Today’s underscore opportunity: A press release announcing that Netflix customers streamed “more than 2 billion hours” of video during the last three months of 2011. CEO Reed Hastings telegraphed this one in December, when he told an investor conference that the company was set to stream “well over” a billion hours for the quarter.

But beyond a boilerplate reference to “more than 20 million streaming members,” Netflix isn’t saying how many customers were watching that video. And it’s not providing any other meaningful metrics until it announces Q4 earnings in about a month. So no need to spend any more time on this one.

Streaming is the future. We’re focused on it. DVD will do whatever it’s going to do. We’re not — we’re going to try to not hurt it, but we’re not putting a lot of time and energy into doing anything particular around it and then we’re focused on, how do we take advantage of this incredible global streaming opportunity.

That was Netflix CEO Reed Hastings, at the UBS media conference earlier this month, reiterating the point that Netflix has been making over and over again for some time: They want out of the DVD business, even though it is generating more than $1 billion a year for them.

Hastings and his team are convinced that even though consumers say that discs are important to them, their usage data shows that few people … use them. “Old fogey discs,” Hastings calls them.

Netflix tried very hard to accelerate the decline of DVDs with the Qwikster fiasco. Since then, Netflix has been careful to tell its subscribers who are still paying for DVDs that it is happy to have them around.

New subscribers are a different story, though. Netflix exclusively pushes its $8-a-month unlimited-streaming option, on its site and in its promotional materials. You have to work very hard to discover that the company still rents DVDs, and that’s by design.

Same deal for former subscribers that Netflix is trying to woo back: Even if you used to get both DVDs and streaming videos from Netflix, the company will only tell you about its streaming plan in its “come back!” emails. (See the screenshot of an email my colleague Tricia Duryee, who quit her hybrid plan this fall, got recently, at the bottom of this post.)

But the message is most clear for people who want to give someone a Netflix subscription as a present: The company no longer allows you to gift a subscription that includes a DVD plan, period.

Go ahead and see for yourself — there’s no way to give Reed Hastings and company an extra $8 a month for a service they’re still providing to some 11 million subscribers.

The one tiny workaround that the company offers (if you look very, very hard — or do what I did, and call up Netflix PR and ask) is the ability to let current subscribers extend their current deal. So, for instance, if you’re currently getting the equivalent of a $16-a-month hybrid disc-and-streaming option, and someone gives you a year-long $8-a-month streaming gift, you can convert that into a six-month hybrid plan.

But, boy, that’s complicated. Easier to just give someone a year of streaming, and then send them a check so they can add the DVD portion on their own. Which is what we just did this morning, here at the AllThingsD Brooklyn outpost.

So to repeat: If you work very, very hard, Netflix will let you give it money, and will let you rent DVDs in return. But it would really prefer that you didn’t.

They’re less happy than they used to be. But they don’t seem to be going anywhere.

That’s the cautiously optimistic conclusion of a new survey Citigroup commissioned over the past few months. It finds existing subscribers still fairly pleased with the service Reed Hastings is offering: 57 percent say they’re either “extremely satisfied” or “very satisfied.” But Hastings’ good will has certainly eroded a bit: In May, a similar survey found 50 percent of his customers in the “extremely satisfied” category. That number is now down to 18 percent.

As Citi analyst Mark Mahaney points out, the survey is a bit skewed, since Netflix subscribers who were most disappointed with the service’s changes — a price hike, an ill-fated attempt to spin off its DVD business into a separate unit, and the loss of programming deal that gives the company access to Sony and Disney movies — have already bailed.

But a different survey question suggests one reason customers are sticking around with Netflix: They don’t see many other options.

While Amazon has been building up its catalog of streaming video, only 9 percent of Netflix customers said they’ve watched movies or TV shows there. And while 15 percent said they’ve used Hulu, that number is down from 19 percent in May. Apple’s iTunes comes in at 8 percent. (Perhaps the reason only 27 percent of Netflix subscribers say they use Netflix is because they’re distinguishing between apps and the site. But that seems like a fairly precise distinction for a large number of people to make, so who knows.)

