Grocery: an upbeat mini-review

Posted by Tom Moertel Thu, 03 Aug 2006 05:34:00 GMT

Amazon.com recently launched Amazon Grocery by offering a $10 discount on purchases of $49 or more. I took the bait.

Amazon’s plan

Judging from Amazon’s initial grocery offerings, I suspect their plan goes something like this:

  • offer only goods that can be warehoused (no perishables)
  • undercut traditional retailers on high-margin goods such as organics, naturals, and upscale brands (e.g., Annie’s Homegrown, Bob’s Red Mill, Newman’s Own, and Tom’s of Maine)
  • offer a greater breadth of products than traditional retailers can stock (the long-tail play)
  • offer customers free “super-saver” shipping to eliminate shipping as a customer concern
  • sell products in bulk-quantity packs to reduce Amazon’s internal shipping costs

Prices and bulk packs

For pricing perspective, I grabbed the receipt from my most-recent trip to Giant Eagle, the local grocery store. Generally, when both Amazon and Giant Eagle offered the same product, Giant Eagle priced it significantly higher, in one case more than twice as high. For example, here are four items from the receipt:

Product Amazon Giant Eagle G.E. Markup
Annie’s Homegrown Shells & Wisconsin Cheddar Mac & Cheese $1.23 $2.99(a) 143%
Garden of Eatin’ Red Hot Blues $1.76 $2.50(b) 42%
Back to Nature Crispy Wheats $1.91 $2.29 20%
Cascadian Farms Cereal Multigrain Squares $3.30 $3.79 15%
   a = sale price when purchased with customer-loyalty card, normally $3.49
   b = sale price when purchased with customer-loyalty card, normally $2.95

Amazon sells the first three products in packs of 12; the last product, in packs of 6. For the Mac & Cheese and Red Hot Blues chips, I don’t mind the bulk packaging at all: my family goes through this stuff quickly. The last two items, however, I probably won’t buy from Amazon. We don’t eat them fast enough to make storage practical.

Test run reveals flaws

Tempted by the $10 discount offer, I placed an order with Amazon Grocery. Here are the products I ordered:

Today, the order arrived.

There was one mistake. Amazon sent me the whole-wheat version of the mac & cheese, when I had ordered the regular version. Oops.

It was easy to see how the mix-up happened. The box that contained the 12 pack was clearly labeled by the manufacturer as “organic whole wheat shells & cheddar.” Here’s a photo:

Box of organic whole wheat shells & cheddar

But somebody at Amazon had applied the wrong bar code to the box:

The wrong bar code

(The & that escaped from the Land Of XML is a nice touch, too.)

Mislabeled as it was, the whole-wheat 12 pack was just waiting to cause problems for a customer like me.

Is Amazon taking Grocery seriously?

When I called Amazon about the order mix-up, I was curious about how they would handle it. Amazon Grocery is a complex new offering, and there were bound to be mistakes. The only question was whether Amazon was prepared to correct the mistakes in a way that made me feel confident in getting what I ordered if I were to purchase groceries from them again.

In this case, they did. When I told the customer representative that I had been shipped the wrong box, he said that he would put in a “reorder” for the correct mac & cheese and send it to me via next-day shipping. As a bonus I could keep the 12-pack of whole-wheat mac & cheese that had been mistakenly sent to me. I doubt a typical grocery store would be so willing to eat the cost of its mistakes.

When I told the rep that the box I had received had been mislabeled at the warehouse and cautioned him against repeating the mix-up by sending me another mislabeled box, he said he would make a note of my concern. He also said – and I found this very interesting – that Amazon’s policy is not to take action until they receive two complaints about an item being mislabeled. (I hope there is some math behind that policy.)

Will I receive another mislabeled box? Time will tell.

Update 2006-08-04: As promised, Amazon sent me a replacement package, which arrived the next day and contained the correct product.

Cautious optimism

All in all, I’m upbeat about Amazon Grocery. Amazon stocks many products I can’t find at the local grocery store, and where there is product overlap, Amazon seems to offer a compelling price advantage. No, Amazon won’t replace regular trips to the grocery store, but it probably will change my buying habits for the products that grocery stores routinely mark-up through the roof. I can’t see that as anything but good.

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