Google in Your Living Room
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google’s (NASDAQ: GOOG) main source of revenue is ad sales. As an established leader in web advertising combined with the recent 750 million dollar purchase of the mobile ad company AdMob, the next great frontier for Google is your living room. 99 percent of US households have a TV; in fact the average household has 2.24 TV’s and the average American watches four hours of TV per day, this all according to Nielson. Thus far major TV makers like Sony (NYSE: SNE) and LG have struggled to make a compelling internet connected TV. Yahoo has had Yahoo TV widgets since 2009 and manufacturers have also tried their own in house apps and interfaces, all of which have had limited success.
Google TV, which is a version of Android with a somewhat limited selection of apps designed to run on a TV interface, has not been very successful either. In fact Logitech which made a first generation Google TV set top box, the Logitech Revue, gave up on Google TV after announcing that they had lost 100 million in operating profits from their Google TV venture. Since then several other companies have partnered with Google as the second generation of hardware manufacturers such as LG and Samsung as well as Sony which was also a first generation partner. Google has also released a major update to the Google TV software that has improved the interface of Google TV, a huge step in the right direction in terms of simplicity and usability. A Google TV could also be sold in Europe starting later this year manufactured by Sony.
Google is not the only tech giant salivating at the huge market of TV addicts. Apple (NASDAQ: AAPL) has a set top box called the Apple TV that offers all of the iTunes content on your HDTV (of which there are 70 plus million in the US as of 2011) as well as third party applications such as Netflix. Steve Jobs had also reportedly ‘finally cracked’ the television market before he passed away thus rumors have been swirling that Apple will make an actual TV. In fiscal 2011 Apple sold just 2.8 million Apple TV’s prompting CEO Tim Cook to classify the Apple TV as a ‘hobby.’ However since the third generation Apple TV launched earlier this year it has already sold as many units as Apple sold in all of 2011. If Jobs really did design a simple intuitive beautiful TV then this hobby could be about to change.
Microsoft (NASDAQ: MSFT) also has a dog in this race through their Xbox 360. The Xbox has sold sixty seven million plus units and has entertainment apps like Netflix and the just added Amazon video on demand app. The Amazon app does not require a remote; users can control it with gestures using the Xbox Kinect. For the first time Microsoft recently announced that Xbox live users are spending more time using their Xbox for entertainment, such as TV, movies and music than they are gaming. This is not too surprising since Microsoft has been investing heavily in content for the Xbox and recently launched a major interface update. Microsoft has begun to add 40 content channels to this new interface such as a Comcast app, HBO Go, Netflix, Amazon VOD and MLB.TV though to access the content you must already be a subscriber to their respective services. However the total time spent gaming on Xbox Live has also risen from 2011 indicating that Microsoft has built both a popular gaming console and a home entertainment device.
Google has been attempting to grow their Google TV business in more ways than just additional hardware makers and interface revamps as the likelihood of more competition from Apple and others increases. The twelve and a half billion dollar acquisition of Motorola Mobility gives Google another foothold for Google TV. Most major ISP’s and cable providers use Motorola built set top boxes or routers that could in the future be powered by Google TV. This would hugely increase the number of Google TV’s in the market and also in most cases replace the current operating system and interface that most people use for their DVR’s and cable boxes with a far better one. Selling Google TV’s as a set top box could also increase the adoption rate of the Google TV because consumers update the devices they connect to their TVs far faster than they upgrade the actual TVs.
This combined with the new partners that have signed up to use Google TV and the Honeycomb operating system update for the second generation of Google TV means Google is moving in the right direction with both hardware and software. But there is another segment of the Google TV business that adds to Google’s potential success in the market. Google has committed one hundred million dollars toward original content on YouTube and they have further committed two hundred million to market the content. All of this content will be available through the Google TV’s YouTube interface and eventually it will no doubt feature Google ads.
This move comes as Amazon, Netflix and Hulu are all also either producing and funding their own shows or purchasing exclusive rights to air shows. Content licensing costs are increasing and each of these players sees original content as a way to guarantee that their service has an edge with their own original shows. This strategy may be hard for Netflix or Amazon to pull off because customers have to pay a monthly fee for Netflix or a yearly subscription for Amazon Prime and they may not pay just to see a few exclusive shows. If Google had 100 YouTube channels with all original content and the only barrier to seeing it was watching a few Google ads per show, this content creation move could be very successful for Google.
Original YouTube content could not only give Google TV an early edge over a potential Apple competitor but it could also bolster Google’s offerings on competitor platforms like the Apple TV and the Roku streaming box. The Roku reached 2.5 million units sold in 2011. Motorola could allow Google to design better integrated hardware and software for all their hardware partners as well as potentially getting Google TV into cable boxes. Google’s long term goal of curating content into Google TV combined with continued software innovation for Google TV, with an eventual Ice Cream Sandwich update will lead to Google finding their way into your living room.
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