Competition in the Smart TV Box Space

With Apple’s announcement last week of its new 4K Apple TV, it reinforced its positioning in the market, which remains remarkably distinct from the other three major players competing for US buyers. So far, that strategy has seen it take fourth place in market share, something that seems unlikely to change going forward. Why is that? And does it matter?

The Market Context

Shortly before Apple’s event, I put together some charts comparing prices for the smart TV boxes from the four major players in the US market – Roku, Google, Amazon, and Apple. The first chart shows the price ranges for each company in this space:

There’s a very clear pattern here – three players compete almost entirely in the $35-100 space, while Apple competes entirely in the $150-200 space, well above the others. The picture is even starker when we look at the discrete price points each company offered within that range before Apple’s recent announcement:

Two players stand out here – certainly, Apple again with its vastly different price range, but also Roku with its many different price points, with six options between $30 and $110.

Apple’s 4K TV Announcement

Leading up to Apple’s 4K box announcement, one might have concluded that the existing Apple TV would drop in price by $50 or so to get it down into that $100 range to compete more closely with Roku and Amazon’s high end, but instead it stuck with the same base pricing and introduced new models within the existing price bracket. Instead, the first of the two charts above remains completely unchanged following Apple’s event, with the old Apple TV remaining at $149. The second chart, meanwhile, only changes slightly, with an additional price point between the two former prices:

Apple discontinued the larger-storage version of its older box and slotted the two new 4K boxes in at $179 and $199, keeping the overall price range the same, but now with three options instead of two.

Business Models Determine Pricing

I’ve heard quite a few people suggest that Apple somehow doesn’t get this market, or that it’s failing because it’s pricing its product all wrong and avoiding the “stick” market in which the other three players compete. But the biggest difference here isn’t really pricing but the business model behind that pricing, and that in turn determines where and how the players compete. The reality is that at this point three of the four players are in this market for reasons other than making money on hardware:

  • Amazon wants to drive its broader ecosystem including its Prime Video service and its Alexa voice technology, and to do that it’s willing to sell various hardware products at breakeven or even at a loss across a number of different categories
  • Google wants to add value to Android smartphones and as such sells cheap dongles for TVs and stereos which act as outputs for audio and video from those devices
  • Roku made very clear in its recent S-1 IPO filing that its business model involves getting as many people as possible using its platform, and that it doesn’t actually prioritize making money on hardware anymore, instead licensing its platform essentially for free and pricing its boxes to sell.

The business models that drive these three players, then, all lend them to sell devices at far lower margins than Apple is willing to, because they each intend to monetize in other ways. Apple’s business model, meanwhile, has always been to craft and sell premium devices which it also sells as a premium, with any additional revenue from services a bonus on top. To provide a cheap but inferior experience on a TV stick would go against Apple’s DNA and require a major shift in how it thinks about hardware.

Apple’s Market Share Suffers as a Result

With all three other players pricing their products to sell rather than generate profits, it’s no surprise that Apple’s premium strategy has left it with by far the lowest market share among the four, as shown in the chart below, based on recent eMarketer data for the US market:

The big questions at this point are whether this will ever change, and whether it matters. The answer to the first question is “probably not” – changing Apple’s approach to the TV box at this point would be a huge shift and entirely uncharacteristic. Apple sees hardware as the key locus of value in the broader value chain, and to subsidize or give away its boxes in the TV space would be a signal that the real value lies elsewhere. I think that’s therefore very unlikely, even if Apple eventually begins selling its own premium subscription video service.

The answer to the second question is more complex, but I think still fairly clear. Firstly, Apple knows better than perhaps any other company that TVs are far from the only devices people use to watch video content, and its other devices including iPhones and iPads are gaining increasing share in the broader market, with many subscriptions to video services being both bought and being consumed on those devices. Its share of smartphone and tablet viewing is vastly higher than its share in the smart TV box market, and that’s arguably far more strategic. But it’s also worth noting that Apple has never been in the business of market share for its own sake, and that’s also unlikely to change. Looked at in their entirety, the smartphone, tablet, and PC markets all dwarf Apple’s market share, though it takes a far larger slice of the premium segment in each of those markets. And that’s pretty much analogous to Apple’s position in the smart TV box market, taking almost the entirety of the $100-plus segment.

Ultimately, Apple seeks to provide a premium experience in any category where it operates, and often concedes the majority of the market to others as a result. However, it also often captures a disproportionately high share of actual usage and especially revenue generated from its base of users, and that’s almost certainly the case in the smart TV box market too. And that should continue to serve Apple very well as it prioritizes generating subscription service revenue through both its own and third party services from customers willing to pay.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

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