Apple Inc. attracted a huge amount of attention this week on the back of ho-hum earnings. The Cupertino firm didn’t offer the world an answer on a looming question: is growth over for the iPhone maker? Some of those watching the numbers seem to think so, and Bloomberg was kind enough to announce that the growth engine had started to sputter.
Others had more in common with Tim Cook, who said decisively that Apple would manage to grow in the fourth quarter despite the “mother of all comps.” On Thursday those watching Apple closely may have seen a new weapon in the firms arsenal of diversified growth. The Apple TV is on the way, and it could be the path to numerous ways for Apple to make money.
What does the Apple TV offer?
The Apple TV is cheap for a Cupertino device. It comes in at $149 for the base version. It’s expensive, however, for a set-top-box of its kind. The Chromecast, which Alphabet Inc put out there as the trusted commodity version of the set top box, comes out at just $35. Amazon.com Inc. offers the Fire TV Stick for around $39.
Apple has a reputation for making a premium product, and the Apple TV may test that theory more than ever before. Apple does truly differentiate the Apple TV from the products that compete with it, however, and those who got their hands on the device for a review seem very very impressed.
There’s three fronts on which the Apple TV appears to have impressed those who reviewed it. First, TV OS allows search through a catalog of apps rather than in each app one by one. Second, Siri makes searching a breeze, and allows users to refine their search in order to find exactly what they’re looking for. Third the remote makes all of this feel easy, with its trackpad and in-built microphone.
The Apple TV is a premium piece of hardware, but its real earnings power is a little more ethereal. Apple has built a new OS for its set top box, and it’s about to set that software on multiple paths toward billion dollar businesses.
Looking for income streams on Apple TV
Apple TV isn’t likely to be a major product for Apple in terms of sales. At $149, the firm would have to sell an incredible number of them in order to compete with a line like the iPad, and it’s in an industry that’s very competitive and may have an even slower upgrade cycle.
In order to see the real power of the Apple TV, buyers should view it as a platform for further sales. Despite its razor-like pricing, the Apple TV is going to be able to sell a lot of blades for Cupertino, and that might make all the difference going forward.
Income streams from the Apple TV will focus on three major areas: App store sales, TV subscriptions, and HomeKit revenue. Here’s a look at what each of those could bring to Apple in the coming months, and why the Apple TV may be the key release the firm of the past week, despite earnings.
App store sales give Apple gaming
If you asked a person on the street who they thought the biggest success firm in gaming was, it’s likely that they’d name Sony, Nintendo, or another one of the living room contenders. It’s likely they’re wrong. Though it doesn’t break down its numbers, much like the actual game firms, we’re pretty sure that Apple spends very little on gaming, but it brings in a whole heap in sales.
Putting a powerful box in the living room could give the firm access to higher priced games. Brian X. Chen from the New York Times wrote, in his review of the device, that ““Gaming graphics were also on par with Nintendo’s Wii U, and some of the casual games seemed to compete directly in Nintendo’s sweet spot: lightweight, family-friendly gaming.”
Apple may not be coming for the Xbox One just yet, but it’s easy to see a future where the Apple TV gets a big user base and Apple convinces Activision to port Call of Duty. It may not give gamers a premium experience, but it will give more casual shooter lovers a quick, easy, and cheap way to get in on the action.
Back in April Newzoo forecast that the gaming market would be worth around $90B in 2015. Apple gets something like 30 percent of each sale made on its platform, a better margin than almost anywhere else in the industry.
Building on the Internet of things with HomeKit
Apple has inched its way into the internet of things market with the launch of HomeKit, but it’s been clear for a while that the firm isn’t really ready to give the market its full attention. The Apple TV is set to serve as the heart of the firm’s play for the Internet of Things and, as with the gaming market, it could earn huge income if the install base gets high enough.
Wall Street thinks there huge money to be had in the Internet of things, and Apple has just put out a machine that can tempt people to buy into the smart home. Goldman Sachs reckons that Apple is already ahead in the Internet of things despite selling very few devices.
In the view of Simona Jankowski, who authored a report on apple for the Wall Street bank, “we believe the trust and security that Apple has built into its ecosystem by maintaining its users’ privacy and curating content will become an increasingly important competitive differentiator and source of value creation.”
Waiting for the real Apple TV
Gene Munster of Piper Jaffray may still believe there’s a chance that Apple will bring out a full TV in future, but that’s not where the rest of Wall Street is looking for growth for the firm. Through 2015 we’ve been hearing rumors, some from people with great connections in the industry, that Apple will soon ask for cash to allow streaming on its set-top-box.
Such a move could be a great way for the firm to really differentiate what it offers from what the rest of the market has on the shelves. Apple appears to be still working out the kinks in its content deal, so we’re left waiting for the firm to announce something like a major content platform.
Andy Hargreaves of Pacific Crest reckons that content will be the major income stream from the Apple TV. He reckons that Apple will avoid offering a “skinny bundle” and instead go for the premium end of the streaming market. That means collecting $80 per month from each subscriber. Now that’s a number that could make a real dent in the firm’s earnings reports in the year to come.
Apple may have run out of people to sell the iPhone to, but as you can see, the firm has not run out of industries to vacuum sales out of. In recent years Tim Cook, Steve Jobs, and the rest of Apple’s leadership, have devised ways to get people to pay Apple for mobile games, for books, and even a loan for their iPhone.
Despite an earnings slow down stemming from lackluster iPhone sales growth, Apple will find new ways to grow, and the Apple TV is a perfect sign of the many ways in which it can do just that.