I’ve always loved Netflix.  I was a very early subscriber, and we still carry the DVD plan even though we rarely use it (we’ve had some DVDs out for years).   And Reed Hastings has done something that few CEOs and companies have done:  start business A, then successfully build and enter new business B.

But I think they’ve entered a very vulnerable period.   Their streaming deal problems have been well-reported, but there’s a much deeper (and fundamental) issue looming:  they don’t control any user “on-ramp”.

The consumerization of access devices, like tablets, mobile phones, and e-readers gives companies like Apple (and soon, Amazon) immense control.  In some cases, it’s overt (e.g. lack of Flash support, the app approval process, etc.)  In other cases, it’s done by controlling the preferred user experience:  given the new subscription support in iOS 5, why would users want to do subscriptions any other way?

It will be increasingly easy (and cheap) to watch movies on Apple and Amazon devices, gradually squeezing Netflix out of the party.

I just upgraded my iPad to iOS 5 — wow!  There’s lots of stuff in there.

What’s most interesting are features that Apple’s pulled in from their app ecosystem. This is great for users (Apple gets to cherry-pick the best ideas).  But it’s risky for app developers who can see their hard work turn into free features, and then deeply integrated in a way that only Apple can do.

I’m making a running list of who’s impacted:

• Instapaper.  Safari how has a “Read later” feature, and a nice “reader” mode that defeatures Web pages, showing only the content.

• Web advertisers.  The Reader mode presents text content beautifully, free of ads.  I was wondering when we’d see a main-stream browser with an ad stripper.

• Twitter.  Deep iOS integration pushes Twitter further into utility space.  More tweets will flow through Apple-controlled UIs, moving Twitter closer to being just a tweet packet router.

• Wunderlist (and all the other task managers).  Apple can do a TODO list like no other, with location based reminders and voice input (presumably coming with Siri).

• Wireless carriers.  iMessage (Apple’s response in part to BlackBerry Messenger) is an end-run around text messaging.  It looks like it can work on email handles as well as phone numbers, so kids can start using it with their iPods.

Long term, I see threats to:  

• Dropbox (and all other file sharing companies).  File sharing is begging to be an OS feature, and iCloud (and Amazon’s Cloud Drive) are moving in that direction.

• Laptops.  You can now (finally!) activate and use an iPad without a PC, making it a compelling Internet device for users with no other computer. 

Following up on my work on digital fabrication and related areas, I tried Ponoko’s fabrication service.  I didn’t design anything myself (I’m lazy), but I bought a tabbed Arduino enclosure from their marketplace, cut from 3mm clear acrylic.

Here’s the 20cm x 20cm laser-cut sheet I got from them:

The cut width was very fine (Ponoko says the line width is about 0.2mm):

And here’s the final case (not glued, and assembled not entirely correctly):

Not bad for $5!  I’m impressed.

I think they’re definitely onto something, but there’s still more work to be done.  In particular:

• The parts took too long to arrive: 19 days.  In a world where you get stuff from Amazon in 1-2 days, this is way too long.  It took four days to start making my part, 8 days to make and ship it, the 5 days for delivery.  Digital fabrication really sings when you can iterate quickly on mechanical designs (like software does).  At some point, someone will do fabrication overnight and offer “designs submitted by 5pm will ship the next day“, with East and West coast fabrication centers and cheap 1-2 day shipping to most of the US.

• For 2d/sheet goods, support CAD formats.  Ponoko supports EPS and SVG formats — they’re probably targeting hobbyists and artists.   For mechanical design, they need to support DXF and other CAD formats.  And, they should consider the cut line width with offsets, so they can offer “cut to specified dimension“, which will make it easier to fabricate mechanical parts (such as tabbed enclosures).  Finally, please don’t make me lay out my parts in a fixed format sheet.  Ponoko should optimize the sheet layout (across orders) and just cut out my parts.

When Google announced they were buying Motorola, it was widely speculated that they did it “for the patents”. Now, Eric Schmidt is reported as saying:

“We did it for more than just patents, .. The Motorola team has some amazing products.”

Of course they did it for more than the patents.

Apple has repeatedly demonstrated what’s possible with integrated hardware and software design. As computing devices have matured, the old “wintel” model of separating things is just not competitive anymore.  I have several friends that live on ecosystem boundaries (OS-to-hardware), and it’s brutal.  The combinatorics alone (supporting a wide range of vendor hardware configurations with a single OS) are hugely expensive.

My bet is that Google will start integrating product design with Android/Motorola.  They’ll still license to other Android partners, but I’m betting the most interesting stuff will come first out of Motorola.  Now the question is:  do they have the design talent?

Continuing my ad-hoc series on avoiding the entrepreneurial lottery, another way of avoiding lottery odds is to require real capital for your project (and to get it funded).

When we started Open Market in 1994, a basic Unix server and SQL database cost $100-200k.  It took real money to build Internet companies, and that meant competition was limited by available capital.

Now, anyone with a $500 laptop can start an Internet company (or copy your idea).  Tools are free, and hosting starts out free.  As a result, there seem to be as many would-be Internet entrepreneurs as there are aspiring novelists.

If your idea needs real capital (beyond salaries), you’ll have a much narrower competitive field.  Sure, there’s a lot of venture and angel funding available, but getting funding is a filtering function and barrier to entry.

VistaPrint is a great example:  though they initially outsourced their printing, they ended up spending millions on their own print operation (fed with custom software).  They weren’t going to find any serious direct competition from a Y Combinator project team.

(Note:  raising capital for customer acquisition is not enough of a differentiator.   You’ll still compete with companies finding customers in capital-efficient ways.  See my article on customer acquisition.)