Apple TV is one of the things I get asked quite a bit about during my industry analysis presentations. It seems that everyone out there wants to know what Apple has planned for the big screen. Although no one knows, and there is much speculation, my key thoughts about this all along have been that Apple will in some way turn the TV screen into a platform to deliver rich content and services. If you think about it, the TV screen is the last of major screens in consumers lives to truly become a smart. Many vendors have tried, but the technology in many ways is still not here to really make TV’s smart.
I believe there is a tremendous amount of interest in Apple’s moves in this area because of the massive opportunity to re-invent what we experience through our TV. But the opportunity is much larger than simply consuming video content in new ways.
A Platform Unlike Any Other
The untapped opportunity for the large piece of dumb glass sitting in hundreds of millions of consumers living rooms and bedrooms is to create the ultimate entertainment platform. This is a big deal if you think about it. Today most platforms are computing platforms where things like entertainment are secondary to things like productivity, communication, etc. This is what has always intrigued me about game consoles. I have felt from very early on in my digital home research that game consoles were the ultimate entertainment platforms which would evolve into trojan horse entertainment gateways for more than just video gaming. With many of the updates brought to both the Playstation and the XBOX, it is clear that this is exactly what is happening. In fact, I believe that the value of game consoles for today’s and perhaps even future consumers, will be less about gaming and more about other entertainment services.
That being said, gaming is an important part of living room entertainment. That is why I believe Apple is betting seriously on gaming across all of the screens in which they compete. Game Center for Apple becomes the glue tying consumer gaming experiences together and the foundation of a gaming service akin to XBOX Live. A holistic video game strategy both immersive and casual is key to the future of Apple TV as an entertainment platform.
A Set Top Box is a Trojan Horse not a Large Piece of Glass
I will believe that Apple is making a large piece of glass when I see it. In my opinion the current strategy with Apple TV is that it is a small, yet powerful, set top box and is their best plan of action. Mainly because there is absolutely nothing that can be built into a large piece of glass that can not also be accomplished with a small, yet powerful, set top box. If Apple wants to sell hundreds of millions of Apple TV’s it will accomplish this with a set top box not a large, and expensive, piece of glass. Even if Apple does decide to sell a large piece of glass in the shape of a TV, they would still have to employ the Apple TV set top box strategy in order to provide an identical experience to the hundreds of millions of consumers who already have large pieces of glass and don’t intend on buying a new one any time soon.
Interestingly, Microsoft is in a position to compete when it comes to entertainment platforms. The XBOX 360 is much more than a gaming console and is evolving into a fairly mature entertainment gateway. The XBOX 360 has been called a trojan horse before and I believe it is but Microsoft can not sit still.
We may analyze and probe from every angle Apple TV in its current implementation and yet I don’t believe Apple or Microsoft has yet implemented the key growth features for this category–namely apps. The next frontier of the TV platform is to let developers begin to invent new applications and software designed specifically for the large screen. This does not mean a repurposing of existing apps and blowing them up to fit on a larger screen. It means re-inventing the way we think about software and entertainment experiences for the big screen Similarly, touch computing required a new software development paradigm built from the ground up to work with touch; so I believe the TV needs software purposely built for that screen and its role in consumers lives.
What makes the TV fascinating is how different of a relationship consumers have with it versus other screens, or platforms, in their lives. For example, the TV is not a personal screen like a notebook, tablet, or smartphone. The TV is a communal screen where in a family environment it is enjoyed by multiple people simultaneously. In this scenario it doesn’t make a ton of sense for me to run Twitter or Facebook, or at the very least those aren’t the most interesting applications for the TV. What gets me excited is that when the TV becomes a platform for software developers to take advantage of, I believe we will see an entirely new set of applications developed with more communal experiences in mind.
The family or communal cloud will become an important ingredient in this scenario. I wrote about the need for more family and communal clouds last week and the more I think about it the more I am convinced it is an unmet need in the market. Communal screens will require communal content and that is when the family’s digital media becomes an important part of the experience. The experience of seeing up to date photos of loved ones and family members (of my choosing) on my TV is one I feel would be of great value.
