Why Apple Will Lose the War for the Living Room

There's a battle brewing between your couch and your coffee table, and whoever wins will be one step closer to digital dominance.

Apple (Nasdaq: AAPL  ) seems finally ready to invade your living room. Bloggers, analysts, and pundits predict the company will launch its iTV platform before the end of the year, and they sound pretty confident this time.

If successful, the product could give Apple a slice of the $46 billion TV market -- and that's just in the United States. It's also a powerful strategic foothold that occupies 2.8 hours of our time each day and could help Apple further solidify its ecosystem.

If our digital lives are a battlefield, TVs are the high ground, but it's not exactly unguarded territory.

Assault on Fortress Xbox
Along with old-guard producers like Sony (NYSE: SNE  ) , there's Microsoft's (Nasdaq: MSFT  ) Xbox 360, which offers many of the iTV's predicted features and has had six years to fortify its position. Consumers have bought 67 million of them, and now, more than 40 million people use its companion service, Xbox Live, an average of 84 hours a month.

If raw hype says anything, most think dethroning Mr. Softy will be simpler than conquering Paris right before lunchtime. But I think it'll be closer to Apple's Vietnam -- if not Waterloo.

Let's go through the Apple fan's usual lines of defense -- ecosystem, features, history, and brand -- and see if we can find a few weak points.

Turning the tide: why momentum doesn't matter
The go-to phrase for much of the Apple-rati is quite simply "They've done it before."

No, I don't have evidence proving the iPad and iPhone were actually flops. But I don't see how this history guarantees success now. Past performance doesn't predict future returns, as the saying goes. And even if it did, Apple would still be in trouble.

Apple shareholders have selective memories, particularly with Cupertino's last bust -- Apple TV. The company sold 1.4 million of the set-top boxes during the holidays last year and another 2.7 million of the boxes between January and May of this year. Sounds great, right?


Consumers grabbed nearly 1 million Xboxes during just one week of the same period. Add in the Kinect, which passed the original iPad last spring as the fastest-selling gadget in human history, and you begin to wonder which company really has the momentum in this market.

Apple's failed in TV once, and to borrow the blogosphere's logic, this would suggest they'll fail again.

A break in the lines: where the ecosystem falls apart
Another buzzword you'll see a lot is "ecosystem." This is the idea that Apple can turn its enormous base of iOS users into iTV customers. Apparently, consumer electronics are like pewter figurines -- people need a complete set to feel whole.

To be clear, I'm not disputing the power of integration, standardization, and all the other "ations." The "halo effect" sent many iPod owners to their local Genius Bar in search of a Mac.

However, I don't see how this applies to TVs. Happy iPod owners switched to Mac because PCs were buggy, virus-ridden boxes of crud. There's not much for Apple to revolutionize in the TV, simply because there's not a lot wrong with it now.

The bottom line: Apple must add real value to a device that's been largely perfected. And because I don't know anybody who wants to read emails in surround sound, this value will have to come from invention -- not integration.

Misfire: Apple's secret weapons might be duds
"But the iTV will have features that Microsoft hasn't even imagined!" a devoted Apple-ite might say.

Like what? Siri and Facetime? That's what most have predicted, and it shouldn't impress you.

If Siri suddenly stopped sucking wind, somebody really should have told me. The Xbox and Kinect have voice recognition that's more than adequate for navigating content but far less annoying.

And while Facetime is truly useful, Microsoft has its own version that you might have heard of Skype is offered on more devices and has a much larger network of potential users.

But none of this matters because the Apple-ites have a backup argument -- the brand. It goes like this: "Apple makes awesome products, but even if they start being terrible, people will still buy i-devices for the logo."

Setting aside the circular reasoning, there's a very easy answer to the brand argument -- Research In Motion's (Nasdaq: RIMM  ) BlackBerry.

Remember, it wasn't too long ago that a BlackBerry was a CrackBerry, the "it" gadget that the iPhone is today. Fashion is fickle, and if your argument for Apple supremacy is based largely on its brand, you need a very good reason why iOS can't become tomorrow's BlackBerry, or bell-bottom pants.

The fog of war
Now, let's be clear. I'm not bashing Apple as an investment. I own shares myself. But, logic, not faith, should determine where you invest. History is littered with the bones of broken juggernauts cut down in their prime. There's no reason Apple can't join them -- particularly when you consider their future growth is built on conquering Asia.

