The Most Important Thing Missing in Apple's Earnings Report

While my family and I spent the latter half of December on vacation and unplugged from the world, my colleagues were feverishly writing about Apple's (Nasdaq: AAPL  ) plans to transform its hobbyist set-top box Apple TV into a full-fledged, integrated screen. Here's a sampling of their analysis:

(Yawn.)(Stretch.)(Hit the big red "ignore" button.)
Not much has changed since those articles ran. Nor has my own pooh-poohing of Apple TV's positioning amounted to much. I'd forgotten I'd written about it until this week, when Apple CEO Tim Cook brushed off questions about the future of the device.

Apple sold 2.8 million units in the last fiscal year and 1.4 million in the December quarter, Cook said. Good results, but in his opinion not good enough to elevate Apple TV from hobby to product.

"However, we continue to add things to it, and if you're using the latest one, I don't know about you, but I couldn't live without it. And so I think it's a fantastic product," Cook said. "We continue to pull the strings to see where it takes us. But other than that, I don't have any comments."

Welcome to Apple Mystery Theater
Cook is probably being cagey, a grand tradition the late Steve Jobs transformed into high art on stage when he'd end presentations by revealing just "one more thing" to the delight of the crowd. Apple could simply be positioning to surprise the world with something cool.

But if so, realize there's already a high bar to leap over. Microsoft (Nasdaq: MSFT  ) has signed Comcast (Nasdaq: CMCSA  ) and Time Warner, among others, for streaming new and popular content through the Xbox. Mix in the Kinect hands-free controller and voice-driven Bing search, and you have a neat platform for interactive television. At the very least, it's a far more intuitive interface than Google's (Nasdaq: GOOG  ) failed TV experiment.

Apple can't make the same mistake. Cook knows it, too, and in classic fashion he and his team are taking extra time to build a TV product that's distinctive and desirable.

Remember when the world was rushing to netbooks? It was Cook, not Jobs, who told analysts that Apple had doubts that consumers would embrace them as anything more than a fad.

"From our point of view, [netbooks] are principally based on hardware that's much less powerful than we think customers want," Cook said at the time. "Software technology that is not good, cramped keyboards, small displays. ... And so, we don't think that people are going to be pleased with those products."

How did the Mac maker respond to the craze? By packing full OS X functionality into the tiny MacBook Air, and then introducing the iPad for good measure. Netbooks have since faded into the background, replaced by the slicker-sounding "ultrabook" format.

A massive opportunity to fix a big problem
So what does Cook have in mind for Apple TV? My sense is something dramatic that solves a real problem. A recent patent application could offer a clue.

According to this find by the sleuths at Apple Insider, Cook and his team envision a universal remote that wirelessly connects to a variety of devices within range. Clicking on one would alter the touchscreen to display options for controlling the device. One controller, one TV, dozens of potential feeder devices, yet no programming required. Goodbye, set-top box. Goodbye, complexity.

If that sounds like an Apple solution, you're right. For most of its history, the Mac maker has specialized in simplifying the difficult, and few modern interfaces have proved to be as crass as television.

Unfair, you say? Don't take my word for it. Read how my Foolish colleague Travis Hoium describes Comcast's XFINITY package: A mishmash of mostly useless buttons controlling an aged, command-line-like interface is no way to treat viewers, yet XFINITY and comparable services from AT&T and Verizon are about the most advanced we have right now. Mr. Softy's Xbox is probably the gold standard.

Sad. TV doesn't need an upgrade; it needs an extreme software makeover. Cook and his "string pulling" team will take their time to provide it, because anything less would be a failure. Or, perhaps, a hobby.

Do you agree? Disagree? Either way, if you're a tech investor it makes sense to be studying the implications of the post-PC world emerging around us. The Motley Fool recently identified a handful of potential winners in a report titled "3 Hidden Winners of the iPhone, iPad, and Android Revolution." Thousands have already requested the report, which is available for a limited time. Get your copy before this offer expires -- the research is 100% free.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Apple, Google, and Time Warner at the time of publication. Check out Tim's Web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Google and creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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  • Report this Comment On January 29, 2012, at 11:26 PM, caromero1965 wrote:

    Any reason why an iPad/iPhone couldn't play the role of that controller? none I can think of. The real magic is in implementing the autodiscovery feature... that's basically mostly impossible for current devices.

    Unless you do something radical like... umm... for legacy devices, select the make and model, and look up the control details in a database on the internet. Future devices may support autodiscovery via some standard protocol.

    I will have to read through the patent. But this really does make sense-- it eliminates the thing that sucks most in our current TV environment, the 57-button "smart remote."

    Open question: do you enable this thing to work with/talk to our Comcast DVRs or do you push people to buy an all-Apple media hub type solution that kills off cable TV just as Apple has killed off clunky precursor solutions in other domains?

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