Lastly, I would add that although I believe Apple TV is a trojan horse, I am not convinced Apple has yet employed the strategy fully. I think this is where gaming and apps will come in to round out the platform. I know we want to kick our cable providers to the curb but I don’t think that is the entry point. I believe games and apps will deliver the value propositions that get the Apple TV trojan horse strategy going. Then once in the door in masses, hopefully the Hollywood industry will begin to invest in business models that will keep them from extinction in the future.
38 thoughts on “Apple TV and the Trojan Horse Strategy”
To dominate in this market Apple has to move from Input 2 or 3 to Input 1. In order to do this they have to replace the devices at Inputs 1 and 2 with services that are more convenient and less expensive.
I have several thoughts on that comment. I don’t entirely disagree BTW, but there may be more things at play. First of all what HDMI is looking at with HDMI 3.0 and active cables / ports can be very interesting as an aggregation of any HDMI devices into a central UI. There are some things that have my attention in that area that I think are very interesting.
Second, some of our consumer research looking specifically at the digital home is beginning to get me to question the statement “consumers don’t want or need another box.” If the value proposition is right, and again this is where the trojan horse strategy comes in, you lead with something of initial value and then build upon it to your ultimate goal of dominion. So the value proposition may be something of extreme value to the mass market that is above and beyond the box tied to input 1 as you stated.
We are seeing a great deal of interest for new services and extensions of existing / access to new services. I know the MSO’s will not go down this road so it seems likely that something like a more expansive family gaming value prop, family media, etc could be a lead in. And at $99 bucks there is little barrier to entry when it may cover a range of things.
So I don’t necessarily think the “we don’t need another box” is the overwhelming segment of the market or at least early indications are pointing otherwise. Rather would could happen is Input 2 becomes the new input 1 and the MSO services are only used for broadcast content.
Still an early hypothesis but there is enough data coming in for me to believe there is an opportunity here sooner than someone being able to fully displace an MSO as the primary success point for Apple TV.
Ben, thank you for sharing your thoughts on this intriguing issue. I can see that you are thinking deeply about the subject. I look forward to reading your future posts concerning this matter.
You’re right in theory only. In practice, consumers understand why they need to buy large pieces of glass, but don’t understand how they will benefit from another set top box. That’s why we have smart TVs when we don’t really need them. We’d be better off with some add on containing the smarts. But if you want to compete in the space you need the large glass.
I am open to some sound points building out why this is the case. I just don’t see it though. To use Display Search and The Diffusion Group data, less than 10% of consumers with smart TV’s listed the smart TV features as a top 5 purchasing factor. Even less than that, 5%, actually use the smart TV features on a regular basis.
The point is that consumers are getting smart TVs because the feature is coming in a TV they purchased for other reasons. TV OEMs are simply including this feature but the reality is it is not getting used.
A TV is only as smart as the software / platform it runs on. A set top box is capable of doing all the things a TV is.
Also the thing I can not get over is the consumer who just bought a $2,000 TV in the last few years. Is this customer lost to Apple? A $99 box however which works with whatever dumb piece of glass in consumers homes today is a much wiser strategy.
As I said, I am open to being convinced otherwise if someone can explain to me what you can do with smarts integrated into a large piece of glass that you can no do with a small, yet powerful, set top box.
“Also the thing I can not get over is the consumer who just bought a $2,000 TV in the last few years. Is this customer lost to Apple?”
I would think that customer spent $2,000 to get a huge screen; some people love them. Is that customer lost to Apple? Not if Apple offers him a box (as opposed to a piece of glass) that gives him what he wants.
“To use Display Search and The Diffusion Group data, less than 10% of consumers with smart TV’s listed the smart TV features as a top 5 purchasing factor. Even less than that, 5%, actually use the smart TV features on a regular basis.”
As you know, these statistics are rather useless (I liked your coverage of “Crossing the chasm” in: http://techpinions.com/who-really-needs-a-pc/4202)
And could anyone give me one good reason why Apple would need to choose between a box and a piece of glass for on the wall?
