In tech circles, Apple TV is a bit of a conundrum. It’s really cool technology (potentially), but the way Apple is going about it seems.. well, decidedly non-Apple. The good news is that, by Apple’s quarterly investor reports, the enterprise does make some money, but nowhere near the kind of return on investment most Apple items do.
The reason for this is simple: Apple is not ‘doing the Apple’ with the Apple TV. (Say that three times fast.) Instead, what they seem to be doing is a little bit Amazonian, instead.
Apple’s Usual Business Model (aka Apple As Usual)
We’ve talked about this before. The normal modus operandi for Apple is to get people hooked on the abilities of their hardware (usually through apps or exclusive content) and then sell the hardware at steep profit.
With the iPhone / iPad, for example, the App Store where all those nifty apps people buy are marketed, does just a little better than breaking even. It’s definitely not a money maker. The iPad and iPhone? Huge profit makers. Apple makes a reported 80% to 200%, depending on who you ask. Whatever it is, it’s high margins compared to other gadget makers.
Under the Apple As Usual paradigm, hardware is the money focus and software is the sideline to draw in the hardware buyers.
With Apple TV, things appear to be the opposite.
Apple’s 180 to the Amazonian System
The Amazonian System at Amazon is the opposite: sell hardware cheap and use it to get the masses to buy your content to fill it with. The Kindle line of electronic readers / tablets are, by all accounts, sold at either a break-even point or a loss. Yet Amazon sells them by the crate load because consumers are more than happy to buy them. They then use them to buy content – almost always from Amazon. With content, Amazon makes big money – maybe not Apple money, but awful close.
With the Apple TV plan, the bitten fruit seems to be planning to do the same thing. Unit sales are, so far, abysmal and the company makes, at most, 30% margins on sales (likely much less). So far, the number of reported Apple TV units sold equal about 5% of the iPod’s sales by volume.
The department, in fact, makes just enough money to stay afloat and not much more. Reported earnings are somewhere around $300 million or so. That’s pretty small given the roughly ten million TVs they’ve sold so far.
So what gives?
Apple Is Banking the TV
Not banking ON the TV, but banking the TV. In other words, their plan is to corner the hardware market in ‘smart televisions’ by selling low and getting in early. Right now, they’re pretty much all there is when it comes to televisions that do more than hook up to a DVD player or cable. Sell enough TVs, though, and you can convince content providers to start showing up.
Imagine a world two years from now where most homes have an Apple TV or attached peripheral in their home (they’re only about $100) and can access content exclusively provided by Apple. If you have a hundred million households with your device in it, you’re darn tootin people who make great content will show up and beg you to deliver it for them.
And those who can receive that content.. they’ll pay for it too. If your TVs also connect to iOS devices (also yours exclusively), where more content can be had, then that’s even better. Once the tipping point of Apple TV ownership is hit, the company will own a huge share (maybe the only share) of the smart TV market. Much like the smart phone and tablet markets, Apple will also control TV.
That’s what they seem to be up to. In the end, it’s Apple As Usual, just with a twist.