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Is There a Place for Facebook in This Market?

By Stephen Lovely – Aug 21, 2019 at 5:41AM

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The social media giant is reportedly planning an internet-based video player as part of its line of Portal products.

Facebook (META -1.69%) is looking to challenge Roku (ROKU -1.66%), Amazon (AMZN -3.01%), and others in the streaming hardware space, according to a recent report from The Information. Facebook's take on the streaming box would include some of the same hardware features that define the company's Portal products -- namely, a camera and videoconferencing technology.

Amazon has combined different features -- like Alexa-powered voice control -- into its Fire TV products, but a videoconferencing/OTT (over-the-top or internet-based video) player mashup is unusual. And Facebook's hardware will be entering a space that already has some relatively established players. Is there room for a Portal OTT device?

A man watches TV.

Image source: Getty Images.

Facebook and Portal

Facebook's reported move into the OTT streaming hardware market is unusual in part because it builds on a facet of Facebook's business that may not be doing all that well. Facebook hasn't released sales figures for Portal yet, but retailers have been offering steep discounts on the entry-level device's original $199 MSRP. Released in October of 2018, the entry-level Portal was available for 50% off by April of 2019. As of this writing, it's available on Amazon for less than $140. And there is plenty of skepticism regarding Portal's future.

Facebook has had to deal with bad press for privacy issues. Just this month, Facebook admitted that it hired human contractors to transcribe audio from the Messenger app. It's not hard to imagine why a device with a built-in video camera might be a tough sell for the company.

The OTT player market

Adding OTT functionality may make Portal devices more appealing to consumers. Whether the reverse is true remains to be seen. And Facebook will have to convince consumers to make a switch, because OTT hardware customers are already served by established competition.

Roku and Amazon are the clear leaders in this space. One recent study has them neck and neck with U.S. customers, while others favor one or the other. Amazon claims 34 million active Fire TV platform users, while Roku claims 29 million. The e-commerce giant's overseas advantage accounts for the difference. By any count, the two leaders are outpacing rivals Alphabet and Apple.

These are platformwide figures, not figures for individual devices. Roku and Amazon are succeeding in part because they've so effectively targeted the low-cost streaming device market. It's hard to imagine that Facebook's Portal OTT player will be able to target this space, given that -- even at steep discounts -- the existing portal devices all run north of $100. Not having to include a screen (assuming the device uses the connected TV for videoconferencing features) will bring down the price, but will that be enough to compete with Roku and Amazon products that cost less than $40 each?

Who will buy Facebook's Roku competitor?

Facebook's OTT player will have to convince its customers that its videoconferencing capabilities make it better than the competition. Facebook may also be able to leverage its social media platform. More than half of all Facebook users are over 35, while the demographics of streaming video users skew young, so it's conceivable that Facebook may try to create new customers for OTT devices rather than try to pry existing streamers away from Amazon or Roku.

Still, this looks like a real challenge for the company. Privacy concerns will temper enthusiasm for any Facebook device with a camera, and the popularity of the Roku and Amazon platforms has been enough to cause headaches even for even the biggest tech companies.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Stephen Lovely owns shares of Amazon, Apple, and Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Roku. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

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