Apple makes great products, but they're hardly untouchable. A lot of companies make cool gadgets, and one of them might eventually overtake Apple.

Ready to take a deeper bite into the Apple bear case? Check out our new report on "Why You Should Sell Apple."

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

Read/Post Comments (9) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 24, 2012, at 12:39 AM, rg2012 wrote:

    Before the Iphone everyone was saying the same thing about a phone. What can Apple do that is different it's a telephone. Than Steve Jobs walks onto the stage and says lady's and gentlemen the Iphone. The world has never been the same. If it was just another tv it would not have taken so long to develop. Apple does not follow, it leads. Others follow Apple. One feature is that a remote will be an item of the past.

  • Report this Comment On July 24, 2012, at 3:56 AM, westcoa777 wrote:

    The above comment took the words out of my mouth. They said the same thing about the iPod when Sony dominated with the Walkman. Then the iPhone when there was blackberry...Should I go on.

  • Report this Comment On July 24, 2012, at 4:01 AM, westcoa777 wrote:

    To add to my comment above I just wanted to say the norm is that most households have a traditional TV with several boxes and several remotes. What a mess. Apple will bring Television back to simplicity with Movies, music, slideshows, internet, Video chat, Skype to one seamless and beautiful TV that everyone will want in their home. Everything else will seem old fashioned.

  • Report this Comment On July 24, 2012, at 4:05 AM, FreeRange1 wrote:

    Absolutely moronic "analysis"... MSFT has innovated nothing in the living room - Kinect is a peripheral, not a system. And MSFT didn't even develop it, they bought the technology.

    As to your idiotic comment about Siri, it is actually a brilliant product that works quite well for its "beta" introduction.

    It is equally stupid to call Apple TV a failure. Apple has always listed it as a "hobby" product that is just testing the waters.

  • Report this Comment On July 24, 2012, at 4:15 AM, H3D wrote:

    Considering the history of Apples new products, only a moron would declare one DOA before they have even seen the specification.

  • Report this Comment On July 24, 2012, at 4:50 AM, 1brayden wrote:

    I suppose there is no patent on stupidity and everyone is entitled to an opinion but I think the previous reader comments says it all.

    It's just surprising when articles are published with this degree of bias, subjectivity and lack of supporting facts.

    Was a deadline due?

  • Report this Comment On July 24, 2012, at 9:32 AM, gcp3rd wrote:

    Lol some pretty harsh flaming here! My comments are two: first, that the example of RIM should be taken seriously. Technology moves ever faster and RIM just didn't see the iPhone train coming until it ran right over them. If you are an investor in Apple you should heed this warning and keep a watchful eye on trends in tech.

    Second, I wholeheartedly disagree with the author that Apple is not ABLE to deliver iTV and redefine yet again the user experience. Yes there isn't much to change about the current fancy version of a Samsung flat screen - if all you can envision is surfing through hundreds of boring channels, using multiple remote controls (really!) and pretty much wasting your time when the tv is on. westcoa777 sums up my opinion that the user experience, not the physical device, is Apple's strength. But Apple is so forward thinking they have to, and do, build new products to achieve their vision of the experience. Whether they do that with iTV I don't know, but they are certainly capable.

  • Report this Comment On July 24, 2012, at 10:32 AM, foolishchild wrote:

    I tend to believe the Apple TV effort as a 'hobby' has given visibility to Apple on what 'they think' is the problem. Much like most people thought 'slapping a browser on a Blackberry' was what people wanted in a SmartPhone,

    The ecosystem fu is strong in iOS. First off, they have a platform for developing and deploying applications (games, reference applications, migration and integration of a iPhone or iPad as the 'clicker', and the backend of the iCloud.

    I'm surprised you didn't identify the real issue... Encrypted Digital Cable/.Satellite will be hard to intercept and usurp as part of a 'wholistic' experience. In that regard, unlike Cell phones where ATT had 95+ population coverage in the US, and could be used to leverage into the market... the cable market is franchised and monopolized in markets. I have no doubt Apple can deliver an amazing experience... I have many doubts on how they can disintermediate the cable companies (and possibly the big network players) and deliver 'myTV' (the 20 odd programs I want to watch, plus Live Sports, News, etc), effectively to a million new households a month.

  • Report this Comment On July 24, 2012, at 12:08 PM, MAXwolf wrote:

    The fanboys came out in force on this one. Apple can do no wrong, about time to buy puts.

    It always happens, just recently houses could only go up! Lot of money to be made on the way down.

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