The very big picture is that Mahaney still assumes Netflix will keep growing. He figures its DVD-only subscribers will drop by 800,000, to 9.9 million, over the next year. But he thinks streaming subscribers will increase 9.9 million, to 30.9 million, and that the company will add a few million more as it expands in Latin America and the U.K. He also thinks Netflix will become profitable again by the end of 2012.

But none of that is going to help anyone who bought Netflix stock earlier this year, when shares had climbed as high as $300. Mahaney has lowered his price target for NFLX, and is now hoping it climbs back to $80.

Amazon, as well as companies like Apple Inc., have been pushing into the sector as demand for online content has soared. Netflix Inc. was a pioneer in the streaming video category, but has stumbled recently due to a big price increase and a now-shelved plan to separate its movie-streaming and DVD-by-mail businesses into two different operations.

Read the rest of this post on the original site »

Initial bids are due by Wednesday, with suitors expected to submit proposals with wide price ranges based on what types of television shows Hulu would license, when those shows would become available on Hulu and how long the agreements would stretch, people familiar with the matter said.

Some bidders are likely to indicate a range of about $500 million to $2 billion, according to one of the people. Google Inc., Yahoo Inc., Amazon.com Inc. and DirecTV are among the companies expected to bid, other people said.

Read the rest of this post on the original site »

Netflix’s dramatic growth in user base and market cap have had a lot to do with the company anticipating market changes and making audacious bets, but it has been relatively plodding and hesitant about getting social.

Netflix explained in the shareholder letter (PDF) accompanying its quarterly earnings report that its Facebook integration will accompany an effort to split household accounts into multiple personal accounts.

In part because of the company’s history as a DVD mailing service, a Netflix account is affiliated with a particular address. That’s also the way traditional television providers measure their market: In terms of households.

But online video, Netflix notes, “is more naturally individual, since it is watched on personal screens like phones, tablets, and laptops, as well as on shared large screen televisions.”

In addition to helping identify discrete people within a household, Facebook integration would presumably allow Netflix to help users do things like share their personal viewing history in their newsfeed and recommend videos to friends. Understanding social networks could improve Netflix’s famously honed recommendation algorithm. It might also be an opportunity for Netflix to create social viewing experiences.

Currently, Netflix lacks much in the way of social features; it had yanked a previous effort to offer social sharing last year after saying that relatively few subscribers used it.

However, the company has recently staffed up for a renewed social effort.

Mike Hart, previously Netflix’s director of engineering for APIs, is now director of engineering for social. Hart told Fast Company in November that Netflix sees social as an international user acquisition strategy and an opportunity to avoid disruption by a competitor that is more social.

Netflix also appears to view personal accounts as an opportunity to charge more money. The company said in the shareholder letter that later this year it will start offering new account options that include multiple simultaneous streams. (So, for instance, you could stream TV episodes in the bedroom on your iPad while your spouse watches a movie in the living room through the Roku.) The streaming-only plan Netflix recently launched costs $7.99 (which some industry watchers say is too cheap) and allows just one stream at a time.

Netflix noted in the letter that its new grand internal vision is to target the number of active mobile phones in an area, rather than the number of households (though that might be a bit ambitious in places where it’s common for people to have more than one phone!).

Please see the disclosure about Facebook in my ethics statement.

Interesting PR campaign from Netflix, which is fighting with the cable guys and telcos over the cost of delivering all that streaming video to your living room: The company is going to publish a list of broadband Internet providers, ranked by performance.

Netflix CEO Reed Hastings’s letter to shareholders goes on about his company’s position vs. the ISPs at great length, and I’ll reproduce it at the bottom of the post.

But you can summarize it in a sentence: If the broadband guys insist on gouging us to get video to our customers, we’re going to make a very public stink.

So tomorrow’s list is a warning shot, meant to give the ISPs a sense of where Netflix is willing to go on this one.

Hastings says the list will detail “which ISPs provide the best, most consistent high-speed Internet for streaming Netflix,” and offers a preview: Charter is tops, right now.

But if you invert Hastings’s description, you get what he really means: We’re going to tell some broadband customers that they’re getting screwed and should switch to a new provider. Heads up, Time Warner Cable, Comcast, etc.

In other news, Netflix casually tossed off another very good quarter: The company added three million subscribers in the last three months of 2010, and says that a third of its new customers are choosing its new streaming-only plan. International expansion is still on the table for 2011 and is a major focus for Netflix going forward, Hastings said.

