Microsoft’s TV ambitions
When Gaikai was still an independent company, its co-founder David Perry told CVG that he believed Microsoft Corporation (NASDAQ:MSFT) would be forced to start making its own TVs. Perry reasoned that the idea of a video game console was dying, and that soon, TVs alone would be able to play high quality games.
Turns out Perry was right, sort of.
The Xbox One is arguably a smart TV-DIY kit. Rather than buy an expensive, $3000 Samsung with built-in smart technology, users can upgrade their existing flat panels to smart TVs by spending $500 on the next Xbox.
To me, that sounds like a much better proposition than sinking several grand into Apple Inc. (NASDAQ:AAPL)’s rumored forthcoming iTV, and then tossing your old TV into the trash.
Room for an Apple TV
Apple Inc. (NASDAQ:AAPL) bulls certainly seem to be banking on there being a market for the company’s forthcoming TV. Apple-centric blog MacRumors declared that the market was “ripe” for an Apple TV. According to a study from TDG, only 14% of households owned a dedicated streaming box (like a Roku), meaning that the market is far from saturated.
An analyst at Avondale upgraded Apple’s stock in April, partially on the potential for an iTV. Certainly, excitement over an iTV could help propel Apple Inc. (NASDAQ:AAPL)’s shares in the short-term, as the company hasn’t introduced a new product since the iPad Mini last fall.
But if there’s a market for Apple Inc. (NASDAQ:AAPL)’s iTV, then there must be a market for the Xbox One as an entertainment device. In fact, many buyers of Microsoft’s Xbox 360 might have done so partially based on the device’s media playing capabilities. About 25% of the time, the Xbox 360 is used for media streaming — not gaming.
Xbox One will take some time to catch on
The widespread backlash to the Xbox One has failed to have a meaningful effect on Microsoft’s shares. Over the last few days, Microsoft’s stock has basically moved in-line with the broader market.
This is because Microsoft Corporation (NASDAQ:MSFT)’s Entertainment Division (dominated by its Xbox brand) accounts for an insignificant amount of the company’s profit.
But I believe that the Xbox One should be seen as a long-term positive catalyst. Despite the initially negative reaction, the Xbox One should be better received once the power of Microsoft’s Azure cloud servers are more fully utilized by developers.
At the same time, the Xbox One has the potential to be a potent smart TV solution — possibly offering better value than Apple Inc. (NASDAQ:AAPL)’s rumored iTV.
If the Xbox One does sell well, it should put Microsoft in a position to dominate the living room.
Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT).
The article Why the Xbox One Will Still be a Massive Success originally appeared on Fool.com.
Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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