Early in the trading day on Monday, shares of Roku (ROKU -0.63%) turned sharply lower, declining as much as 6.7%. By 12:46 p.m. ET, the stock was still down 3%.
The catalyst that sent the streaming pioneer tumbling was a report that a big player was entering the streaming device and connected-TV space.
Microsoft (MSFT -1.16%) is working to expand is Xbox Cloud game-streaming platform. Over the coming year, the company plans to release a dongle or set-top box that will allow users to connect directly to the platform, while also providing access to a variety of streaming services, according to VentureBeat. Microsoft is also partnering with Samsung to provide access to its cloud gaming platform via the company's smart TVs.
These moves will give casual or even non-gamers the opportunity to try Microsoft's cloud gaming service without having to lay out for an expensive console.
This could potentially impact Roku on two fronts. First, many viewers connect to its streaming platform using Roku's namesake devices. Additionally, the Roku operating system (OS) is licensed to a large number of television manufacturers that don't have the expertise or desire to create their own connected-TV OS. In both cases, rival devices from Microsoft could represent additional competition, and potentially stunt Roku's account growth, which is the funnel that feeds its digital advertising business.
It's likely that these moves would only be indirect competition to Roku's streaming dominance. Roku provides access to roughly 10,000 ad-supported and subscription streaming channels, making it the top choice for viewers. This variety allowed the streaming pioneer to go head to head with Amazon's Fire TV and steal its crown. Not many companies can claim they have competed with Amazon and emerged the winner.
Furthermore, while there are a growing number of connected-TV operating systems, none offers the vast selection of programming choices that viewers get from Roku.
While these latest developments certainly bear watching, Roku has earned the distinction as the go-to device and operating system for ease of streaming, and this move to attract casual gamers likely won't change its industry-leading position.