Earlier this year, Google (NASDAQ: GOOG ) rebranded its Google TV business to Android TV in conjunction with the success of its Chromecast device. Now, Digitimes reported that Google intends to push for TV products that integrate Android and Chromecast functionality.
With competitors like Samsung (NASDAQOTH: SSNLF ) , which already has a strong presence in television and mobile devices, and LG Electronics, which purchased webOS earlier this year from Hewlett-Packard, the smart TV market is bound to become fragmented. Not to mention Apple (NASDAQ: AAPL ) has been rumored to be working on a television for some time now. Will Android TV be able to unify the market, or will it be relegated to a second-tier television OS?
The success of Chromecast
Although Google doesn't provide any hard data on its device sales, it's safe to say the Chromecast has been a success. It initially sold out nearly immediately, and it's remained at the top of Amazon.com's best-seller list in electronics since this summer.
Chromecast's success may be due to Google's previous lack of success with smart TVs. It's likely due to its diminutive price tag compared to comparable devices from Roku and Apple. It's also the innovation of Chromecast -- no remote, no set-top box -- that makes it more appealing in a living room environment that seems to be getting more cluttered by cable boxes and gaming systems.
Indeed, the Digitimes Research report expects Chromecast functionality to be a star feature of future Android TV products.
Smart TVs in 2014
Smart TVs have steadily gained popularity in recent years led by the two most popular television manufacturers -- Samsung and LG. Both companies plan to build differentiated user experiences that could compete with Android for prominence in the smart TV market.
Samsung has been steadily working on Tizen, an OS designed for mobile devices that could easily be used as a television OS. Samsung has recently been pushing how its mobile devices integrate with its televisions. Moving to Tizen could further strengthen the company's ecosystem and lock consumers into its smartphone business -- smartphones are updated more frequently than televisions.
LG bought the webOS operating system from HP earlier this year, which was developed by Palm for its mobile devices. HP failed to gain traction with the OS on its own tablets, but perhaps LG can have better luck with its established television share. The Wall Street Journal reports that LG plans to unveil a webOS enabled smart TV next month. The company could also foster an integrated ecosystem with its smartphone business.
An entry from Apple would further fragment the market, and would capitalize on the same strategy as Samsung and LG. Apple already has a strong ecosystem with hundreds of millions of iOS devices in use, but its current television product, Apple TV, hasn't been upgraded to its own line-item on its quarterly reports like the iPad or iPhone. Reports are that the device has sold over 13 million units in its lifetime, but has seen dramatic sales acceleration this year.
Apple is fighting to cement its position in smartphones and tablets, but it's unclear if a television, which typically have relatively low margins, is the right strategy for it to pursue. The question investors should ask is: Why would an entire TV set from Apple sell better than its set-top box?
Google hopes it wouldn't
Google is banking on the idea that it can undercut the competition. Its Chromecast extends the life of current TVs for just $35, and as people do decide to upgrade, they'll either stick with a Chromecast enabled television, or forego smart TV capabilities and just transfer the dongle to their new TV set.
As smart TVs become more and more differentiated, consumers will likely prefer a familiar interface versus learning an all new one. There's not much more Google can do, however, faced with the two largest television manufacturers moving away from Android. If Chromecast continues to sell well, LG and Samsung may need to reevaluate their strategies, and Apple may decide to refresh its Apple TV product instead of launching a full-fledged television.
So, Android TV's success may rely on the Chromecast's success. If the device continues to succeed as new differentiated products come out, manufacturers will be more likely to work with Google instead of against it.
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