Intel (INTC +2.48%) recently unveiled the Chromecast-sized Compute Stick, which can convert any TV or monitor into a Microsoft (MSFT 1.04%) Windows 8 PC via an HDMI port. The Compute Stick's hardware -- which includes an Atom CPU, 2GB of RAM, and 32GB of storage -- is admittedly spartan, but its ability to run Windows off a stick is a vast improvement over Google's (GOOG 0.05%) (GOOGL 0.10%) Chromecast, Amazon's (AMZN 0.13%) Fire TV Stick, or other similar "micro-computers" that only run Android.
Intel's Compute Stick. Source: Intel.
At $149, the Compute Stick is pricier than the Chromecast or Fire TV Stick, which respectively cost $35 and $39. However, the Compute snugly fits in between $99 Windows tablets such as Toshiba's Encore Mini and $199 Windows laptops such as Hewlett-Packard's Stream 11. The Compute and these low-end Windows devices are all aimed at curbing the spread of Google's Android operating system on TVs and tablets, and Chrome OS on laptops.
Therefore, let's look at what the Compute Stick could mean for Intel, Microsoft, and "Android stick" manufacturers when it arrives later this year.
Defending new markets against ARM
Intel chips dominate the world's servers, PCs, and laptops, but rival ARM Holdings (ARMH +0.00%) controls the smartphone and tablet markets.
ARM doesn't manufacture any chips -- it only licenses its designs to manufacturers. ARM's designs, which are based on a different instruction set than the older x86 architecture from Intel and AMD, were considered to be more power efficient than Intel's comparable chips, which made them ideal for mobile devices. But last year, Intel's newer x86 chips made a slight comeback in smartphones and tablets, and the company invested heavily in wearable devices to prevent ARM from conquering another growing market.
Set-top boxes and streaming sticks -- which include Apple (AAPL 0.79%) TV, Roku, Chromecast, and Fire TV Stick -- mostly run on ARM-licensed designs. Smart TVs with built-in streaming features are also primarily powered by ARM-based chips. Research firm Strategy Analytics forecasts the global market for connected TVs and streaming devices will double from 1 billion units in 2014 to over 2 billion by 2018, so it makes sense for Intel to demonstrate that a cheap x86 device can enhance a TV more than the ARM-powered Apple TV or Roku. That's why Intel will also launch a lower-powered (1GB of RAM, 8GB of storage) Linux version of the Compute Stick for $89.
Tethering TVs to the Windows ecosystem
Last year, Microsoft tried to conquer living rooms with the Xbox One. That's why it bundled Skype, Internet Explorer, and additional media features into the console. Unfortunately, the console's launch price of $499 was considered too high ($100 more than Sony's PlayStation 4), while consumers who wanted a media device simply bought a cheaper set-top box or streaming stick. To give consumers a cheaper option, Microsoft launched a $60 wireless display adapter in October, which "mirrors" displays (like a wireless HDMI cable) from Miracast-enabled Windows and Android devices to a TV.
Still, the Compute Stick's ability to convert any TV into a full Windows 8 PC for just $149 is more appealing, since users can naturally play their own media files, browse the Web, play games, or chat on Skype via a wireless webcam as they would on regular PCs. If Windows 8 devices are upgraded to Windows 10 -- which will integrate Cortana into the desktop -- users will be able to conduct voice searches from their couch.
Lastly, putting Windows on TVs complements Microsoft's master plan to spread Windows 10 as "One Windows" across smartphones, tablets, laptops, PCs, and other devices.
Lower-priced Windows dongles could hurt Android devices
Looking ahead, Windows 8 dongles such as the Compute Stick could become cheaper and come closer to matching bottom-end prices from Chromecast and Fire TV Stick, since Microsoft adopted a similar Windows-Android price matching strategy with its $99 tablets and $199 laptops.
Google's Chromecast is a cheap way to mirror content onto a TV. Source: Google.
That strategy was based on the notion that if consumers were offered Windows and Android devices for the same price, they would prefer the former thanks to its flexibility, familiarity, and backward compatibility.
Microsoft already cut Windows license fees several times last year. In February, it reduced the OEM price of a Windows 8.1 license from $50 to $15. In April, it eliminated the Windows license fee for all devices with screens under 9 inches. In May, it launched Windows 8.1 with Bing, an even cheaper version of Windows to help select OEMs compete against Chromebooks.
If Windows dongles like the Compute Stick drop to about $40, we can assume either Microsoft or Intel is subsidizing the devices to gain ground against Android devices.
The key takeaways
Financially speaking, the success or failure of the Compute Stick won't matter much to Intel. But if it is a surprise hit, companies might consider using Intel chips in their own set-top boxes and streaming dongles. Microsoft could gain a limited presence in the streaming device market alongside Apple, Google, and Amazon. If the Compute Stick flops, it could mean consumers might simply not need a full-featured Windows PC on their televisions.
