At Apple's (NASDAQ:AAPL) Spring Forward event, Tim Cook announced that the company would be cutting the price of its current Apple TV set-top box from $99 to $69. The current Apple TV's internals are quite dated, with significantly less processing power (and features) than competing devices such as the Amazon Fire TV, Google Nexus Player, and the recently announced NVIDIA Shield Console.
According to BuzzFeed, Apple will finally be giving the Apple TV a makeover, with a new model slated to launch at the company's annual World Wide Developers Conference in June. The new Apple TV will reportedly feature an "updated design," the company's A8 processor (found inside the iPhone 6 and 6 Plus), and a "dramatic increase in on-board storage."
BuzzFeed also says that the device will bring an improved operating system as well as the ability to use Siri to control the device via voice commands (not unlike competing set-top boxes). The new operating system is also expected to bring an app store (with a much faster processor, which makes sense).
This could help Apple win back share
According to an article published on Apple Insider, citing data from research firm Parks Associates, Apple saw its share in the streaming media device market drop from 26% to just 17% in 2014. Although the report cites lower-cost "stick" alternatives from Roku, Amazon, and Google as reasons why Apple has lost share, I suspect that selling a much less functional device at a $99 price point was also a problem.
The price drop on the current models from $99 to $69 should help on the share side, but revenue and profits per unit obviously take a hit. By introducing a much more capable device with more features, faster processing, and potentially a more compact design, Apple should be able to charge higher prices and command better margins per unit.
That said, this is more an ecosystem play than a financial concern
Tim Cook said in an interview early last year that the company had sold about $1 billion worth of Apple TVs in 2013. For some companies this would be material revenue, but for Apple -- which generated $182.8 billion in sales last year and is expected to bring in over $225 billion this year -- this is a proverbial drop in the bucket.
The real importance of a product like Apple TV is to "lock" customers into the company's ecosystem. Say that, for the sake of argument, an iPhone buyer, by way of understanding that "Apple products work well together," buys an Apple TV when he or she wants a set-top box. Apple benefits from the added revenue, but the real "win" comes from when it's time for that customer to upgrade her or his smartphone, tablet, or PC. That customer, if Apple's strategy works, is more likely to stick with higher-revenue/margin Apple products.
The more integrated Apple products in a customer's daily life, the less likely that customer is to be swayed by competing products. An upgrade to the current Apple TV has been long overdue. I just hope that Apple does a better job of keeping the Apple TV up-to-date going forward.
Ashraf Eassa has no position in any stocks mentioned. 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.
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