The Real Reason Amazon Launched Its Own Streaming Device Today

Amazon unveiled its Fire TV, a device that will compete with Apple TV and Google Chromecast, but the move wasn't for the reasons you might think.

Apr 2, 2014 at 6:31PM

Amazon (NASDAQ:AMZN) officially launched a new streaming-media device today that will compete with Apple (NASDAQ:AAPL) TV, Google's (NASDAQ:GOOGL) Chromecast, and Roku's devices, among others. Amazon is calling its new gadget Amazon Fire TV, and with a $99 price tag it seems the e-tailer is hoping to steal market share from Apple in the video-streaming space. But Amazon is after far more than mere hardware sales with its new Fire TV.

Amazon's gateway drug hits Prime time
The company's new device isn't about selling hardware; rather, it comes down to the Amazon Prime ecosystem. Prime members tend to spend more (and more frequently) on Amazon.com compared to non-Prime subscribers, and the same goes for Kindle owners. In fact, analysts estimate that people who own Amazon's Kindle devices, on average, spend upward of $400 more than Amazon shoppers without Kindle devices, according to Consumer Intelligence Research Partners. This research also suggests that Kindle and Prime owners make Amazon purchases "over 50% more frequently than other customers."

These are exciting statistics for the online-retail giant, particularly because 40% of Amazon.com customers now own a Kindle device. Moreover, the Kindle ecosystem accounted for as much as 23% of Amazon's operating profit last year, according to estimates from Morgan Stanley. It's not surprising, then, that the world's biggest e-tailer is offering a new streaming device that will give Fire TV users instant access to over 200,000 movies and TV shows from Amazon Instant Video. It will also let you watch content from third parties such as Netflix, Pandora, Hulu Plus, Showtime, and ESPN.

Similar to its competitively priced Kindle products, the new device should act as a gateway drug to Amazon's growing content library. The company said today that it plans to introduce new shows this fall as part of its Prime service. Moreover, getting consumers to buy its $99 Fire TV will ultimately lead to more content-related sales for Amazon down the road.

Nevertheless, in today's fragmented media market, Amazon is up against competitors with deep pockets, including Google and Apple.

Competition abounds
Google introduced its $35 streaming video stick known as Chromecast less than a year ago and now claims about 14% of the market, according to BI Intelligence. Meanwhile, Apple TV leads the pack with 43% market share followed by Roku devices, which hold 24% of the U.S. streaming-device market.

Still, for Amazon's 20 million-plus Prime members, owning a Fire TV device should be a given. Prime subscribers get unlimited video streaming as part of their $99 per year membership, therefore having Fire TV to instantly access that content seems like a no-brainer. Amazon is said to have more than 20 million paying Prime members today, which bodes well for adoption of its new media device going forward.

Screen Shot

Source: Amazon.

During the company's media event today, Amazon said its Fire TV has three times the performance and power of Apple TV, Roku 3, and Chromecast, according to TechCrunch's live coverage of the event. With a $99 price point, the new device will cost the same as Apple TV and carry 2 gigabytes of RAM.

But unlike Apple TV, which often makes users wait while it loads content, Amazon's new gadget boasts an "ASAP" feature, which stands for Advanced Streaming and Prediction, that lets users play a show immediately without needing to load it. Dual-band and dual-antenna MIMO Wi-Fi powers this feature. This is especially exciting for people who are tired of waiting for their Apple TV to buffer. Voice-search capabilities give Amazon's Fire TV another edge over Apple's device. Instead of clicking one letter at a time on Apple TV's alphabet grid, Amazon's set-top box lets users speak the name of title, actor, or genre they're looking for into the remote.

At the end of the day, this is just one more way that Amazon's Fire TV is making it even easier for customers to consume its media.

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Tamara Rutter owns shares of Amazon.com and Apple. 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.

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