Here’s his warning/threat to the broadband business:

Recently the FCC adopted a version of net neutrality for wired networks in the U.S., and it’s a step in the right direction. The focus is on fair-play within an ISP’s network, but does not explicitly address entry into the ISP’s network.

Delivering Internet video in scale creates costs for both Netflix and for ISPs. We think the cost sharing between Internet video suppliers and ISPs should be that we have to haul the bits to the various regional front-doors that the ISPs operate, and that they then carry the bits the last mile to the consumer who has requested them, with each side paying its own costs. This open, regional, nocharges, interchange model is something for which we are advocating. Today, some ISPs charge us, or our CDN partners, to let in the bits their customers have requested from us, and we think this is inappropriate. As long as we pay for getting the bits to the regional interchanges of the ISP’s choosing, we don’t think they should be able to use their exclusive control of their residential customers to force us to pay them to let in the data their customers’ desire. Their customers already pay them to deliver the bits on their network, and requiring us to pay even though we deliver the bits to their network is an inappropriate reflection of their last mile exclusive control of their residential customers.

Conversely, this open, regional, no-charges model should disallow content providers like Netflix and ESPN3 from shutting off certain ISPs unless those ISPs pay the content provider. Hopefully, we can get broad voluntary agreement on this open, regional, no-charges, interchange model. Some ISPs already operate by this open, regional, no-charges, interchange model, but without any commitment to maintain it going forward.

Tomorrow, we’ll publish on our blog ongoing performance statistics about ISPs collected from our 20 million subscribers detailing which ISPs provide the best, most-consistent high speed internet for streaming Netflix. We can tell you now, though, that for our subscribers streaming Netflix, Charter is the highest-performance ISP in the United States.

Recently, there was a report that at peak times Netflix subscribers in the U.S. were driving about 20% of peak downstream last-mile Internet traffic. This may or may not be accurate, but it should be noted that because we pay for the data to be delivered to regional ISP front doors, little of this traffic goes over the Internet or ISP backbone networks, thereby minimizing ISP costs, avoiding congestion, and improving performance for end-using consumers.

An independent negative issue for Netflix and other Internet video providers would be a move by wired ISPs to shift consumers to pay-per-gigabyte models instead of the current unlimited-up-to-a-large-cap approach. We hope this doesn’t happen, and will do what we can to promote the unlimited-up-to-alarge-cap model. Wired ISPs have large fixed costs of building and maintaining their last mile network of residential cable and fiber.

The ISPs’ costs, however, to deliver a marginal gigabyte, which is about an hour of viewing, from one of our regional interchange points over their last mile wired network to the consumer is less than a penny, and falling, so there is no reason that pay-per-gigabyte is economically necessary. Moreover, at $1 per gigabyte over wired networks, it would be grossly overpriced.

That’s the amount Netflix has committed to paying Hollywood studios for the rights to stream their movies and TV shows. And it’s up from $229 million three months ago, the company disclosed in an SEC filing yesterday.

Most of that leap comes from a five-year deal that Netflix previously announced with the Epix pay channel, which is thought to be in the $900 million to $1 billion range. But that number could jump again within the next year, when Netflix’s deal with the Starz pay channel expires.

The Starz deal gives Netflix access to Sony and Disney titles, so it’s crucial that Reed Hastings hangs on to it. And that will make a new Starz deal about as expensive as the Epix deal, says Barclays analyst Douglas Anmuth: He figures Netflix will have a total streaming commitment of $2 billion by the end of 2011.

The magic of the Netflix Web model, though, is that as people consume more on the Web, they cut back on discs –”You’re
replacing the postal cost with content cost,” in Hastings’s words.

For more details on Netlix’s streaming plans and costs, I highly recommend nerding out with this transcript from its Q3 earnings call (PDF). It’s a fascinating peek into a company on the leading edge of the digital transition.

Except, says Netflix CEO Reed Hastings, that’s not what his 19.6 million customers are doing.

Responding to a question during yesterday’s earnings call, Hastings told analysts he doesn’t see any evidence that his customers are choosing Netflix instead of cable. They’re using it to augment their cable subscription, he said: “We still see no evidence that our subscribers cut cords at a greater rate than the population.”

