Wednesday, June 06, 2012

My predictions on the much anticipated Apple iTV

Perhaps, the most difficult thing is to predict what Apple is up to. Over the last 2-3 years, I have become a fan of Apple as a company - driven by its innovative products and management lessons from arguably the best CEO the world has seen. This post is though not about Steve Jobs. Instead, it is about the product legacy he has left behind. As an outside-in observer, I am trying to predict what could be in store for Apple beyond Steve Job's era. I am taking a wild shot at what I think the much anticipated Apple TV could be like. The odds are that I will get it absolutely wrong! Never-the-less, it is still exciting to think how the team at Apple would probably be thinking about possibly the most challenging product to crack - the Television. 


As we start to think about the Television, I would like to firstly make a few base-line assumptions and outside-in observations about Apple's guiding principles when it comes to developing new products:

  • Target to remain extremely focused on a few products only (unlike Google for example) I see a maximum of 1 new product category every 2-3 years and the Television/Apple TV is most likely to be the next big product category.
  • Target to remain in price range that will help them gain volumes - e.g. the iPad wasn't launched for $1,500 but for $500 and the visible cost of iPhone to the customer was much lower due to Telecom tie-ups and resulting subsidies
  • Maintain extremely high margins irrespective of the product - they will target 40-50% gross margins for all products - e.g. when iPad 2 was recently priced down to $399 with the launch of the new iPad, many analysts projected a significant "margin dilution" - but from their latest quarterly results, I see no margin dilution at all. In my view, Apple tracks the margins very closely and maintains the high margins by bringing in new versions every year and letting the ASP decline of components help keep margins of the old products high, despite decline in their overall pricing
So, now to the meat of this post. What would the much anticipated Apple iTV be? Here are my wild predictions about this product, looking outside-in:

iTV or Apple TV

As far as I am concerned, I don't think Apple would launch a full-blown TV alone per se. It doesn't make sense to get into a low-margin LED TV business where other big competitors are struggling big-time. To earn the target higher margins, Apple will need to price it twice that of Sony and Samsung. At these price-points, I wonder if they will get to sufficient volumes, irrespective of how great and intuitive the interface and the product is. 

In my view, Apple would go ahead with one of the following two options:

Option 1: Hyper-enhanced Apple TV box
  • Offer everything that one would want from Apple TV minus the HD screen. 
  • In other words, a significantly hyper-enhanced version of the current Apple TV that could be placed right next to your existing TV in the living room 
  • It would offer all great features with high degree of interactivity - Siri, Konnect-like movement detection, built-in camera for facetime and video-conference, enhanced Video Airplay and similar capabilities (e.g. screen mirroring, etc) from iPad and iPhone, Internet video streaming, remote control being a smart phone/ tablet, etc
  • Further, this Apple TV box would probably have all the elements of a basic PC less the monitor - including storage, games, great Apps and access to App Store. 
  • My sense is that Apple will offer the enhanced Apple TV for about $300-$500

Option 2: Full-fledged TV changing the structure of the Television Industry

  • Offer all the above features under Option-1 PLUS the HD TV screen to make it a "one-product" TV
  • Pricing - 45 inch for $2,000 or so, 55 inch for $3,000 or so, but to the customer it will cost a fraction of this cost while making the purchase
  • Instead, make this TV available by signing up for a 2-year "Cable Television" contract with existing Cable TV Players (e.g. Starhub in Singapore). This would be very similar to the way we all buy iPhones and how telecoms are made to pay the subsidy instead.
  • With the above subscription, all channels that you subscribe to would be on-Demand. You can watch, what you want, when you want and you do not need to stick to the broad-casting schedule of the channels
  • These channels could be "Apps" that one would pay a monthly subscription for
  • As another completely different alternative within this, Apple could offer specific television "Programmes" and Series as Apps, as opposed to specific channels. This would completely kill the television broad-casting industry - instead our favorite programmes would be free or paid Apps and Apple will earn the advertising and subscription revenue on these over the life-time of the television set.
I personally think the above are the only two viable alternatives for Apple. Between these two options where should I put my money? What is Apple more likely to launch in the near future? As excited I am about option-2, I am not sure if Apple would go for it at this stage. I am therefore betting my money on Option 1 - an enhanced super duper version of the Apple TV Box. In my view, option-2 requires Apple to set-up a huge media business as the back-end. More importantly, they would need to go country-by-country and sometimes region-by-region trying to get sufficient content before you and me decide to buy the product. And even if they get all this going, TV is a costly product with much longer life-cycle of 4-7 years. It would be too long a battle to fight and I think at this stage, they might be better off sticking to Option -1 and gradually start offering "Television Programme Apps" to step-by-step bye-pass the broad-casting industry.

I am eagerly waiting for WWDC Conference next Monday where we might get a view on where things are headed. Till then, I stick to option-1, though I remain optimistic about being pleasantly surprised! :-)

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