For those consumers who don’t want or need to pay $99 a year for Amazon.com Inc.’s (NASDAQ: AMZN) Prime free two-day shipping, streaming video and whatever-else-the company-can-think-of service, the company is reported to be preparing to release an advertising-supported video streaming service early next year that will be separate from Prime and likely cost less than the current $7.99 monthly subscription to Netflix Inc. (NASDAQ: NFLX).

Some analysts see this as a direct attack on Netflix. The New York Post on Friday cites Wedbush analyst Michael Pachter: “If they [Amazon] do an ad-supported service, they will decouple it from Prime and that is a Netflix killer. … Who wouldn’t switch if you were poor or you’re a cord cutter?”

What makes more sense, at least we think it makes more sense, is that the ad-supported video is a flank attack on Google Inc.’s (NASDAQ: GOOG) YouTube. How serious a threat, really, is Netflix to Amazon? Amazon’s market cap is seven times that of Netflix, but less than half that of Google. If an ad-supported streaming video service destroys Netflix’s business, that’s just collateral damage — YouTube will still be number one by a wide margin.

Amazon is all about scale, and besides Google there is really only one other company that Amazon competes with: Apple Inc. (NASDAQ: AAPL). Amazon’s big problem is that its competitors make money and are sitting on piles of cash. The issue for Amazon is what it can do to take cash and profits out of the game and make its rivals compete on its own terms.

Amazon has acknowledged that the reason its Fire phone was a dud is because it was priced too high. Amazon will avoid making that mistake again in a battle with YouTube. Free — or at least cheap — is the great leveler to the cash hoards at Google and Apple, and those are the only companies Amazon cares about.

ALSO READ: States Slashing Education Spending

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.