Yes and it also depends on how the numbers are acquired. In the case of TDG and Display Search, I am referencing their post 6 month purchase interviews. We have seen the same indication in our own research that the connected TV parts where rarely the purchase drivers in terms of features. So its just a point in terms of interest at this time of the necessity of all that intelligence built into a TV.
I agree they could do both–and may–but I am interested in a case to be made as to what can only be done integrated into a piece of glass that can not be done in a small yet powerful box.
Ultimately they may not have to choose but I think my larger goal with that point is that building their own TV is not necessarily the only way to reign supreme in this market. I was trying to make the point that it can be done via an external box as well.
Quite true, and I wholly agree and support your point that building their own TV is not the only way to reign the market. If you consider it from technology & socio-economical perspectives there are advantages and disadvantages to both options. Personally I can’t tell which would be their best bet because there are so many things I can only guess at as an outsider.
“I am interested in a case to be made as to what can only be done integrated into a piece of glass that can not be done in a small yet powerful box”
1. The screen itself, which has been quite a key element in recent product updates.
2. The ability to make a major design statement in the living room.
3. The minimalism and simplicity of only having a power wire (all signals go wireless).
4. Capture the profit margin of the TV itself.
5. More easily finance the software with the hardware.
6. Create a stronger lock-in.
7. Hurt relations with Samsung, Sony, etc., who already have trouble selling TVs without competition from Apple.
8. Massive amount of free PR
Edit: Consider also whether to Apple it actually is about reigning the market, rather than creating the best experience possible.
I think it is of course about the experience and perhaps more importantly about the Apple ecosystem. The TV screen is an important endpoint in the Apple ecosystem and the deep analysis centers on how important is the vertical strategy Apple employs to the success of such a product.
The economics and the business of TVs is just so fundamentally different than that of computing products which is why I have a hard time with the owning the glass strategy. If you do an analysis of how the vertical strategy works in computing products it is easy to see why Apple is where they are but I am not convinced that same argument or reasons for being vertical exist in the hardware business of making TVs.
I also like the STB strategy because the refresh rate for the product could similar to that of phones or tablets ever few years. That is a decent refresh rate revenue stream where a TV is one of the slowest to be refreshed in consumer electronics.
One point you made though I have thought about and will comment on. The point about resolution. I have thought quite a bit about that because upping the resolution or visual experience seems like an attractive possibility. THe only problem is that if I bought an Apple TV with significantly higher resolution than 1080, something akin to the new iPad for example, all broadcast HDTV content would look like absolute crap. For that to work it would require an industry wide resolution change in broadcast capture to higher resolution camera’s etc. In fact the change would be on par in terms of infrastructure to the move from analog to digital and HD content. So if by chance Apple was able to get the entire broadcast industry to fundamentally change infrastructure then all new TV by force would support this new resolution. Once this new resolution became a standard in all TV sets then an external box would again be able to drive that new high resolution. Of cousre other things like apps or photos would look great in higer res but the vast majority of people consume broadcast content on the TV sets the majority of the time. The TV could perhaps downscale the resolution once you change to your broadcast input, but given that broadcast is what is used most of the time it sort of seems like the resolution feature / experience would be the lost the majority of the time.
So my point on that is summary is that even if resolution was a key driver the box would still suffice as a strategy because the industry would have to standardize hardware around this new resolution.
well you could pack everything into an all-in-one that was thoroughly linked in every way with your Apple ecosystem – not just the HDTV+ATV, but also a good soundbar/reciever, DVR function, and heck an Airport router too. the big box to end all other boxes.
but i know Apple will never do this – even though the iMac already essentially does it!!! the 27″ makes a great desktop TV, missing only a tuner really which you can easily add with an EyeTV dongle.
Only Microsoft has been trying to get into that TV-linked consumer/home entertainment market for 20 years with little to no success, besides gaming for gaming. (At one point, Bill Gates was even sinking masses of cash into buying chunks of cable systems.) Anybody should take suggestions of their competing seriously in that market should be wary.
From real-time voting on American Idol, social interaction, purchasing what you see, to calling the next play in a live sports games…
Completely agree. The TV is all about the content. Making the TV smart enough to access the internet and grab context aware content and data and allow the viewers to dig further into the subject is the direction the TV needs to move in. Not hokey ways of controlling the TV; hand movements, speech, etc.
