Roku (NASDAQ:ROKU) stock plummeted after Comcast (NASDAQ:CMCSA) announced its internet subscribers are now eligible to receive a free Xfinity Flex streaming box and Facebook (NASDAQ:FB) introduced its new Portal TV device. Investors are worried that new competitors entering the market with even a modicum of differentiation -- Comcast on price, Facebook on technology -- could negatively impact Roku's future. In other words, investors think Roku doesn't have any real competitive advantages.

Roku has faced considerable competition for a long time. Apple (NASDAQ:AAPL) released the first version of Apple TV before the first Roku device went on sale. Amazon (NASDAQ:AMZN) entered the market in 2014 and has been extremely aggressive in its efforts to grab market share since. Still, Roku is the leading streaming platform in the U.S. by most measures, and it's rapidly increasing total engagement on the platform.

That's because it has some things its competitors don't. Here's what Comcast and Facebook are missing in their effort to compete with Roku.

A TV displaying the Xfinity Flex homescreen.

Comcast's Xfinity Flex. Image source: Comcast.

Agnosticism

Roku CEO Anthony Wood is a fan of saying his company is agnostic when it comes to what content you want to stream. By comparison, Apple wants users to watch iTunes, Apple TV+, and Apple TV Channels. Amazon wants users to stream Prime Video.

Comcast will likely push its forthcoming Peacock streaming service, as well as TV Everywhere apps that require cable authentication. What's more, you're locked into Comcast's internet service. That means if you move or switch internet service providers, you won't be able to keep using your device. And considering the new competition expected to enter the home internet market over the next few years, that lock-in could have a significant impact on a consumer discretionary spending decisions.

Facebook is the least agnostic, as it still puts a focus on Facebook Watch videos in its marketing. The social giant's Portal TV is also heavily focused on pushing users to its messaging apps, Messenger and WhatsApp, which provide the back end for its core video-calling feature.

That said, Roku now offers users the Roku Channel, an ad-supported channel of licensed and third-party content where it sells premium subscriptions as well. The Roku Channel has become an integral piece of Roku's strategy to grow platform revenue through additional ad sales and potentially better margins on its distribution of premium streaming services.

For consumers looking for a simple streaming experience that doesn't sway behavior toward one bucket of content or another, Roku is still the best choice. New competitors looking to enter the market will likely suffer from a similar dilemma, as companies seem to be pushing competing hardware as a means to sell something else (like a video subscription). Roku's level of agnosticism is unparalleled.

A TV displaying a video call using Facebook Portal TV

Facebook's Portal TV. Image source: Facebook.

A big, highly engaged installed base

Roku has 30.5 million active users, mostly in the United States. Not only that, but its users spend a lot of time streaming video on its platform -- nearly 3.5 hours per day. That level of broad engagement is highly attractive to content providers.

Facebook is notably launching Portal TV without support for Netflix. In fact, the options for streaming video are very limited compared to competing streaming devices. 

Comcast, meanwhile, has more streaming video options (thanks to its position as a distributor for traditional media and several over-the-top services already). It also has an easy path to scale by including its Flex device with an internet subscription. But even if literally every one of Comcast's 27.8 million high-speed internet customers started using Flex devices, it still wouldn't catch up to Roku's user base, and engagement would likely be significantly lower.

It's also worth noting that millions of Roku users have more than one Roku device. The company has 41 million installed devices in the United States, according to an estimate from Strategy Analytics. Indeed, many households have multiple television sets, and it'd be nice to be able to stream video to all of them. 

Comcast limits households to two Flex devices and charges customers $5 per month to lease the second device. Facebook's Portal TV costs $149, although customers buying two can get a $50 discount. Roku offers one of the most economical ways of streaming video to all televisions, which increases engagement. As such, big households will likely opt for Roku as their streaming device of choice.

Roku's highly engaged user base combined with the fact that it doesn't favor any one streaming service over others makes it a necessary distribution channel for new over-the-top video options. That creates a virtuous cycle where users opt for Roku for access to the broadest selection of content. That's the network effect in action, and it's one of the strongest competitive advantages in developing a platform business like Roku's.