Amazon (NASDAQ:AMZN) already holds a small but widening lead over Roku (NASDAQ:ROKU) in the connected TV platform race. Amazon says it has over 37 million active Fire TV accounts compared to Roku's 30.5 million.
But Amazon isn't resting on its laurels. Its lead is due in large part to its broader global availability compared to Roku -- Roku is still more popular than Fire TV in the United States. So the e-commerce titan is introducing several new Fire TV products, including Fire TV Edition smart TVs, and it's also reportedly planning an expansion into several new European markets. The moves should help Amazon stay a step ahead of its much smaller rival, which owns the most popular smart TV platform in the U.S. and has international expansion plans of its own.
A big focus on smart TVs
Amazon is launching 15 new smart TV models with its manufacturing partners. Consumers in the U.K., Germany, and Austria will get first crack at several of the new models. Previously, Fire TV Edition smart TVs were only available in the U.S.
Owning the smart TV operating system provides a significant benefit to the platform owner. When viewers turn on their TV, they're greeted by the home screen for the platform, inviting them into the ecosystem of apps and content. Additionally, Amazon or Roku can gain better data about users' television viewing habits by capturing a more complete view of their consumption time.
As such, smart TVs offer better engagement and better data with which to monetize that engagement. Last fall, Amazon updated the Fire TV platform terms requiring ad-supported services to provide Amazon with 30% of their ad inventory. Roku takes the same cut. Amazon now has a lot more to gain from increased engagement and viewer data.
Amazon's ad sales continue to grow at a strong pace after skyrocketing over the previous two years. Other revenue, of which advertising is the main contributor, was up 37% year over year in the second quarter, surpassing $3 billion. While advertising on Fire TV still represents a small sliver of that amount -- Roku, for example, generated about $125 million in ad sales last quarter -- it has massive potential for growth.
Staying ahead of Roku's international expansion
Amazon's plans to expand to more European markets and sell more devices could curb Roku's results with its own international expansion. In its fourth-quarter letter to shareholders earlier this year, Roku management said it plans to invest significantly in international markets, with the expectation that those investments will produce returns in 2020. This year, it's merely laying the groundwork with manufacturer, content, and retail partnerships in order to get smart TVs and stand-alone devices in stores.
But Amazon may have beat it to the punch. Roku benefited greatly from its first-mover advantage in the United States, but management's note that results from its investments won't show up until 2020 means it could be as much as a year behind Amazon in some markets. The e-commerce giant will have the first-mover advantage and brand recognition in Europe and other international markets. Roku will need strong partnerships in order to overcome those advantages.
That said, Amazon still has to execute in order to capitalize on its advantages internationally. That means investments in Prime Video and other Prime benefits in order to make Fire TV as appealing as possible. Fire TV devices put a big focus on Prime Video content, which is great if you have a Prime membership, but not so great if you don't. Roku's content-agnostic platform may be more appealing to consumers that haven't bought into the Amazon ecosystem.
Investors in these rival tech companies will want to pay close attention to Amazon's efforts in Europe, as well as how Roku responds. It could be a big opportunity for Amazon and its burgeoning advertising business, but Roku has a lot more on the line as the battle heats up.