Fire TV is here, and Amazon.com(NASDAQ:AMZN) has placed a bet on the living room. The $99 set-top box offers streaming services, wireless access to Amazon video and music, voice-recognition features, and -- if consumers buy a controller -- video games as well. Fire TV has so many features packed inside, some consumers may be confused about what, exactly, to use it for. Therein lies Amazon's dilemma.
Shares traded slightly lower after the release in early April, dipping to $315. But it certainly was not as bad as the early February drop, when Amazon's share price lost more than $50. In March, the stock fell by another 6%. For the first quarter of 2014, the Amazon consensus earnings estimates have fallen by 57%, to $0.23 per share, and the EPS estimate fell by 28% to $1.91.
While a new product is a potential solution to these losses, Amazon's market positioning for the Fire still seems puzzling. The set-top box is on a collision course with other big brands, from Microsoft(NASDAQ:MSFT)'s voice-controlled Xbox One to Apple's iTunes-connected Apple TV. The comparisons do not favor the Fire, which does a little of everything but may have trouble finding a niche.
Box vs. box
Can Fire TV, with its voice commands and entertainment features, function as a lightweight Xbox One? In Amazon's favor, the box comes with a $40 controller and a promise that the company is working with recognizable publishers like Ubisoft and 2K. Minecraft and ports of some popular mobile games are already available, but major league console games are out of the question. The box has only has 2GB of storage with hardware equivalent to a tablet computer, limiting it to smaller, low-res, and streaming games. Amazon has acquired the game studio Double Helix, but the only exclusive game released so far is Sev Zero, a $7 third-person shooter. The other games in the Amazon catalog are primarily classic ports and mobile games.
Microsoft, meanwhile, has been making a string of smart decisions in 2014. Office for iPad has been confirmed, CEO Satya Nadella has cut Windows OS prices by 70% while making the software free for mobile devices, and the company's cloud-based services continue to grow. Xbox One sales, at 258,000 units in February, continue to break records for Microsoft console sales. In response, Microsoft's share price has shot up from $26 to around $41, the highest since the early 2000s, when the stock was at $60, a figure Nadella and team may meet once again. Well-received Xbox One games like Titanfall haven't hurt, either.
Despite the superficial similarities, Fire really can't compete with Microsoft's Xbox One -- with 500 GB, a Blu-ray drive, and 8GB DDR3 RAM -- or consoles like the PS4, except in price. If consumers were losing interest in paying $500 for an entertainment machine, Fire TV's gaming focus would make more sense. But with Xbox One sales at 4 million units and PS4 sales at 6.5 million, there is no lack of demand for heavier consoles. By taking the "mobile" out of "mobile games," its mobile ports also struggle to find a place. Where is Fire's demographic?
Amazon, say hello to Apple ... and Roku ... and Google
The other part of Fire TV's puzzling placement is its role as a set-top box. Here, Amazon runs into another barrier. While the voice controls and gaming is reminiscent of the Xbox One, the media streaming recalls the other set-top boxes on the market. The Apple TV has a similar set of services and a $99 price tag, making it a direct competitor, especially if Apple releases a new generation of its own box in 2014. The Fire TV is also similar to the Roku set-top box, and even competes against Google's more affordable $35 Chromecast widget.
These products have been on the shelves for at least nine months, a window long enough to meet plenty of demand. Current-generation consoles have also been on the market for several months, giving serious gamers enough time to make up their minds. The e-tailer is left with a slim slice of the market that is invested enough in Amazon services to make the switch to a new set-top box. Will that be enough to push Amazon into a profitable 2014? Right now, Fire TV looks too unfocused to do the job.
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Tyler Lacoma has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Microsoft. 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.