That contradicts both popular wisdom, as well as at least one recent survey, which found Netflix subscribers using the service as a cable substitute. Then again, a competing study from BTIG’s Rich Greenfield (registration required) found that hypothetical cord cutters are only slightly more likely–by a margin of 51 percent to 49 percent–to have Netflix.

And the existence of cable-cutting itself is still very much up for debate in the TV business. Cable companies like Comcast insist that they don’t see evidence of it. But Ivan Seidenberg, who runs cable competitor Verizon, says it’s inevitable.

Netflix, meanwhile, has been consistent in arguing that it’s not helping anyone do any snipping. Here’s Hastings answering a similar question during an earnings call three months ago (PDF):

Q: Do you see any evidence that Netflix subscribers are inclined to either cancel multi-channel video subscriptions, or to pare back use of premium services such as Starz, Encore, HBO?

A: No, we haven’t seen any evidence of that and there’s no evidence in the total numbers of those firms in last quarter’s financials and total subscribers, so total multi-channel video subscribers is continuing to grow in the US. Premium subscribers is not showing any decline, so I don’t think there’s any material cord cutting. I think what’s happening is the multi-channel video, such a broad package with an incredible array of products, that we’re a tiny little fraction of that, and our subscribers view us as a supplemental service, and because it’s a modest cost at $9 a month, it works for them and their budget.

The numbers bear Hastings out: In the past year, his service has added 5.8 million subscribers. If, say, 20 percent of those new customers were cord cutters, you would have seen cable rolls drop by more than one million people. But so far we’ve only seen a 200,000-person drop, in the second quarter of 2010. And some analysts think that number will turn positive for the rest of the year.

But that doesn’t mean Hastings doesn’t plan to cut directly into the cable business in the future, when Netflix has a truly comprehensive streaming video catalog. Which means it’s worth asking Hastings about cord-cutting every quarter.

One of these days you might get a different answer.

Yes, say sources talking to the New York Times who imagine the video site launching an IPO “as soon as this fall.”

And it’s not the first time we’ve heard the idea: Some of Hulu’s network owners have been murmuring privately about an IPO for a while. Kara Swisher even got Hulu CEO Jason Kilar to acknowledge the possibility in an interview last month.

Okay. But really?

For argument’s sake, let’s take Hulu executives at their word. They say the site will turn a profit on revenues of more than $200 million this year–even though the majority of its revenues for its big shows go back to its network owners.

Even with those numbers, a Hulu IPO faces a fundamental challenge: Convincing investors that its three network co-owners are committed to making the thing a success.

The Times’ sources float a $2 billion valuation for Hulu. And that ought to be all the motivation that its network owners–GE’s (GE) NBC, Disney’s (DIS) ABC and News Corp.’s (NWS) Fox–and co-owner, Providence Equity, should need.

But Hulu’s primary business model–streaming TV shows on the Web, for free, while competing with the networks’ own sites, which do the same thing–seems a lot more problematic now than it did back in 2007. At the time, the networks were primarily concerned with creating a credible competitor to Apple’s (AAPL) iTunes and Google’s (GOOG) YouTube.

Now Hulu’s owners, who are primarily focused on wringing extra dollars out of the cable business, are consistently sending mixed signals about what they want to do with the site.

For instance: This spring, ABC launched its own free iPad app, which competes with Hulu’s $9.99/month paid service. This month, News Corp. CEO Rupert Murdoch was asked about Hulu during his quarterly earnings call, and he declined to say much at all. Meanwhile, NBC is slated to be a unit of Comcast (CMCSA), which has real problems with Hulu (though I think the cable guys will be hands-off the JV for the near future).

Of course, there’s a circular logic to this. If Hulu’s network owners can really convince Wall Street to assign an eye-popping value to their site, then Hulu’s network owners will have a reason to stick around. And maybe this show will have a happy ending, after all. I’ll be happy to watch, either way.

Here’s a look at the upgrades:

• Youssef Squali, Jefferies: Upgrades to Buy from Hold, target to $65, from $52. “Q4 results show that Netflix’s momentum is stronger than ever, driven by excellent execution amid a very favorable competitive environment,” he writes. Squali says the company is seeing benefits from the popularity of its movie streaming service. He takes his 2010 EPS estimate up to $2.56, from $2.28.

