The Case for a $49 Apple TV
Rumors of Apple releasing a TV have surfaced once again… it’s apparently the new Verizon iPhone. I bet they have a few prototype TVs hidden somewhere in Cupertino, but I wonder if their short-term strategy is something much less sexy—a dirt cheap Apple TV.
As many have pointed out, the TV industry is a mess of commoditization. Apple could be working toward a hardware/software differentiation strategy similar to what’s driving their industry leading profits in computers and mobile devices, but the logistics of bringing a TV to market just don’t seem to make sense for Apple. They do, however, have this amazing technology called AirPlay that makes the TV somewhat irrelevant once the user plugs in the tiny Apple TV.
The current Apple TV sells for $100, which is actually pretty cheap for such an amazing piece of technology. But $100 is still too high to be an impulse purchase, even for the throngs of iOS users who pay $200 for an iPhone and thousands of dollars to connect that device to the rest of the world. More so for those who buy an iPod Touch or iPad expecting it to be a one-time purchase.
Apple, under the leadership of Tim Cook, has done an amazing job leveraging pre-purchase contracts and economies of scale to drive down the cost of hardware. According to iSuppli the Apple TV cost Apple around $60 to manufacture when it first launched last year. iSuppli is having to guess as to what exactly Apple paid for components, but they do attempt to account for the special pricing Apple is able to negotiate. Though not accurate, it at least gives us a ball park number to work with.
Looking at the bill-of-materials there isn’t a lot of room for Apple to dramatically drop the cost, but most of the big ticket items on that list are the sorts of components that drop in price over time. And keeping the hardware exactly the same means the manufacturing partners and component suppliers don’t have to ramp up new processes. It might be a stretch, but after a year on the production line, I bet Apple could make a small profit selling the current A4 based Apple TV for just $49. But why would they?
Jobs stated rather plainly at D8 that set-top-boxes don’t have a viable go-to-market strategy. They are given away for free or rented at a nominal cost by cable and satellite TV companies. Nobody wants to buy a set-top-box. Apple could drop in an A5 processor, lots of RAM, 16 GB of storage and market it as some sort of gaming console meets set-top-box, but with AirPlay you don’t really need beefy hardware constantly hooked up to the TV.
I’ve been thinking quite a bit lately about the concept of a “thick client.” Over the past few decades as Moore’s Law has been pushing hardware improvements logarithmically, the gatekeepers of the Internet have been thwarting and throttling networks. And now we’re increasingly moving toward ubiquitous internet connectivity, but the mobile web is being built by many of the same gatekeepers and faces even greater tech challenges. I hope to write more about this soon, but the bottom line is that the idea of a true thin client makes less and less sense. Why offload all the work to the server when we all carry incredibly powerful computing devices in our pockets? Similarly, why do we need a beefy Apple TV when the iPad 2—and soon the next iPhone—are quite capable on their own.
A few days after returning from WWDC, I loaded the iOS 5 beta onto my iPad 2 and Apple TV. The experience of playing RealRacing 2 HD over AirPlay completely blew my mind. The iPad acted as the controller and the graphics I saw on my 1080p TV looked as good or better than what we saw early in the current generation of dedicated gaming consoles.
With iOS eating its lunch in mobile gaming, Nintendo recently showed off the successor to the amazingly successful Wii, the Wii U. Guess what? iOS 5, AirPlay, and the Apple TV will combine to give a Wii U like experience when iOS 5 launches this fall. The Wii U isn’t expected to ship until mid 2012. Throw in a few more iPhones or other iOS devices and you have the full on party mode Nintendo was proposing as the future of gaming. The iOS platform already has quite a few AirPlay enabled apps and that number will grow quickly as developers see the full potential of iOS 5.
But the bigger question remains—why would Apple sell a device on such a thin margin? I think the answer is two-fold. First, a $49 Apple TV would be an incredible, no-brainer accessory to devices running iOS 5. And though margins would be thin on the device itself I think it would help drive sales of iOS devices and propagate iOS platform lock-in. Second, I think the low price would give Apple momentum in the living room. Without a clear strategy for selling billions of dollars in high-margin set-top-boxes, why not grease the wheels a bit with a trojan horse that may help create an opportunity while at the same time pushing sales of their ridiculously profitable mobile devices?
I have no idea what the long-term living room play is for Apple, and I’m not sure it’s clear to them either, but I’m more and more convinced that a cheap Apple TV would be a boon to the entire iOS ecosystem.
Very interesting post....it is just a matter of time before Apple makes the move to gaming with the AppleTV being the host.