One area that Apple can innovate in, is allowing content creators build free or subscription based “Channel” apps for iOS that can be watched on iPhone, iPad and AppleTV. Want PBS, download the app. Want the History Channel download the app and subscribe to it.
Throwing a web browser or other “apps” is not the wave of the future, nor does it make a TV smart.
I think the apps as channels for network or content creators is interesting but for the main ones like NBC, ABC, etc., there are legal issues standing in the way of which content can be offered as a subscription. Comcast, DirecTV, Dish, etc., all pay enormous amounts of money for those rights.
One of the first .com companies I started was geared at leveraging the internet as a distribution method for Hollywood content companies. Let’s just say I spent a lot of time with lawyers, learned a ton about how that industry works, and the company failed miserably.
yup, there already are quite a few very good “apps as channels” for iPad today – companies that also have their own CATV syndicated channels. you just use AirPlay/Screen Mirroring via ATV, and bingo, you have them on your HDTV screen. some output 16:9 720p content this way just for that. i expect that soon just about every independent CATV channel syndicator will take advantage of this streaming iOS app option, and there are many dozens of them.
and all the major sports leagues will develop subscription apps too, like MLB and NBA have already done. NFL next? NASCAR? NHL? more? they all have a sizable group of hard core fans who will pay a lot for this.
but your right, the networks won’t do this, unless and until they are forced to by competition from all these independents. the CATV business model is best for them, while they keep experimenting with streaming services like Hulu (which really hasn’t done all that great).
Yes, in fact one example I find interesting is the NFL Sunday Ticket on the Playstation. MLB has done this but the caveat being if you are in a local teams area you are blacked out. So I am a huge SF Giatns fan yet I can’t use MLB Network services when I am the bay area. SO I can not cut the chord and still watch Giants games. Their rights are all messed up.
Another thing to think about is Airplay mirroring coming to OS X in MT Lion. This would allow me to put my full PC browser, including flash, on my TV and have access to all the direct network content they allow to be streamed from their website. When you look at the rights you find the rights that exist for PC browsers are pretty comprehensive. Yet the same rights for TV or mobile are very different than for PC browsers.
This may get us pretty close, though the UI will sort of suck but its at least an interesting use case to watch.
yeah – and guess what, Comcast has bought the rights to show the local Giants games on its Bay Area CATV, and they do, which the MLB app cannot. that’s one of the few good reasons to subscribe to Comcast. and one of the ways they trap us into needing them.
Yep, proving once again they care more about money than their consumers. In fact if I am honest with myself, Giants baseball (and perhaps sports in general) may be the only reason I pay for TV. Most if not everything else I watch I can get over the air next day or few days after. I just watch them via my DVR because why not I am already paying for it.
Nothing is more exciting than gathering the family around the big screen and watch one of them type [badly] searching for something that is of no interest to the others.
I believe the point of entry of TV and Web content into the house should be a single box which can rebroadcast any or all content within the home… The iPads (iPhones) become individual personal TVs when receiving content (TV or Web Stream) as do the HDTVs and computers throughout the house.
The iPads (iPhones) and computers become content providers by AirPlaying content to any (or all) the other displays in the home.
Yes, there are times when the family wants to gather ’round the HDTV and watch the video that sis created on her iPad… or review/critique the paper/slide preso that Junior is working on for his class project… not to mention the highlights of the kid’s latest soccer game…
But, there are other times, when each is doing his own thing (on an iPad, TV, iPhone, Computer)…
— Junior in the back yard watching TV on his iPad
— Dad in the garage/workshop tuning the car or buidin’ sumpin’ from streamed instructions/plans
— Mom at the desk running budget/forecasts for her home business, while periodically checking on the baby in the nursery
— Sis in her room taking the drivers’ ed course on the web
— Little Bro playing a multiplayer game with his cousin in another state
The marriage of the Web signal, TV Signal and Home Broadcast signal (AirPlay) in a single [inexpensive] box with intuitive UI and control… is the portal for content in the home…
It is much more robust than any single HDTV or other display… The displays are incidental… solve multithreaded-content-delivery within the home for iPhones or iPads, and the others (TV displays, Computer displays) will follow…
When you think of it, an HDTV is just a big iPad — where the touch interface resides in the remote control (iPhone or iPad).
