This Little $35 Device Could Change the Smart TV Market

Google (NASDAQ: GOOGL  ) recently surprised investors when it released its $35 digital media streaming adapter, Chromecast. Chromecast is a unique product compared to the full-featured smart televisions that some of its industry peers have produced, and has been met with mixed reviews. Can Chromecast finally help Google take over the elusive television market, or will it fade away, as previous attempts have before it?

Not everyone needs a smart television
Chromecast isn't really a new idea, since Roku streaming video players, which start at $50, were already developed from the idea that not everyone needs an Internet-enabled television. Apple's (NASDAQ: AAPL  ) Apple TV set-top box, which became a lot smaller in its latest revision, costs $99 and shares the same idea.

Both devices allow users to stream digital content, such as YouTube and Netflix, from the Internet. They also allow users to share photos, music and video from computers across their home networks. Although Chromecast doesn't bring anything new to the table, it is the smallest. The device resembles a USB flash drive and has the easiest setup routine, according to online reviews. Chromecast is also cheaper than Roku and Apple TV, but does not include a remote control, which is standard with the other two products.

It's all about the content
Roku has the largest amount of content of the three, with access to Netflix, Hulu Plus, Amazon Instant, HBO Go, Pandora and others via third party apps. Roku also offers additional exclusive streaming content for its users. However, Roku notably lacks a YouTube channel. Apple TV has most of the same third-party content as Roku, has a YouTube channel, and uses iTunes to access TV shows, movies, and podcasts. Chromecast has the least dedicated content, and is limited to Netflix, YouTube and the Google Play store.

However, Chromecast and Apple TV both support mirroring -- the technology that allows a computer or tablet's video output to be streamed onto the television. This means that although Chromecast lacks native support for HBO GO and Hulu Plus, the content can be played on the PC and mirrored onto the television.

An increasingly saturated market
According to a survey from Parks Associates, 37% of homes with streaming media devices in the U.S. currently use Roku, compared to 24% using Apple TV. Since 2011, the number of households using an Internet streaming device rose 14%, with much of that growth attributed to video streaming sites like YouTube and Netflix.

For Apple, Apple TV has never been a meaningful source of revenue. However, a persistent rumor suggests that Apple will release a full-featured "smart television" on par with current products from Sony and Samsung to erect a third pillar of growth. More far-fetched rumors claim that the Apple TV will not only be a full-featured smart television, but will come with second-screen tablets and a ring-shaped remote control.

With the arrival of Chromecast, a full-featured Apple smart television seems unlikely, since it will be a substantially lower-margin business than its current set-top box. Sony and its Japanese industry peers have spent years dragged down by the ailing television business, which doesn't make it a lucrative market to dive headfirst into.

Don't count Microsoft out yet
Although set-top streaming boxes are an interesting niche market, investors should also pay attention to Microsoft's (NASDAQ: MSFT  ) Xbox One, the company's $500 game console that the company hopes will revolutionize living room entertainment by combining console gaming, media streaming and personal computing into a single package.

The Xbox One is the antithesis of Chromecast, a monstrous Goliath towering over Google's David. The Xbox One has access to more content than Chromecast and Apple TV, and has nearly the same amount of content as Roku, as well as YouTube access. However, the Xbox One notably lacks mirroring technology.

Foolish final thought
It's important to remember that the Chromecast, Apple TV, and Xbox One aren't the respective core businesses of Google, Apple and Microsoft. Rather, they represent attempts to force users to become dependent on their ecosystems, which can be unified through mobile devices, personal computers, and television sets.

Unifying these ecosystems will generate higher sales of other related products, and in this respect Google has a strong lead thanks to our reliance on its ecosystem. Apple and Microsoft, on the other hand, are still struggling to build that ecosystem to retain users. If Google claims a substantial part of the streaming set-top market with Chromecast, then it will win a key battle in expanding its defensive moat against Apple and Microsoft -- and that's why this little $35 device matters.


Read/Post Comments (6) | 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 August 23, 2013, at 3:07 PM, GaryDMN wrote:

    I have AppleTV, ROKU and a Samsung internet TV, they are all limited in what they can do, but the Chromecast does only a fraction of what the others do. Yes it is cheap, but you get what you pay for, I guess.

  • Report this Comment On August 23, 2013, at 4:30 PM, enwealthen wrote:

    Chromecast is cheaper, I'll give it that much. But the lack of a remote control is the real drawback. Sure, you can control it from your phone, but people are accustomed to the couch potato experience with the "clicker". No clicker, no widespread adoption, no adoption, no competitive barrier.

    Definitely something to cutting the cord with Apple, Roku, Google, etc. I made the jump to Roku + Netflix over a year ago and have saved almost $1000. That's the real story http://www.enwealthen.com/2013/08/the-great-tv-conspiracy-or...

  • Report this Comment On August 23, 2013, at 5:10 PM, MahnR wrote:

    enwealthen, it's not you can control, it's more you have to control it from your phone/tablet/computer because that's your "clicker". No phone, tablet, or computer, no "clicker".

    Chromecast is basically mirroring the contents from your phone/tablet to your TV. There are no apps on the device; everything is on your "clicker", from images and videos to the Youtube/Netflix apps.

  • Report this Comment On August 23, 2013, at 5:26 PM, JimRal wrote:

    Gary, it boils down to bell and whistles. Being the cheapest, people know they won't get as much content as the Apple TV or Roku, but also know they won't spend extra money on bells and whistles that they don't need.

  • Report this Comment On August 23, 2013, at 6:15 PM, jrguliz wrote:

    Have a Roku...only limited use because I haven't purchased any "For Pay" services like Netflix or Hulu Plus...other than Amazon Prime which has it's perks $79 with 2 day shipping on a lot of items....the Amazon Prime Instant Videos are a mixed bag of what's offered some new many older. Many Amazon offerings TV and Movies are buy only. Getting Hulu Pluss and Netflix would be less costly if you want to watch a lot of that type of content. Some Roku Channels I want either don't work, are limited in content or are no longer available.

    Some other streaming videos from the computer work IF the video format is compatible. So the geeky content I want works but any network channels don't....linux desktop user....will display on computer but I haven't configured the Plex App or others.

    Will be getting the Chromecast sometime next week and will try to put a review up once it arrives.

  • Report this Comment On August 23, 2013, at 6:57 PM, never2dull4u wrote:

    Media is giving Google Chromcast way too much publicity. What Google is offering has already been offered by smaller vendors 2 years ago at the CES.

    NOTHING new here folks!

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