Apple (NASDAQ:AAPL) has cut the price of the Apple TV. Now, customers can purchase the streaming set-top box for just $69 -- previously, it had retailed for $99.
But even with a 30% price cut, Apple TV is in need of a refresh. Although Apple continues to lead in what is still a nascent market, its technology is increasingly outdated.
Apple TV has fallen behind
With the exception of a minor processor tweak, Apple has not meaningfully updated the Apple TV since it launched the third-generation model three years ago. When it debuted in March 2012, the third-generation Apple TV was among the most technologically advanced streaming set-top boxes on the market, with support for all the popular services and the ability to wirelessly mirror the screens of iOS devices with AirPlay.
But much has changed in the last three years, and Apple is now behind almost all of its competitors.
Two categories of streaming devices have emerged: low-cost sticks that offer basic streaming, and more expensive set-top boxes with greater functionality. In terms of its features, Apple TV is on par with a streaming stick, but is still priced closer to a full-featured set-top box.
Amazon's Fire TV and Google's Nexus Player, for example, retail for $99, but trump the Apple TV in terms of raw technology. Both offer voice search, in addition to low-level video gaming and direct access to an app store. NVIDIA's upcoming Shield is even more expensive ($200) but takes it to an entirely new level, with support for 4K video playback and console-quality gaming.
Amazon's Fire TV Stick and Google's Chromecast are decidedly less advanced, but still support all the major streaming services. They're also much cheaper -- at $40, the Fire TV Stick is 40% less than the Apple TV; the Chromecast, at $35, is even cheaper.
Apple TV does have a few advantages
That leaves the Apple TV occupying a weird niche -- too expensive for a stick, not powerful enough to compete with the other set-top boxes.
Admittedly, it does have some advantages: With its exclusive access to iTunes, it's certain to remain the preferred device for diehard Apple fans. At the same time, Apple's recent deal with HBO gives it exclusive rights to HBO Now -- but only for the next three months.
Apple has sold more than 25 million Apple TVs over the years, putting it ahead on a global scale. But in the U.S., its market share has slid as new competitors have emerged. According to a report from Parks Associates, the Apple TV fell to third place last year, behind the Roku and Google's Chromecast.
It wouldn't be surprising if the Apple TV soon fell to fourth place: Parks Associates' report covered only the first three quarters of the year, leaving Amazon's Fire TV Stick out. When the Fire TV Stick launched last November, it was back-ordered for months, and it remains the No. 1 selling electronic on Amazon's website to this day.
The market remains in its infancy
Apple still has time -- though the market for set-top boxes is heating up, and the competition has definitely intensified, only 10% of broadband households in the U.S. purchased a streaming device last year.
A price cut should definitely help, but to maintain its lead, Apple really needs to offer a more compelling product.
Sam Mattera owns shares of Nvidia. The Motley Fool recommends Amazon.com, Apple, Google (A shares), Google (C shares), and Nvidia. The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.