That’s the technological solution — now, all we need is a financial/political solution to support the technology.
I totally agree with this assessment. I’ve always felt that it would be very compelling to get some iPad apps up on the TV but how do you interact with them easily. We have Airplay now, but that doesn’t seem to be catching fire yet. I hadn’t thought through the communal aspect and I think that is a very important point now that you’ve raised it. It’s not like an Xbox game necessarily where more than one person can play at once, but some new category that is more family oriented, short term and quick to shift from one app to another, like the iOS environment.
i too don’t see why Apple needs to make/sell HDTV’s. what ATV does now is add any/all TV’s in your home to your Apple ecosystem – more screens of whatever size to view what you are doing with it. and iOS apps can already make use of those screens directly via AirPlay, so i don’t really see a reason to make users install apps on the ATV itself- which would just separate them needlessly from their UI device – except perhaps to eliminate any latency issues for games.
and i also don’t see Apple somehow supplanting the cablecos/telcos for your access to licensed content. for two overwhelming reasons: (1) they are in total control of the content distribution business model and in total cahoots with the content owners, and even more important (2) they OWN THE PIPES, without which no other company can deliver content to your house via any other business model, period. we can’t get rid of them.
like everyone, i can envision UI enhancements via a STB that streamlines and simplifies how i use my TV’s. i’ve already converted my old iPhone into a universal remote (several IR dongles are available), and i would very much like my ATV to take over the inescapable and vital role of input switching (as Input 1). Apple could certainly add an IR transmitter to the iPod touch for that, for example, and certainly could add HDMI inputs to the ATV. that may not sound like much, but it would be quite a revolution in ease of use when combined with the rest of your existing Apple ecosystem.
will they? unfortunately i don’t think so.
“They OWN THE PIPES, without which no other company can deliver content to your house via any other business model, period.”
Aren’t you forgetting over-the-air broadcasting? The networks don’t want to give up spectrum space they aren’t using very much, and they may have plans for it involving new types of content (or new uses of content).
hey, i love OTA. use it myself. but obviously its range of content is very limited. its one unique plus is local news.
what i really meant tho, is for any digital streaming of content in any kind of business model, you still have to be hard wired (or sat dish). and you have to subscribe and pay them for that. so they push you into their CATV service by charging you a lot extra, with data caps!, if you try to just pay for data service a la carte without the CATV package.
until someday Apple builds its own national/global data network, it is always going to be badly hobbled by the cableco/telco control of our bandwidth and its pricing. but as wifi technology advances rapidly, it might be only a couple of years before Apple could actually build its own and bypass them entirely! now that WOULD be “disruptive.”
OTA actually has three unique plusses: local coverage, superior technical quality, and FREE.
I think the ‘special content’ advantage provided by cable and satellite will be soon matched or exceeded by Internet-based offerings, made available on directly on our network-enabled HDTVs or by the use of intermediary devices like Apple TV.
The place where I think Microsoft is going to blow it with the XBox trojan horse is their insistence that the owner maintain a $60/year Gold account just to access the network content; Netflix, YouTube, MLB, Hulu Plus and so on. Buy an AppleTV once for $99 and I get access to much of this content for free for as long as I own the AppleTV. The same goes for Roku and the other boxes where the cost of the box gives you access with no additional subscription needed.
Trojan Horse. A winner!
Apple TV iOS is ready to run on upgraded game and app supporting hw/sw when Apple pushes it out the door.
What would the app/gaming experience be like with an Apple TV sporting quad core graphics and CPU processors? Apple would ship at 16GB and have the apps/content waiting on networked devices and PCs to feed it. Watch out Xbox and Playstation.
Apple needs to fix its wireless problem before anything else. We have a roku,360, Wi that all run flawlessly on our wireless network – we also have an original Apple tv that runs with no problem. But the 2 Apple TV2s we have both lose their single constantly and make it iossoible to watch anything without losing signal. Quick web research shows that this is not an isolated problem, it is one that tons of people are having.
