While the likelihood of failure (or added latency, impacting upstream changes, etc.) is greater in large-scale distributed environments for which you do not control vs. your home-grown datacenter, those scenarios are just facts of life in distributed environments.
An awesome side effect of hosting an app in a cloud environment is that you must face up to those fallacies immediately or they'll eat you alive.
Ignoring the fallacies of distributed computing in web applications is akin to technical debt. You're going to have to pay it eventually, and as the metaphor suggests, it's cheaper to pay it off sooner rather than later.
There are lots of advantages and disadvantages to hosting in a "cloud" environment, so I'm not trying to paint it as rainbows and ponies.
If a company has a short runway (ie. not a lot of cash in the bank) however, hosting in the cloud means essentially renting capacity for which you do not need to maintain. Sounds good to me.
It's a fun pendulum to watch swing though, I'll admit. Some companies, with small runways, host in the cloud because it's rented capacity without too much administration. They may grow wildly, when they notice they are paying the "cloud tax" and could considerably save money by hosting themselves. They grow some more, see how much money and attention they need to put into infrastructure and how slow it is for their business to increase capacity. In order to keep up with growth and maintain focus on their core business, they move to the cloud.
Netflix is a going concern, and has been for quite some time. Even the streaming business is a few years old.
It may be an up front investment since the full benefits may take some time to accrue, but it is an investment made based on a great deal more information than a typical startup has.
Further, it sounds like an investment that is providing them with an immediate and valuable benefit, they now have a foundation for ramping up their streaming business. This is going to be a big growth area, and it's is one that they are well positioned to succeed in. Or, you could flip it around, failure to secure a strong position in the streaming business will be the death of the company, and a squandering of the business equity they have been building, since their founding, to be well positioned for this transition.
And finally, if you have doubts about the value of making up-front engineering investment in order to reduce forecastable operating costs (and avoid what is probably an even larger up-front investment in datacenter buildout), well, what are you doing here?
While the likelihood of failure (or added latency, impacting upstream changes, etc.) is greater in large-scale distributed environments for which you do not control vs. your home-grown datacenter, those scenarios are just facts of life in distributed environments.
An awesome side effect of hosting an app in a cloud environment is that you must face up to those fallacies immediately or they'll eat you alive.