Starting next month, Amazon (NASDAQ:AMZN) will no longer sell streaming devices from Apple (NASDAQ:AAPL) and Alphabet's Google (NASDAQ:GOOG) (NASDAQ:GOOGL). The Internet retailer will discontinue sales of the Apple TV and Chromecast in November, ahead of the important holiday shopping season. The move seems aimed at boosting sales of its own products, including the recently unveiled second-generation Fire TV.
Amazon obviously isn't the only retailer selling these devices, but given its mammoth size, it could have an effect on the market. Apple and Google have crushed Amazon when it comes to smartphones and tablets. Using its clout to stem the popularity of its rivals' devices could give it an advantage in the set-top box market.
A major failure and a steady decline
Amazon's Fire Phone may be the company's single greatest failure. Announced with much fanfare in the spring of 2014, the phone was rapidly discounted and then discontinued altogether. According to The Wall Street Journal, Amazon has largely given up its smartphone ambitions. The same can't be said for Amazon's tablets -- in fact, the e-commerce giant refreshed its tablet lineup just last month -- but the popularity of its Kindle Fires has declined rapidly in recent years. Following the introduction of the original Kindle Fire, Amazon was briefly a top tablet vendor, but that's no longer the case. In the fourth quarter of last year, its tablet sales fell a massive 70% on an annual basis.
Amazon has consistently offered powerful hardware at reasonable prices, but it hasn't had the software ecosystem to back it up. Kindle Fire devices use a modified version of Google's Android operating system, but can't access important Google services like Google Maps or Chrome. Major developers support Amazon's devices, but smaller ones generally do not. Amazon's app store is populated with hundreds of thousands of apps, but Apple's iTunes app store and Google's Google Play offer about three times as many.
The same could eventually hold true for Amazon's streaming devices. As the ecosystem surrounding Chromecast and the Apple TV expands, developers could ignore Amazon's products, and demand from consumers could plummet.
Amazon's exclusive content gives it an advantage
But when it comes to the living room, services like Google Maps and Chrome don't really matter. These streaming devices are primarily used to watch Internet-based video, and to a lesser extent, play video games. In both of these areas, Amazon has an advantage over its rivals.
Amazon has Prime Video, with a growing number of highly regarded original series, including the Emmy- and Golden Globe-winning show Transparent. Amazon doesn't disclose the number of Prime members, but analyst estimates consistently peg it at around 40 million to 50 million. That makes it the second-largest streaming service behind only Netflix. Google has YouTube, but no premium content. Apple has had some short-term exclusivity deals, but does not own any content of its own.
Apple TV and the Chromecast do not support Prime Video, at least not natively (it can be accessed with AirPlay or by casting a Chrome tab, but the experience is less than ideal). As Amazon continues to bolster its service, the lack of Prime Video could become a deal breaker for many buyers.
Amazon acquired a video game studio early in 2014, and has hired well-known developers. It spent nearly $1 billion on the video game broadcasting service Twitch last year. It has yet to put out anything noteworthy, but it's done considerably more than Apple or Google in the space.
Still, these advantages could eventually fall by the wayside if third-party developers shift their focus to the Apple TV and Chromecast. To stem their popularity, it isn't surprising that Amazon would pull them from its storefront. Given Amazon's recent hardware stumbles, history isn't on its side, but with its exclusive content, the set-top box market may be one area where its devices can actually succeed.