4 Ways Amazon's Set-Top Box Could Disrupt Apple TV and Google's Chromecast

Amazon's about to the enter the living room. Why the retailer's device could blow away the competition from Apple and Google.

Apr 1, 2014 at 7:30PM

Amazon.com (NASDAQ:AMZN) will likely unveil its long-anticipated Internet connected set-top box on Wednesday. If so, the device will enter a crowded market, and will compete with Apple (NASDAQ:AAPL) TV and Google's (NASDAQ:GOOGL) Chromecast (among many others).

While the device itself may add little to Amazon's bottom line, it could serve as a crucial gateway to the living room, boosting Amazon's digital goods business -- an increasingly competitive market. Much attention has been paid to Apple's growing iTunes revenue, while Google has put its marketing might behind the Google Play digital storefront.

To compete, Amazon will need to offer something compelling -- and the retailer could be about to do just that. Based on a number of recent reports, here are four ways Amazon's set-top box could disrupt the competition.

It could offer console-quality gaming
Despite the growing popularity of iOS- and Android-based games, neither Apple nor Google has made much headway in terms of bringing mobile games to the living room. Google is reportedly working on an Android-based console, and Apple is allegedly experimenting with adding iOS games to the Apple TV, but Amazon's solution may be far more substantial.

According to TechCrunch, Amazon's device will be capable of streaming PC games over the Internet. That wouldn't be too surprising given Amazon's recent purchase of Double Helix Games, leaked images of a forthcoming controller, and Amazon's extensive cloud assets. Sony will launch its own Internet-based streaming game service this summer, but Amazon -- given its ownership of Amazon Web Services -- could be much better positioned to offer a streaming game solution.

If Amazon's device is capable of streaming PC games over the Internet, it will likely require a fast and reliable broadband Internet connection, an obvious hurdle. But by playing the games on Amazon's servers rather than on a relatively cheap mobile console, Amazon could offer an experience on par with the major consoles, something Apple and Google likely couldn't match.

It might be cheaper
If its Kindle Fire tablets are any indication, Amazon's set-top box could be cheaper than the competition's. In fact, it might not be a set-top box at all but rather a dongle, similar to Google's Chromecast, according to TechCrunch.

At just $35, it will be surprising if Amazon can undercut Google, but it wouldn't be too shocking if Amazon can do better than the $99 Apple charges for the Apple TV. Across the industry, dongles have become cheaper than their hockey puck-shaped competition -- in addition to Google's solution, Roku's recently introduced streaming stick is just $49.

Owners could get access to paid TV or a free channel
Amazon's device could also offer up a way to access paid TV channels over the Internet or include a free, ad-supported network that's unlikely to appear on Apple TV or Google's Chromecast. Both those rumors come from two separate reports from The Wall Street Journal, though it's important to note that Amazon has explicitly denied them.

Nevertheless, if The Wall Street Journal is right, Amazon's device would stand out from the competition. Neither the Apple TV nor Google Play can access paid TV outside of a handful of apps that require an existing cable subscription (HBO GO, WatchESPN). The rumored free network, allegedly composed of Amazon's exclusive digital content, sounds similar to Crackle, but unlike Crackle, it probably wouldn't make it to rival devices.

As I've noted before, the conflicts of interest among the three companies have prevented Amazon's digital video services from appearing on Apple and Google's devices, and that seems unlikely to change going forward.

It could include a Spotify competitor
Perhaps the most underrated feature of the Apple TV and Google's Chromecast is their ability to serve as digital music gateways. For someone with an expensive home theater setup and an extensive iTunes collection, an Apple TV (with its access to iTunes) is practically a necessity. The same is true for the Chromecast and Google Play music.

Amazon will likely follow with its own device, offering an easy way to play mp3s purchased from the Amazon store on a living room speaker system. Yet, it could one-up the competition if it includes access to a Spotify-like service.

Back in February, Re/code reported that Amazon was in talks with the major record labels to offer such a service, and that it would be included in an Amazon Prime subscription. That wouldn't make it free (Prime will soon cost $99 per year) but it's difficult to imagine that many non-Prime members will purchase Amazon's TV solution. Indeed, because Apple TV and Google's Chromecast can't access Amazon Instant Video, Prime members will likely be the primary market for Amazon's device.

April 2 at 11:00 a.m. ET
Assuming Amazon were to sell the streaming dongle for roughly $50, and each of its Prime members were to buy one (at least 20 million, according to analysts at Macquarie) Amazon would only generate $1 billion in revenue -- a drop in the bucket for a company that did more than $25 billion in sales last quarter. In terms of profit, it would be negligible, or perhaps even negative (Roku's CEO has said that Apple probably sells the Apple TV at a loss).

But it should help strengthen its digital goods business, an increasingly important and competitive market. Last quarter, in North America, Amazon did roughly $3.5 billion in media sales, up 21% from the prior year. Apple's iTunes business is likewise growing rapidly, now generating about $7 billion in revenue per quarter.

Investors in all three companies should watch Amazon's announcement closely on Wednesday. With a strong showing, Amazon could blow past the competition.

After set-top boxes, the next big tech revolution
Amazon may be about to blow away the Apple TV, but just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now... for just a fraction of the price of AAPL stock. Click here to get the full story in this eye-opening new report.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com, Apple, and Google. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers