Before Google (NASDAQ:GOOGL) entered the market with its $35 Chromecast, Roku was the clear choice for a low-priced streaming media box for your television. The stripped-down entry-level Roku 1 at $49 undercut the $99 Apple TV and was clearly cheaper than buying a gaming console strictly for access to streaming content.
Amazon.com lists a number of Blu-ray players that turn your set into a "smart" TV for around $60, but those devices generally offer a limited set of streaming options. Yes, there's also Netflix and Hulu, but they don't match the hundreds of offerings available through Roku or any of its higher-priced competitors.
Chromecast changed that by undercutting Roku's price and delivering a device that was both compact and cool. The Chromecast does exactly what a Roku box does, but it does it plugging directly into an HDMI port and not requiring a surface to sit on.
Roku clearly noticed that Google has stolen some of its thunder. The company just announced its $50 Streaming Stick -- a device similar in design (though with a more cartoony look) to Chromecast. The new device will be available for purchase in April.
How big is Chromecast?
Google does not release sales figures for Chromecast, but the device was an instant hit when it launched last July. At the time, CNET reported that it sold out on the three official channels Google sold it through: Amazon, Best Buy, and its own Google Play store. Currently Chromecast ranks as the second most popular electronic item sold by Amazon, behind only the Paperwhite model of its Kindle e-reader series.
It's hard to know if Chromecast stole market share from Roku or created a bigger market, but it's logical to assume that it's a little of both.
What is Roku's Streaming Stick and how is it different than Chromecast?
The two devices are remarkably similar with both plugging into any open HDMI port and letting users stream through the device to their screen. The major difference in the stick-like streaming players is that Roku's comes with a physical remote control while Chromecast is controlled strictly through smartphones, tablets, and computers. Roku's device allows users to use phones, tablets, and computers to be used instead of the remote control if they choose.
Roku describes its new device as "a tiny Roku player that gives consumers the easiest way to enjoy the best selection of streaming entertainment on TV."
Why is Roku charging more than Google?
It seems foolish for the much-smaller Roku to be charging more than its giant competitor. There is some logic to Roku's higher price, however, as in addition to offering a remote control -- which might appeal to people who actually put their phone down when watching TV -- the company has a much larger pool of available channels.
"Once plugged in, the Roku Streaming Stick lets consumers start streaming from more than 1,200 channels (more than 750 channels in Canada, the U.K., and the Republic of Ireland) of movies, TV episodes, music, news, sports, kids' shows, and free programming – more channels and genres than any other TV streaming device – and all in up to 1080p HD video," the company said in its launch release .
Chromecast has a smaller array of channels, though that number has been growing.
"While the Chromecast has added some crucial apps since its launch (including HBO Go, Hulu Plus, and Pandora), it still can't compare to Roku's sprawling and frequently updated library," CNET said in a review of the new stick.
Does Roku have a chance?
While Roku likely needed an answer to Chromecast, creating a competitor that costs $15 more sounds like an idea straight out of the BlackBerry "how to tank your company" playbook. Roku does offer a lot more channels, but you have to question what percentage of the audience is looking for channels beyond the biggest players. Yes, Roku offers a way to get free anime and obscure professional wrestling (for an added fee), but most users just want access to the most popular streaming services.
Roku's best chance for success may be in keeping its current user base and getting some of them to upgrade to the Stick. The company claims on it blog to have sold just under 8 million Roku players in the United States, as of the end of 2013. That's around 8 million customers who use the Roku interface that may have some brand loyalty. As those customers buy wall-mounted TVs where a stick makes more sense than a set-top box, perhaps they will stay with Roku.
That seems like an odd business strategy and a really poor way to take on a company with the marketing reach of Google. Roku needed to create a product like this, but it should find a way (maybe offer a version without the remote) to be price competitive.
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Daniel Kline has no position in any stocks mentioned. He owns both Chromecast and a Roku player. The Motley Fool recommends Amazon.com, Apple, Google, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.