Unless you're an HBO Go addict, Amazon's (NASDAQ:AMZN) FireTV is just about the best set-top box you can buy. It's faster than the Apple (NASDAQ:AAPL) TV, packing features Apple's set-top box lacks, including voice search and the ability to play video games. It's more expensive than Google's (NASDAQ:GOOG)(NASDAQ:GOOGL) Chromecast, but offers access to more content and isn't chained to a mobile device.
But while Amazon is in the lead today, its advantage may only be temporary: Both Apple and Google are widely expected to unveil updated TV solutions later this year.
Waiting for the "real" Apple TV
Apple's management has been content to label its current Apple TV a "hobby" -- but that hobby could be maturing into a full-fledged product category. Analysts have been expecting Apple to a release a TV set for years (or at least a more compelling set-top box) but those rumors have intensified in just the last few months.
Both Bloomberg and The Wall Street Journal have reported that Apple is working on a much-improved version of the Apple TV, one that could ship later this year. Comcast mentioned a forthcoming set-top box from the company in a recent filing with the FCC.
Until the device is formally unveiled, it's impossible to compare it to Amazon's FireTV, but I would expect it to stack up quite favorably. The current Apple TV hasn't been meaningfully updated in over two years -- and if the reports prove true, the next version of Apple TV could be a drastic update, including voice and motion control, integration with paid-TV services and the ability to play iOS games.
AndroidTV to replace GoogleTV
Google's attempt could be more operating system than device -- Android TV, the company's forthcoming set-top box platform, was detailed in a report obtained by The Verge.
Android TV looks and appears to act like Amazon's FireTV, with a focus on streaming video, universal search and access to Android games. Last year, reports indicated that Google was working on its own Nexus set-top box, but would presumably give its hardware partners free reign to build devices around Android TV, much like it did with its previous, largely abandoned, GoogleTV project.
Ultimately, AndroidTV could power a dozen different set-top boxes or more. Although GoogleTV struggled, AndroidTV looks like a much simpler, much more compelling product. As with the next-generation Apple TV, a hypothetical device can't be compared with one that's currently available, but Google's challenge to the FireTV could soon be much more significant than just the Chromecast.
The importance of set-top boxes
But how important is the set-top box market? They've definitely grown in popularity in recent months, but the market is far from saturated. Last year, Apple said it had sold 13 million Apple TVs. Even if that number has increased five fold, it would still pale in comparison to the more than 700 million iOS devices currently in existence. Google hasn't released exact Chromecast sales figures, but claims to have sold "millions" -- again, a tiny fraction of the literally billions of Android devices that have been shipped.
At $35, there isn't much room for Google to profit on the Chromecast -- assuming it isn't sold at a loss. Apple TV, meanwhile, is sold at a loss, at least according to Roku's CEO. With stronger internals, the margins on Amazon's FireTV are probably even worse.
That could change with a new generation of hardware, but for now, these devices appear to serve as a way to better bind existing customers to the companies' respective ecosystems. If you own Amazon's FireTV, you'll probably keep your Prime subscription active, while if you own an Apple TV you might be more willing to buy TV shows, movies and music from iTunes. Perhaps owing to the growing popularity of the Apple TV, iTunes video revenue is estimated to have grown nearly 20% last year.
These set-top boxes matter, but only so far as they encourage customer loyalty. Still, it's a market that's still in its early stages, with much room for improvement. Right now, Amazon has the lead, but Apple and Google should bounce back in the coming months.
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Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, and Google (C shares). 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.