Amazon.com, Inc. (AMZN): Why’s The Company Making This Technology?

Internet retailer Amazon.com, Inc. (NASDAQ:AMZN) is working on a set-top box, according to Bloomberg. The device will allow TVs to access streaming Internet video content.

While the final details remain unknown, making a set-top box seems like a no-brainer for Amazon.com, Inc. (NASDAQ:AMZN), particularly as the company aims to sell more video content. Yet, it’s unlikely to have a meaningful effect on the company as a whole.

The crowded market of set-top boxes

Consumers looking for a set-top box have many to choose from. The most well-known are likely the Roku and the Apple Inc. (NASDAQ:AAPL) TV, but plenty of other companies like Western Digital Corp. (NASDAQ:WDC) and Boxee offer similar devices.

That is not to mention the growing number of TVs and Blu-ray players that can connect to the Internet directly, offering built-in set-top functionality. Video game consoles, too, generally offer the same sorts of features.

But, even in such a crowded marketplace, it still makes sense for Amazon to enter.

Amazon’s hardware strategy

Amazon.com, Inc. (NASDAQ:AMZN) has always had a clear-cut hardware strategy: offer competitive devices at cost. The original Kindle Fire was the first major tablet to come in under $200, and Amazon has continued to utilize that strategy, cutting prices when feasible.

The company is widely expected to roll out a cheap smartphone soon, and rumors have even hinted at a $99 Kindle Fire. These reports remain unconfirmed, but would make sense.

Rather than attempt to make money directly on hardware sales — like

Amazon, then, would likely be banking on buyers of its set-top box also purchasing movies and TV shows from it, or possibly games, if — like the Roku 3 — Amazon were to include game functionality in its device. (Amazon owns a game studio subsidiary.)

Consequently, it wouldn’t be unreasonable to expect Amazon to sell the device for as cheap as possible. The standard price for a high-end streaming device has been $99; perhaps Amazon could offer something around $75 or even $50.

Did Apple force Amazon’s hand?

Although Apple Inc. (NASDAQ:AAPL) does not, by its own admission, really take the Apple TV seriously (once referring to it as a “hobby”), the Cupertino tech giant may have forced Amazon’s hand to some extent. Owners of Apple TV will note that while the device features support for streaming services like Netflix, Inc. (NASDAQ:NFLX) and Hulu, Amazon Prime Instant Video is not available.

Even more important to Amazon, Instant Video (its pay-per-view or pay-to-own service) isn’t available on an Apple TV, and probably won’t ever be. Amazon Instant Video competes directly with Apple Inc. (NASDAQ:AAPL)’s own iTunes video store — why would Apple want to help out its competition?