Apple's (AAPL 4.01%) recent flurry of product-line refreshes is arguably the single most-important period of the year for the world's largest publicly traded company. I've gone on the record arguing that the recent update to Apple TV, while far from a financial game changer, carries important implications for Apple's long-term growth strategy. For those who missed it, let's quickly review the key points to this far-reaching Apple product overhaul, and the changes that keep Apple TV heading in the correct strategic direction.
Apple TV's 5 most important changes
Apple implemented perhaps the most sweeping set of improvements ever to the fourth generation of its TV microconsole. The five following additions and modifications will help chart the device's ongoing success in the year ahead.
- Trackpad Remote with Siri: The most significant external addition? Apple overhauled the remote powering the Apple TV experience. The new top one-third or so contains a touch-sensitive surface aimed at solving the problem of constant clicking with many conventional remote controls in favor of a smoother scrolling experience. Initial reviews say that the new remote behaves similarly to the trackpads common to Apple's MacBooks, although the new scrolling and selecting reportedly does take some getting used to. The remote also serves as the hub for an improved version of Apple's digital assistant, Siri, and doubles as a gaming controller to help complement Apple TV's new focus on gaming (more on that below).
- App-centric tvOS software: The new Apple TV also incorporates Apple's App Store, ushering a whole new host of software opportunities into the living room. Apple highlighted a number of additional-use cases, like searching for, and booking, lodging on AirBnB as just one example. To do this, Apple effectively ported its iOS software into a new TV-specific version of its mobile operating system dubbed tvOS. Whether this type of non-entertainment functionality gets used widely today isn't clear. But again, in thinking of this device as part of Apple's broader smart-home strategy, this seems like a logical move for users and developers.
- New emphasis on gaming: With App Store integration, Apple chose to emphasis Apple TV's potential as a possible new platform for third-party game developers. In opening this opportunity, Apple solved two meaningful problems competing with other gaming consoles like Sony's PS4 and Microsoft's Xbox One. The first is screen size. The small iPhone screen once likely limited possible kinds of game play. Second, Apple also opened Apple TV up to support third-party controllers, which will also dramatically increase the kinds of game play the devices can support.
- Upgraded internal hardware: In order to support more graphics-intensive activities like gaming, Apple overhauled the device's hardware innards. For context, the fourth-gen Apple TV will come with Apple's A8 SoC chip, and either 32GB or 64GB of storage capacity, which stands markedly ahead of the A5 chip and 8GB of flash storage in the third-gen model.
- Increased pricing: As is typically the case with Apple, improved performance and enhanced software comes with a cost. The 32GB and 64GB versions of the new Apple TV will now cost $149 and $199, respectively. The third-generation device will remain on the market for a now-reduced price of just $69.
As I mentioned above, these amount to the most dramatic overall advancement for Apple's TV product that I can remember. And while the device should help maintain Apple's lead versus compelling devices from key competitors, this is likely just the tip of the iceberg in Apple's broader TV ambitions.
A step in the right direction
From a financial perspective, Apple TV literally remains a rounding error in terms of its contribution to Apple's truly momentous revenue base. The device sits within Apple's Other Products reporting segment, the catch-all division that includes sales of Apple TV, the Apple Watch, Beats headphones and other hardware, the iPod, and other various Apple-branded third-party accessories.
Without question, some units within the Other Products line items are shrinking (iPod), while others are growing (Apple Watch & Apple TV). Regardless, these combined products only accounted for 5.3% of Apple's total sales in its most recent quarterly report, by far the smallest contribution of its five reporting segments. However, that's not to say they don't matter to Apple, especially upon reflecting on some of Apple's likely long-term strategic plans.
Apple TV strikes me as the perfect place for Apple to eventually base the central connector of its eventual smart-home strategy. Although in its early innings, the connected home of the future will require a few core components across all brands or ecosystems -- the various "smart devices" themselves, a central hub that enables those devices to communicate and interact, and an app connecting actual users with their hubs (likely via their smartphone).
And although I could be getting far too carried away, Apple TV seems as if it has the makings of a perfect smart-home hub once Apple eventually brings its HomeKit OS into the, well, home. So while this move and the possibilities that accompany it remain at least one product cycle away, Apple and tech investors would do well to consider the broader possible impact Apple TV may one day have.