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?
In addition, Amazon.com, Inc. (NASDAQ:AMZN) has been aggressively attempting to market its own Kindle Fire HD as a cheaper alternative to Apple’s iPad. The iPad (and the iPhone) both connect to Apple TV and allow owners to stream their device’s picture to the TV; an Amazon set-top box could offer similar functionality with the family of Kindle Fire devices.
Microsoft
announced Wednesday that it’s planning to reveal its next Xbox at an event on May 21. While video gamers everywhere are eagerly awaiting the event to see the future of gaming, it could ultimately prove to be more a demonstration of Microsoft’s TV ambitions.
As I’ve written previously, Microsoft Corporation (NASDAQ:MSFT) has made it pretty clear that they have hopes for the Xbox brand beyond just being a video game console. After it hired a former CBS Corporation (NYSE:CBS) executive to create original content, it seems obvious that Microsoft wants to compete against Netflix, Inc. (NASDAQ:NFLX) in Internet video, assuming it does not acquire the firm outright (something that’s been long rumored).
To go along with the next Xbox, Microsoft Corporation (NASDAQ:MSFT) could introduce its own set-top box. The company has been said to be planning an “Xbox Lite” — a cheaper device that would cater to the needs of people who want the Xbox’s media capabilities, but don’t want to pay extra for the console’s raw power.
A crowded market gets even more packed
As Amazon.com, Inc. (NASDAQ:AMZN) enters, the crowded market of set-top boxes is poised to get even more packed. Microsoft is already there to some extent with its Xbox 360, but May 21 could see the company expand further. Meanwhile, Apple has been in the space for years, but the Apple TV has never been a significant part the company’s business.
Investors should not view the introduction of a set-top box as having any significant effect on a company’s larger strategy. Yet, it does demonstrate that when it comes to defending one’s content ecosystem, a variety of hardware offerings are needed.
The article Why is Amazon Making a Set-Top Box? originally appeared on Fool.com.
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