Apple Should Own The Living Room

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While there are a lot of video based hardware devices in the market all competing for the living room, today, none of them have the three essential components needed to be declared the winner. To truly have a shot at owning the living room, you need the content consumers want, the software platform to control the content and an install base of devices capable of reaching a large enough audience. Today, so much of what we hear about regarding these broadband enabled devices is the hardware, but that’s the least important part. With Internet connected functionality being built into nearly every device associated with the TV, stand-alone boxes are not the path for long-term success. The path to the living room is not a hardware play.

When Apple announced the new Apple TV, some predicted that Apple would ship a lot of the units since they retail for just $99 a pop. But all the Apple TV does is cripple the web experience. You can only access the web through apps and many devices made by Apple restrict the way in which we interact with our content. Because Apple wants to control not only the iTunes software but also the hardware, Apple is preventing themselves from ever controlling the living room. We know the hardware is becoming less important. Roku’s box is cheaper than Apple TV and offers support for USB and 1080p. So this is not about Apple having better hardware, because they don’t. It’s about who has the best content and the best platform to manage it.

Apple is setting themselves up for failure in the living room all due to the fact that they feel they have to control everything in the video ecosystem. But just imagine if Apple cared less about the hardware and was more open with their iTunes platform. If Apple licensed iTunes to every TV and Blu-ray manufacturer and these devices all shipped with iTunes built in, Apple would immediately have the largest install base of anyone overnight. iTunes would become the dominant platform in the living room and could go uncontested.

We know this model would work as we can look at Netflix’s success in the market in doing this very thing. Netflix does not make any kind of hardware and is not trying to control the video playback device in any way. They want to and will work with nearly every CE manufacturer to get the Netflix platform on those devices and at the end of this year, expect to have an install base of 100M devices. How many devices is iTunes on associated with the TV that doesn’t have a small screen? The answer is very few as they only have the Apple TV.

Of course folks who love Apple are going to point to how many iPhones or iPods have been sold and the install base that iTunes has on them, but that has nothing to do with the living room and the task of getting Internet delivered video to the TV screen. One could argue, and I would agree with them, that today Microsoft and their Xbox 360 console is the winner so far. Outside of a set top box, it has the largest install base of any device connected to the TV, has a platform to go with it and has quite a lot of content available via Zune Video. And with ESPN and other forms of content coming to the device shortly, Microsoft is clearly focusing more of their efforts on the platform and the content as opposed to the hardware.

The market for the living room is completely fragmented right now with nearly every vendor falling under the hardware category, platform category or content category. Very few are working on all three. Hulu is a content play, yet they have no install base in the living room and are only now starting to work on that. Hulu has been hard at work on two of the three requirements to dominate the living room, but is missing the eyeballs. Netflix on the other hand has the platform, the device penetration and is hard at work on improving the content.

Then you have all the hardware players in the market including Roku, TiVo, WD TV Live, Popbox, Sony Netbox and all of the broadband enabled TVs and Blu-ray players. Aside from Roku who is spending a lot of time focusing on the Roku platform and brining new content channels to the device, most of the others are all a hardware play. Of course TiVo has been working on all three for some time, but unfortunately has not shown much success. If there is one thing TiVo has proven in the market is that it’s not about the hardware, but rather the software and application layer. TiVo still has the best software hands down, yet does not have much in regards to the content side of the business nor that big of an install base.

On the platform side of the business, companies like Sonic Solutions are trying to become the dominant platform for devices, but still has a small device install base. Like others, they also have no control over the content side of the business and have to hope that content owners not only adopt their platform but also work with CE manufactures to get on more devices. Then you have platform providers like Yahoo!, VUDU (now WalMart), Blockbuster, Rovi and others who are all struggling to find their identity in the living room.

I like Apple devices, I’ve only used a Mac my whole life. But Apple makes some really dumb mistakes in the market at times simply due to their ego and this is one of those occasions. If Apple opened up iTunes to non-Apple devices, they would be dominating the market. And if they did that, and had the kind of device footprint Netflix will have by the end of this year, it would be a lot easier for Apple to get the studios to agree to allow them to add new business models like monthly subscriptions. Of course, we all know how Apple wants to control every single thing, but if they were to think about the long-term impacts that iTunes could have on the market, on non-Apple devices, it’s pretty hard for them to argue that they could not still be successful, even if they didn’t control the hardware.


Dan Rayburn is executive vice president at and principal analyst at Frost & Sullivan. This post originally appeared at his blog and was republished with permission.

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