The living room is the next battleground. This we know. Google (GOOG 0.55%), Apple (AAPL +0.11%), and Microsoft (MSFT +1.01%) will be the primary hardware contenders vying for your eyeballs. Of these three, Microsoft has always been the living room incumbent thanks to its popular Xbox 360 gaming console.
Microsoft has now sold a cumulative lifetime total of 70 million Xbox 360 units, including 1.7 million last quarter. While Microsoft has continued to build new content services directly into the Xbox 360 and expand its capabilities, the primary purpose remains gaming -- and the average consumer is not going to buy a gaming console solely for its additional content offerings.
That's why a recent report from The Verge that Microsoft is planning on launching an "Xbox TV" set-top box next year makes perfect sense. A new entry-level 4 GB Xbox 360 costs $200, but stripping away some of that gaming power and targeting a lower price point is a clear opportunity. The device is rumored to still incorporate casual gaming titles, while beefier games would still need to run on the full-fledged console.
The most obvious response would be to target the $99 price point and sit next to the current Apple TV STB. That business is growing but still remains a relative "hobby" for Apple, as its unit volumes are relatively low. Apple sold over 5 million Apple TV units last fiscal year, nearly double the 2.8 million sold the prior year. In comparison, Microsoft sold 13 million Xbox 360 units in fiscal 2012.
Google has tried numerous strategies in the living room. The Logitech (LOGI +0.28%) experiment with Google TV proved to be a spectacular failure. CEO Guerrino De Luca called the Revue STB a "mistake of implementation of a gigantic nature" that cost the accessory maker $100 million in operating profits. Consumers can currently get an integrated Google TV or another STB like the $100 one from Vizio. The Nexus Q had streaming ambitions, but its $299 price tag (more than a full-fledged gaming console) and lack of features doomed it from the get-go.
Pursuing a lightweight STB strategy that's built around streaming and casual gaming would reinforce Microsoft's defense of the living room as Apple and Google continue to invade.
