The Battle for 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.
Many have speculated on Apple's (NASDAQ: AAPL) entry into the living room, making predictions on price, release date, and features. Meanwhile, Microsoft (NASDAQ: MSFT) has slowly brought some of these speculated features to its current Xbox 360 product with most of the remaining features expected to launch in the product's next upgrade. While many are ready to call Apple the victor in the battle for the living room, I believe Apple still has much to prove in the TV-device space.
Features
Most speculators do not believe Apple's TV product will also double as a gaming console. If there are no gaming capabilities, the Xbox will be the box of choice for gamers. If Apple releases a product with limited gaming capabilities (think party games downloaded through the App Store and controlled with motion sensors and iOS products) or full gaming capabilities, some gamers may choose Apple's product over the Xbox. However, because Microsoft has established credibility with core gamers and has several popular video game titles, I do not see many gamers leaving Xbox.
At E3, Microsoft debuted its SmartGlass technology, which allows for seamless start/stop between mobile devices and the Xbox. Apple's product will likely have similar features. However, because SmartGlass works for iOS and Android devices, Microsoft diminished the ecosystem advantage Apple would have otherwise had.
Lastly, both systems will need to elegantly integrate streaming and pay-per-view content with recorded and live TV. Xbox Live currently allows users to organize their streaming services neatly with metro-style tiles. However, whether or not the metro-style can intuitively and effectively organize the mess that is cable television remains to be seen. Since Apple has historically excelled in intuitive user design, I believe their TV product will succeed in blending all forms of entertainment through iTunes, Apps, and yet to be seen software. While I think Apple's software will provide a better experience than Microsoft's for users, I'm not sure if Apple will win by a close or wide margin.
Price
An alleged leaked internal presentation reveals much about the next Xbox, including a release price of $299 with an updated Kinect. Since so little is known about Apple's product, it is hard to speculate on the device's price point. However, with that said, I do not think Apple will be able to follow their well proven mobile device business model. Historically, Apple has monetized their software through high-margin, short-cycle hardware products. I am not sure this model will work for a TV product. For comparison, Microsoft's Xbox is on its sixth year, and the platform is monetized through game sales and Xbox Live subscriptions. Apple could monetize their device through iTunes/App Store downloads (historically, Apple has claimed to just break even on iTunes and App Store) and iCloud subscriptions, and perhaps, Apple could shorten product cycles through increased innovation. However, with all of that said, I do not think Apple's product will be at or below Xbox's price point.
Timing
Although the timing of both devices is unknown, many think Apple will release their product this fall (in time for the holiday season) or in early 2013. Most people expect Microsoft to update their console at E3 in mid-2013. If these release dates prove accurate, Apple could benefit from being first out of the gate. However, every gamer is well aware Microsoft will soon upgrade their platform, so gamers and families with kids may postpone purchases until they at least see Microsoft's offering.
Summary
Although I believe Apple will release an attractive TV product, I am unsure if the company's elegant software will be able to convince Xbox users to switch systems or purchase a largely redundant system. My skepticism is furthered by Microsoft's steps to mitigate ecosystem synergies with SmartGlass and the likelihood that the updated Xbox will be priced below Apple's product.
dtlly owns 420/425 call spreads in Apple. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