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Why? Do they expect the tablet to be Wi-Fi-only like the iPod touch? That would certainly make things a lot easier for the carriers.

No. Most analysts I spoke to said the probability that Apple’s new offering will support mobile broadband is quite high. “I can’t imagine it not having it,” Piper Jaffray analyst Gene Munster told me.

There are other good reasons not to fear the tablet as a bandwidth hog. First, the device will presumably rely heavily on Wi-Fi to off-load wireless traffic onto the wireline network, the assumption being that it will be used most often in locations with Wi-Fi access–homes, schools, libraries, cafes and whatnot. Moreover, a mobile broadband plan will likely be optional.

Second, despite all the hype and hoopla, initial unit sales of an Apple (AAPL) tablet are likely to be too low to have much of an impact.

As Munster told me: “…turn the clock back and look at the iPhone and the first year Apple sold 5.5 million units in the US and the ASP was $475. At that time there were no issues with AT&T’s network. The issues began occurring last year, right around the time we saw the hockey stick in iPhone adoption.”

Regarding the tablet, Munster says, “If this device is $800-$1000, I think adoption is going to be much lower than the hype would lead you to believe. So the bottom like is this: on a per-unit basis it might put a lot of stress on the network, but there will be too few of them on the street to collectively have a real negative impact.”

Presumably, that will give the carrier, whatever company that may be, time to build out in anticipation of increased adoption. A good thing, since a tablet may well pose unique network challenges, particularly if it is used as a streaming video viewer, says Sanford C. Bernstein analyst Craig Moffett.

“Streaming video is uniquely demanding traffic, as it is both bandwidth intensive AND latency sensitive,” Moffett explained. “That’s a recipe for disaster. For that reason, it’s unlikely that carriers would invite that type of usage. A large screen tablet would likely rely heavily on download-to-watch-later to sidestep the latency problem, and would almost certainly provide incentives to shift the most bandwidth-intensive applications to the wired network via Wi-Fi.”

But that’s a future scenario. “I don’t see this as a device that will in the next 12 months inspire people to save their money to buy it, the way they have with the iPhone,” says Munster, who sees Apple selling about 1.4 million tablets in calendar year 2010, assuming it ships in March.

“Certainly, it will take off in due time–this is the future of publishing,” Munster concludes, “but it takes 2-3 years for these things to really get going.”

PREVIOUSLY:

• Apple Announces Jan. 27 Special Event: “Come See Our Latest Creation”
• Major Apple Product Announcement Set for Wednesday, Jan. 27
• Apple Pitching Tablet to Publishing Industry; Spring Launch Expected
• Time (Finally) for the Tablet? Apple Developers Supersizing Their Apps for January Event.
• The Apple Tablet Is Delayed? So What?
• $1.9 Billion in Capex? What’s Apple Planning?
• Apple’s Tablet: Read Different?
• Imaginary Demand for Mythical Apple Tablet Exceeds All Estimates
• Apple Tablet Coming to AT&T?
• New From Piper Jaffray Analyst Gene Munster: The Apple iPad
• Rumored Apple Netbook Actually an E-Book?
• iTablet: Apple’s Killer App for Higher Ed
• iFugly

Last Friday, at an onstage interview I conducted with the Netflix CEO, I asked him when his company might start offer streaming video for Nintendo’s Wii game console, as it does for Microsoft’s (MSFT) Xbox 360 and Sony’s (SNE) Playstation3.

The chances were “excellent,” Hastings said. “These things have a natural rhythm, and these are things that I think will work out over time.”

Another way Hastings could have answered the question, if he wanted to be a little more forthright: “It’s a done deal.”

Netflix and Nintendo are formally announcing the pact today, and Wii owners will be able to stream movies to their TV sets via the console sometime this spring, the companies say.

It’s an obvious move for both parties, but it’s particularly good one for Netflix (NFLX) since it offers the company a chance to introduce itself to some 26 million Wii owners–more than double the company’s 11 million subscriber base.

Netflix is slowly transforming itself from a company that mails DVDs to customers to one that streams video directly to their homes. Hastings says that 50 percent of his customers have tried the streaming service option, and game console owners have been particularly receptive.

