To improve streaming for media apps like Netflix (NASDAQ:NFLX) and HBO Now, Google introduced a new API which buffers queued videos in the background as others play. This lets viewers seamlessly jump from one program to the next without waiting.
Chromecast isn't generally known for its games, although the device can already turn TV screens into simple game boards, dance floors, or race tracks. Android phones can even be used as Wii-like motion controllers in some Chromecast games. Recognizing the potential growth in this area, Google introduced two new APIs, Game Manager and Remote Display. Game Manager makes it easy for developers to create cross-device multiplayer games, and Remote Display enables separate mobile devices to display different second screens for games.
To understand how these improvements to Chromecast could help Google, let's take a closer look at how Chromecast changed the streaming media device market.
The business of streaming devices
Streaming devices are a growing market -- the NPD Group estimates that 25% of U.S. households will own at least one by the end up 2015, up from 16% in 2014.
Research firm Parks Associates estimates that Google's Chromecast claimed 20% of the U.S. streaming device market in the first three quarters of 2014. That put it in second place behind Roku, which controlled 29% of the market, but ahead of Apple (NASDAQ: AAPL) TV and Amazon's Fire TV, which respectively claimed 17% and 10%. But by the end of the fourth quarter, NPD Group reported that Chromecast overtook Roku and claimed the top spot in the U.S.
Prior to the launch of the Chromecast in July 2013, Parks Associates reported that Roku claimed nearly half of the streaming media player market, while Apple claimed 26%. This means that the Chromecast and Fire TV, which launched in April 2014, made big gains at Roku and Apple's expense.
How Chromecast altered the market
Chromecast's arrival was game-changing for two reasons: price and form factor. At $35, Chromecast was significantly cheaper than Roku and Apple's set-top boxes, which cost about $100 at the time. It also made installation easy with a single plug-and-play HDMI dongle.
In response, Roku launched a $50 HDMI dongle last year. After launching its Fire TV set-top box for $99, Amazon also introduced a dongle version, the Fire TV Stick, for $39. Apple, which rarely bows to pricing pressure, recently dropped the price of the Apple TV from $99 to $69.
The success of Chromecast also led to the arrival of "stick PCs" which pack in beefier hardware for a full computing experience. Google's Chromebit and Intel's Compute Stick are two such devices, which cost between $100 to $150, that convert TVs into full Chrome OS or Windows PCs, respectively. But as the prices of stick PCs drop toward streaming dongle prices, both markets might merge into a single one.
Why Chromecast's upgrades matter
As hardware improves and prices decline, the streaming media device and stick PC markets will likely collide with pricier Android set-top gaming and streaming devices like Nvidia's (NASDAQ:NVDA) SHIELD Android TV, Google's Nexus Player, and Razer's Forge TV. Those quad-core devices, which cost between $79 and $199, are intended to be cheaper alternatives to full-priced consoles, which cost between $350 and $400.
The problem with these devices is that most Android games are designed for mobile devices with touchscreens instead of large TVs with controllers. As long as more gamers are playing on mobile devices, the market for console-based Android games will remain a niche one.
However, the popularity of the Chromecast makes it a viable platform for game development. With 17 million units shipped so far, there are actually more Chromecasts in the world than Xbox Ones or Wii Us. With cross platform streaming between Android devices, Chrome browsers, and Chromecasts, developers can create scalable games which can be played on mobile devices and on TVs.
Google's main advantage
The main advantage Google has in the streaming device market is that Chromecast is well-connected to the rest of its ecosystem. Chromecast can mirror content on Chrome, and Android devices can be used as second screens or controllers.
Roku offers mirroring options and games, but it isn't all tied together with a mobile ecosystem. Apple TV is integrated with iTunes and can play games and stream content with AirPlay, but it still doesn't offer Continuity for tighter integration with OS X and iOS devices.
The key takeaway
Selling 17 million Chromecasts over two years only generated about $595 million in revenue for Google -- pocket change for a company that reported $66 billion in sales last year. However, the Chromecast isn't designed to be a revenue-generating device. It's an ecosystem play which allows Google to gather more data about media streaming habits while expanding its reach from mobile devices into living rooms.
Leo Sun owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Google (A shares), Google (C shares), Intel, Netflix, and Nvidia. The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), Google (C shares), and Netflix. 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.