We also have 2 Apple TV 2 boxes here. No problems at all on our network.
Apple has sold millions of them so I wouldn’t get too concerned about “tons” of people with complaints…
I’ve got a buck that says you’re using a Linksys WiFi. I could be wrong but…. IMHO Apple hardware and Linksys don’t play well with each other. As soon as I switched to my AirPort all my problems stopped. I will admit that on occasion, every 6 months or so, I have to reboot it beyond that rock solid. I’ve been able to recycle at least 6 wifi unit’s I’ve tried. The AirPort was well worth the extra I paid for it. I value my time and sanity…..what’s left of both.
I agree. The Airport Express has been the most reliable wireless access point that I have ever owned, hands down. I bought one because the wireless on my verizon FIOS actiontec router was flaky. The Airport solved all of my problems..seriously.
You’re probably using a crappy access point. I have owned several Apple TV units and have never had wireless problems with them. I even take them with me overseas to use in hotels and they’ve worked just fine.
Apple will end the insanity of multiple remotes with heaps-o-buttons and cryptic interfaces and tap into the cable and VOD systems directly. And it will be a “hunk of glass” 🙂
I think that Apple has a chance to really disrupt programming. In the past, networks could only show 3-4 hours of primetime shows per night because that was all that could fit in any night’s time slots. Programming is extremely linear based on time.
Soon, that won’t matter. Hulu is already allowing us to watch most programs any time we want, but in the future, you won’t have a time guide, you just start watching the programs that you enjoy and your ATV will learn your programming habits and start saving them for you. Or flagging them as favorites for you to stream at your convenience.
And programming is just the beginning. Commercials will change dramatically. See an interesting product on the ATV and push a button on the remote, or your iPad/iPhone/iPodT, and the ATV will save a link on it’s browser that you can instantly watch on your iOS device. See a cool Nike shoe, push a button and it will show up on your iDevice. See a TV show that has your interest? push a button and the show will automatically be recorded or added as a favorite to watch via stream later. See a movie commercial, push a button and the iDevice will display showtimes at nearby theaters.
Have you ever seen something advertised by a store, and try to find it on their website afterward, without any luck? Imagine watching a Lowes commercial and you see an interesting paint color, or wood flooring. Touch a button while the commercial is playing, or rewind a bit to watch it again, and that floor, paint color, stove, or any item that was shown during the commercial is brought up on your iDevice. Better yet, the commercial plays on your iDevice and you can “touch” the item that strikes your interest and you’ll get more info on it. Essentially, the commercials on the TV will have metadata that is imbedded and sent to your iDevice for your consumption.
Hear a song in a commercial? Boom, it downloads on iTunes. Hear a song on Glee, boom it’s yours. Hear something on American Idol? You guessed it. See a cool shirt on Glee, boom you’re on Macy’s page to buy it. TV shows won’t just making income from commercials, but also from the merchandise that they sell from the items in the show.
There are several other ways things can change too. But I think TV programs can be greatly expanded, because programs won’t need to be “bought” by a network any longer. Apple could offer a Vimeo type of programing. Independent producers would be able to show their work without being at the mercy of network executives. This could be very interesting.
Edit: This is a reply to Mike Orozco.
The ideas you have are great (aside perhaps from the connected privacy issues), but hardly visionary if you consider iAds. The problem is that iAds didn’t really work.
That doesn’t mean the concept is bad. More likely Apple just made it too expensive. In any case, the failure will haunt them if they want to pull something off like you described. At the same time competitors are not daft and will be trying to get such a platform of their own. The winner probably is whoever gains access to the content at an affordable price, and those with the content are probably well aware of that.
One look at the pile of junk under most big-screen TVs tells you that Apple has a lot of elbow room to work with. One box, one remote, and (we hope) an interface not designed by a Cobol programmer.
AppleTV in a box big enough for a dvr recorder, dvd player and input for a cable/dish provider. Also, an integrated “TVguide” and voice-controlled remote control (app) on the iPhone.
I like the idea (in the article) that software developers will produce a new range of apps for ‘communal’ (family) entertainment.