If you want to scour Hastings’s comments for clues to other deals that may be in the offing, be my guest. Here are all 36 minutes of our chat, which took place during the Consumer Electronics Show in Las Vegas.

]]> http://allthingsd.com/20100113/netflixs-chances-of-a-nintendo-deal-really-were-excellent/feed/ 0 http://allthingsd.com/20100108/coming-up-at-330-pm-pst-walt-and-kara-live-from-las-vegas/ http://allthingsd.com/20100108/coming-up-at-330-pm-pst-walt-and-kara-live-from-las-vegas/#comments Fri, 08 Jan 2010 21:02:33 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=32021 Later this afternoon we will be live-streaming a series of three interviews with tech luminaries Reed Hastings, CEO, president and chairman of Netflix (NFLX); Jon Rubinstein, chairman and CEO of Palm (PALM); and Google (GOOG) VP of Engineering Andy Rubin. Join us at 3:30 PM PT for streaming video and live coverage.

]]> http://allthingsd.com/20100108/coming-up-at-330-pm-pst-walt-and-kara-live-from-las-vegas/feed/ 0 http://allthingsd.com/20090929/verizon-to-bust-a-cap-in-your-asymmetric-bandwidth/ http://allthingsd.com/20090929/verizon-to-bust-a-cap-in-your-asymmetric-bandwidth/#comments Tue, 29 Sep 2009 19:35:19 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=25610 Get ready for metered broadband.

Speaking at the FTTH Conference and Expo in Houston Tuesday, Verizon Communications CTO Richard Lynch said the broadband industry is headed toward a pricing paradigm shift that will see it embrace the usage-based pricing common to the wireless broadband industry.

Internet service providers “cannot continue to grow the Internet without passing the cost on to someone,” Lynch said in remarks reported by Telephony Online. “At the end of the day the concept of a flat-rate infinitely expandable service is unachievable. We are going to reach a point where we will sell packages of bytes. Now I’m not announcing a new pricing plan. But we have already gone this way in wireless because that is where the resource is most constrained.”

So while Lynch may not have announced a new pricing plan, he’s clearly got one in mind. And these, the first public comments from Verizon (VZ) on a transition to metered bandwidth, likely mean the all-you-can-eat days are soon to end and the “will this streaming video put me over my monthly usage cap” days about to begin.

Which, as consumer advocates will tell you, is bad news because charging Internet customers based on how much Web data they consume is likely to stifle innovation by undermining demand for high-bandwidth services such as online video and whatnot.

]]> http://allthingsd.com/20090929/verizon-to-bust-a-cap-in-your-asymmetric-bandwidth/feed/ 2 http://allthingsd.com/20090819/streaming-video-revolutionaries-actually-closet-dvd-by-mail-users/ http://allthingsd.com/20090819/streaming-video-revolutionaries-actually-closet-dvd-by-mail-users/#comments Wed, 19 Aug 2009 16:26:46 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=23301

Kaufman Bros. analyst Aaron Kessler recently conducted a survey of 700 Internet users (see charts below; click to enlarge) and found that 20 percent of those who aren’t currently Netflix (NFLX) subscribers plan to register for the service in the next five years. Moreover, 68 percent of all respondents said that “the ability to watch videos on the Internet vs. renting from a physical store or by mail” doesn’t much matter to them. Only six percent said that feature is important.

And if DVD rental stores were to suddenly disappear from the face of the earth, 52 percent would turn to a DVD-by-mail service as a replacement. A smaller number, 32 percent, would turn to the Internet.

“DVD by Mail life cycle may be longer than current thinking,” Kessler said in a research note issued today. “While we would agree that a large percentage of the DVD rental market will move to digital in the long term, our survey indicates that the current life cycle of physical rentals may be longer than people think.”

[Image credit: NetFlix Origami]

]]> http://allthingsd.com/20090819/streaming-video-revolutionaries-actually-closet-dvd-by-mail-users/feed/ 0 http://allthingsd.com/20090715/in-browser-warsthe-new-firefoxloses-some-edge/ http://allthingsd.com/20090715/in-browser-warsthe-new-firefoxloses-some-edge/#comments Wed, 15 Jul 2009 22:02:03 +0000 Walter S. Mossberg http://ptech.allthingsd.com/20090715/in-browser-warsthe-new-firefoxloses-some-edge/ The war of the Web browsers has taken another turn with the release of a major new version of Mozilla Firefox, the No. 2 browser in market share, but No. 1 in the hearts of many of the most knowledgeable computer users.

