"I think [Amazon will] try, but they won't [be] successful," said Roku CEO Anthony Wood in an interview with Business Insider last month.
Wood was speaking about Amazon's (NASDAQ:AMZN) play for the living room, the Fire TV. The e-commerce giant is one of Roku's biggest partners, as it sells Roku devices through its website and offers its video service on Roku's platform. At the same time, it's also a major competitor: When it comes to supplying internet video, Amazon's family of Fire TV devices offers some of the most compelling alternatives to Roku's own streaming boxes and sticks.
But Wood believes the market for streaming video is about to shift, and when it does, Amazon could be left in the dust. Interestingly, Wood thinks Amazon's living room ambitions won't be threatened by his company or by another tech giant such as Apple or Alphabet. Rather, Amazon's Fire TV could be squashed by its longtime retail rival Wal-Mart (NYSE:WMT).
Forget about the box
Once, Wood believed the market for internet-connected TVs would be dominated by separate streaming devices -- boxes and dongles like the ones both his company and Amazon sell. But Wood's thinking has evolved in recent years. During the interview he explained:
For a while I thought, "TVs should really just be monitors," because people keep their nice screens for 7 years. So it seemed to me that the best way for the TV business to evolve would be that a TV is just a monitor. And then you would get your little box, and you would replace that every few years. But that just never happened. ... So the dynamics of the industry are such that streaming is becoming a standard feature in TVs. Once we decided that was going to be the trend ... we decided to start licensing [our operating system out to TV manufacturers].
Currently, Roku sells a variety of different streaming devices, including the Roku 3, Roku 4, and the Roku Streaming Stick. But Roku also licenses its operating system out to television manufacturers. If you're in the market for a new TV, you can purchase a variety of sets from TCL, Hisense, and Insignia that run on the Roku operating system. In essence, it's like having a television with a Roku device built in.
The market for dedicated streaming devices has certainly grown in recent years. Last year, consumers purchased 42 million streaming boxes and dongles, according to Strategy Analytics. But the market for smart TVs is far larger: More than 120 million were sold in 2015. Dedicated streaming devices aren't likely to go away anytime soon, but a consumer who purchases a capable smart TV with the Roku operating system may be unlikely to bother buying a separate streaming dongle.
Consumers still want to buy their TVs in person
That's a problem for Amazon, according to Wood, as it will be unable to sell many Fire TV-powered television sets. Certainly, Amazon could license the Fire TV operating system out to television manufacturers like Roku has, or even build its own television, but it may struggle to get them into the hands of consumers. For the most part, consumers still like to buy their televisions in person, and that means going through retail stores, many of which aren't favorable to Amazon or its electronics. According to Wood:
No retailers will carry Amazon products because they hate Amazon. Wal-Mart is never going to carry an Amazon TV, ever. ... Thirty percent of all TVs sold in the U.S. are sold through Wal-Mart. Only a small percent[age are purchased] through Amazon. ... TVs are one of those few things that people still want to look at it [in person] before they buy it.
To be fair, that's not entirely true. Notably, Best Buy sells Amazon's products, including the Fire TV, and may be willing to sell Fire TV-powered sets. But other major retailers, including Costco and Target, do not sell Amazon products and likely wouldn't sell an Amazon television.
Amazon would benefit from owning the platform
If Wood is right, it wouldn't be the end for Amazon, but the company would benefit from controlling the interface between viewers and their televisions. Amazon offers its Prime Video streaming service to Prime subscribers but also sells and rents digital movies and television shows on an individual basis. In this area, Amazon competes with other similar services, including Wal-Mart's Vudu and Google Play.
Owners of Roku devices can buy and rent movies from Amazon through its Roku app, but they can also just as easily purchase them from Google or Wal-Mart. But the same isn't true if they own a Fire TV product: Amazon blocks direct competitors on its own platform. Amazon doesn't break out sales of digital movies and television episodes, but media (which also includes sales of books and music) remains vital to the company. Last quarter, media generated more than one-fifth of Amazon's total retail sales.
It's possible that Wood is wrong, but as the CEO of one of the largest companies in the space, his assessment carries weight.