Will there be a new TV in Apple's future - the so called iTV - or
will Apple upgrade its set-top-box, the Apple TV. DigiTimes claims that
Apple was ordering 32" and 37" TVs for its new product line.
Unfortunately, DigiTimes is not always an accurate fortuneteller. Why
would Apple get involved directly in the TV business? Isn't it easier
to make a better set-top-box that can be used on any TV?
Before deciding what and how the iTV might work, let's ask a few
questions about the market, who the consumer is, and what technology is
available.
How Big Is the Market?
Price is the key to any market. Sure, the price of a 32" or 37" TVs
has dropped, but it is still several hundred dollars. I checked a few
prices, and the 32" size is selling between $300 and $500, while the
larger 37" sells for between $350 and $600.
There is already
huge pressure on the price of a new LCD TV. Demand is down, and the
price has dropped. Apple could try to break into the market by selling
a TV for less, but to do that, Apple would have to take a loss. That
doesn't sound like Apple.
Besides, becoming the low price leader hardly has any benefits for
Apple's brand. Apple wants to add value to its product with extra
hardware details and software. This would push any Apple product to the
top end of the price range. That would restrict the total number sold
even if it was offset by value enhancements.
The TV market caters to a lot of different demands. Some rooms can
only fit a small TV, while other rooms make even the 37" size too small
to be effective. If Apple only sells its new product matched to two
sizes, there will be a lot of buyer who will be left out.
Would it be safe for Apple to ignore all the possible customers who
need a different size? All other TV manufacturers cover a large range
of sizes just so they don't leave customers needing to go to the
competition. What could Apple offer in a new TV that would make a
consumer give up their current 62" TV?
The iTV would not be like the iPod that took over the early MP3
market. It is more like the smartphone market that the first iPhone
competed in. Even with plenty of smartphones available, the iPhone
delivered a better experience and brought value with the supply of
inexpensive apps.
One big difference is that your current TV has plenty of content
options. There are game consoles, cable, DVD and Blu-ray players,
satellite, and Internet and content streaming boxes (like the current
Apple TV). These work with any TV, and this open up a larger market
than just those people wanting to get a new TV.
This is where a set-top-box - like the Apple TV - makes more sense for
Apple. It is cheap in comparison. It is only $99. For an Apple product,
the $99 price is very low, but for the set-top-box market segment, it
is average.
Reports are that Apple already has
32% of the set-top-box market, or an estimated 4 million sold in
2011. That's great for that market, but it makes the Apple TV a big
fish in a small pond. It does show that Apple can compete in this
segment if it brings enough value.
Obviously, the missing piece is bringing enough value to offset the
price. Whether it is $99 or $999, Apple has to deliver value.
Who Will Buy?
When Apple first released the iPod and iTunes, they were released
for Mac users only. This created a fan based to rave over the device
before releasing it to the rest of the world on Windows. Once the
momentum was started, they became impossible to stop.
Today, Apple is in a very different place. It already has incredible
product momentum. The iPhone, iPod touch, and iPad are already selling
in the millions each quarter. Releasing a new iOS compatible TV product
has a huge capacity for growth that the Mac-only iPod didn't have.
There are easily between 50-100 million iOS users around the world.
You also have a group of users trained in a particular type of
interaction that can be leveraged. Apple will appeal to this group the
most, because any interaction will be based on this training.
What is the Latest Technology?
Apple introduced an incredible piece of technology to millions of
users, Siri. For those who already have used it, you know how well Siri
does or does not respond to your voice. It can find restaurants, tell
you its favorite color, and help you with natural languages searches
(you don't have to type the request in a Google search bar).
If you want to cut through all the clutter of screens and menu
options and go directly to the show you want to watch, then nothing
would seem better than to ask Siri. After a few dozen requests, you
could start having Siri recommend choices based on your previous
requests. You could say, "Siri what's a good movie?" Siri isn't ready
for movie questions yet, but Apple could add these types of searches if
it wanted.
The Missing Pieces
If Apple already has a huge customer base and great technology, then
what is missing is a way to increase the value of the product so that
whatever Apple charges it will be worth the connivance.
The public beta of Siri will lead to a more accurate version of Siri
that will give Apple the best product on the market to deliver instant
(and reasonable accurate) selection of the movie, TV show, or channel
of their choice based on simple voice command. That brings a measure of
value that will take awhile to be replicated by a competitor.*
The second piece is having the available content. Apple has added
movies and shows to its iTunes library for years. The addition of
streaming content gave Apple the extra boost in the eyes of Hollywood
by delivering movies only for viewing and not for sale that the
Hollywood studios want. This will give the studios more comfort to
offer more material, because at the end of the day nothing but a
temporary license was sold, and the content can be pulled or priced
higher at any time.
Don't forget that Apple has a billion dollar server facility in
North Carolina just waiting to deliver content. Apple has been
investing in the backend infrastructure to handle this type of
delivery.
Another content option will be the use of iOS apps for your TV. Many
are designed to require multitouch. That may work great for a personal
device that you hold in one hand. It will not work for a 37" screen.
The flip side is that it could give developers a new way to sell their
existing apps updated for the new format - like how you can buy iPad
apps separate from iPhone apps.
All of this is great, and some will buy an iTV just to get these
features integrated with no extra cords. For me and millions of others,
we are going to need more. One big value boost would be the option to
subscribe to selected cable content without the need to purchase an
expensive cable package. That is a $50 savings to my home budget if I
could drop cable and just subscribe to the channels that I want.
Apple could be negotiating for the likes of ESPN, Disney, or ABC.
The more channels available, the more people will buy different
content. If they can offer enough that you no longer need Netflix,
TimeWarner, or Dishnetwork, the more consumer dollars that could be
spent through iTunes. Once they can get momentum, their ability to
negotiate more contracts will be easier. Who would want to be left out
once it became popular?
The Risks
Apple has to hit this out of the park on its first try. It cannot
let the competition slowly catch up. It cannot let partners walk away
if adding customers is too slow that interest wanes before critical
mass is achieved. It can't have people joke about how bad the search
results from Siri are, or that streaming movies is slow.
What Will It Be Then?
Based on these facts, I see Apple delivering an updated Apple TV for
the sheer pricing advantage it gives. It will want to sell millions
ASAP. The update doesn't have to be costly new hardware, but better
content options, cable channels, and apps. This could be done with a
software update with unseen legal contract negotiation in the
background.
With so many who already own an iPhone or iPad, the use of your own
iOS device as the remote control. For those who don't already have one,
then maybe for a few dollars more you get a stripped down iPod touch as
your remote. By mirroring the content on the TV screen, you could
maintain the multitouch interface that people have been trained to
use.
The hardware doesn't have to be expensive. The processing power
won't be great. It will have integrated graphics to supply HD TV, but
nothing fancy like 3D. It will have either a small hard drive or flash
drive to hold a few hours of TV at most. It will not be designed for
storage.
With the low power requirement, this could all be packaged into an
iTV as a premium product. I wouldn't expect Apple to sell millions, but
it would give them a position to experiment with finding better
solutions for tomorrow and allow them to compete with other integrated
options that may be planned by Google or Amazon.
If Apple can sell a $999 computer monitor, then it can sell a $600
to $700 TV. At that price, if they just sell 10,000 they add $6 to $7
million in sales - and at a 30% margin, that is an extra $1.8-$2.1
million in profit. That is enough reason to start a new project.
The sad thing is for any other company earning an extra $18-$21
million would be considered great. For Apple, the iTV alone isn't
enough for success. That's why an improved Apple TV is needed to drive
the success out to as many homes as possible. Adoption of the service
is just as important as any money that will be made with the release.