This new edition of Firefox is the third big new browser release this year, following new editions of Microsoft’s (MSFT) Internet Explorer and Apple’s (AAPL) Safari. Unlike Firefox, these two browsers come bundled with the two major computer platforms, Windows and Mac. By contrast, Mozilla must convince users to download Firefox, which comes in essentially identical versions for both systems. And it has done a reasonably good job, garnering by most estimates around 23% market share, versus between 60% and 70% for IE, which is by far the leader. Meanwhile, Google (GOOG)—a former Firefox supporter—has joined the battle with its nascent Chrome browser, which so far runs only on Windows, but is due on the Mac one day and is to morph into a whole new operating system next year. And there are other very capable browsers with small user bases, the most notable of which is Opera.

I’ve been using Firefox since its inception years ago, and have been testing this latest iteration, version 3.5, since it emerged June 30. I can continue to recommend it as a fine way to surf the Web. The new version is improved, and worked very well for me on both my Windows and Macintosh computers.

But, in this round of the war, Mozilla’s product no longer stands out as clearly superior, for two reasons. First, Firefox has lost its traditionally biggest advantage: greater speed than its rivals. While Firefox 3.5 is about twice as fast as the previous version 3.0, and handily beat Internet Explorer 8 in my tests, it lagged behind both Safari 4.02 and the beta edition of Chrome 2.0 a bit in most test scenarios. Overall, Safari was fastest in most of my tests, both on Mac and Windows (yes, Apple makes a little-known version of Safari for Windows).

In fact, Mozilla no longer is claiming to be the fastest browser. It now prefers to say it is one of what it calls the “modern” browsers, along with Safari and Chrome, whose under-the-hood technologies make them better at handling a growing breed of sophisticated Internet-based applications that mimic traditional computer programs like photo editors and word processors and spreadsheets.

Second, this version of Firefox has relatively few new features, and some of them are merely catch-ups to those introduced earlier by Microsoft and Apple. Most notable among these is a private browsing mode, first popularized in Safari, and greatly expanded in IE, which allows you to traverse Web sites without leaving traces on your computer to show what you’ve been doing.

Mozilla says its main goal from now on will be to turn Firefox into the ideal platform for running Web-based applications. It shares the belief, also fervently embraced by Google, that consumers will gradually migrate away from programs stored on their computers’ hard disks to those stored in “the Cloud,” the industry’s term for the servers that run the Internet.

To show this, the new Firefox can do a few new tricks, like streaming video directly from Web pages without requiring plug-ins like Adobe’s (ADBE) Flash. Alas, this works only with obscure video formats little used on the Web at the moment.

Firefox 3.5 does include some new features, in addition to private browsing. It can pinpoint your location, so that any properly configured Web site can serve up locally relevant content. It has a nice option that lets you “forget” any Web page in your history, wiping out all traces you’ve been there, even if you neglected to turn on private browsing mode beforehand. And it can recover your open tabs after a crash.

Also, Firefox continues to lead its rivals in the number and variety of third-party add-ons that enhance browsing in myriad ways, such as adding features to sites like Twitter or making bookmarking easier.

As for speed, I tested Firefox 3.5 against its main rivals by timing how long it took to launch into the same home page, and how long it took to completely load popular Web sites like Facebook and YouTube. I tested how long it took to completely load folders containing numerous sports and news sites simultaneously. I also ran an industry benchmark test that measures the browsers’ speed at handling an important Web language called JavaScript. I did these tests on the same home network on both a Dell (DELL) and an Apple computer.

While Firefox won a few of these tests, Safari and Chrome won more of them. In most cases, the speed differences weren’t large, except in the case of IE, which was dramatically slower than the others. But this is the first new version of Firefox I’ve tested that didn’t win most of the tests.

Firefox is still a great Web browser, and still much faster than its main rival, Internet Explorer. But its edge is being eroded.

Find all of Walt Mossberg’s columns and videos online, free, at the All Things Digital Web site, walt.allthingsd.com. Email him at mossberg@wsj.com.

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