Why Apple passed on cheap TV dongles like Chromecast and Fire TV Stick

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While this might not be obvious to some customers, Apple didn’t expect its retail stores to be overwhelmed with people. Between their hotel concierge-like Genius Bars, imported marble floors, and unfettered hands-on access to expensive products, they were designed as high-end boutiques — and succeeded in generating Tiffany-like revenues. In part, that’s because Apple spent years optimizing store revenue per square foot, making more space for expensive products and pushing up vendors’ prices, since experience showed that Apple Store customers would pay more.

If its strategy wasn’t obvious before, Apple’s recent decision to stop disclosing unit sales of its key products sent a clear sign that it doesn’t want to be like Walmart or other price-focused retailers, flooded with bargain hunters. One easy way to eliminate large crowds is to stop selling inexpensive devices, and instead focus on products — and customers — with higher profit potential.

This background helps explain why Apple zigged with TV streaming hardware when its competitors all zagged. Amazon, Google, and Roku chased masses of customers with sub-$50 video streaming dongles. At the same time, Apple phased out its $99 third-generation Apple TV in favor of more expensive models with app support.

The current entry-level Apple TV is $149, with the Apple TV 4K starting at $179. Instead of discounting those prices by even a dollar for Black Friday, Apple is today offering a $25 gift card with either model — just enough to get you started on another Apple Store purchase.

By comparison, Google is presently offering its latest Chromecast dongle for only $25, down from its $35 standard price. Unlike Apple, Google includes the HDMI connector you’ll need to attach its streamer to your television. Similarly, Amazon’s basic Fire TV Stick is discounted to $25 today, while its Apple TV 4K-rivaling 4K version is going for $35. For those prices, each includes an Alexa voice-controlled remote control, even though you can’t even buy a spare ($59) Apple TV Siri Remote for that little.

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A report this week from The Information suggests that Apple has been considering offering a “downmarket” competitor to Amazon’s and Google’s products so it can “get more viewers for its upcoming TV streaming service.” Leaks throughout the year have established that Apple is funding TV shows from roughly a dozen major partners. The report claims that Apple will launch a service around the shows in 2019, and make its content “free on the service.”

First-year or even first-week economics students could make the business case for more affordable Apple TV hardware. Supply and demand curves suggest that the lower the Apple TV entry price drops, the more people will buy them, which means more potential viewers for Apple shows. How exactly those viewers will translate into profit for Apple is the Underpants Gnome question du jour, but one could guess that some combination of advertising, product placement, and/or paid subscription revenue is the service’s ultimate goal.

Making an inexpensive TV dongle would be incredibly easy for Apple. Thanks to its array of self-designed chips, relentless miniaturization, and partnerships with Taiwanese manufacturers, it could sell a tiny streaming device without a remote control — and possibly even without an external power supply. Given the sad current state of the Apple TV App Store, no one would care if the dongle only streamed videos and music. Moreover, Apple TV sales have such little impact on Apple’s bottom line that cannibalization can’t possibly be a serious concern.

Fire TV Stick 4K

Above: Amazon’s 4K version of its Fire TV Stick can be had for $35 including an Alexa voice remote control, when Apple’s Siri Remote alone is $59.

Image Credit: Amazon

Even so, the big unspoken question is whether Apple really wants to bring budget-conscious customers back into its stores. A “downmarket” $50 Apple TV dongle means more “downmarket” customers filling up Apple Stores with repair, replacement, and return requests, or calling AppleCare for set-up support. Does Apple really want to delay premium customers so it can provide sales and support for $50 TV dongles?

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In previous years, the iPod shuffle, iPhone SE, iPad mini, and Mac mini were all used as outreach devices to expand Apple’s markets, but in recent times, those “affordable” models have either been discontinued or brought up to higher price points. This year, Apple boosted the prices of new Apple Watches, iPhones, iPads, and MacBooks as well.

A company doesn’t make these moves when it’s trying to attract more customers. Not coincidentally, Apple’s decision to stop reporting unit sales was widely interpreted as a trick to get away with skimming more money from fewer people. That change instantly soured Wall Street on Apple’s stock, leading the company’s over $1 trillion market capitalization to fall over 20 percent — despite its prediction that the next quarter would be the best in its history.

Above: Apple’s $49 iPod shuffle brought millions of new but budget-conscious customers into Apple Stores.

My personal take is that Apple is at a dangerous crossroads right now as it attempts, once again, to reconcile its elitist leanings with its mass-market potential. The company has built the fanciest of shops in the highest-end locations and really wants premium customers. Yet its implicit mission statement has been to simplify and democratize technology for everyone, not just wealthy shoppers.

Therein lies the conflict. Apple has created some of the most desirable products in the world at a variety of price points, and it markets itself as a provider of educational solutions for cash-strapped students and schools, affordable games for kids and adults, and music for everyone. On the other hand, it keeps pricing itself out of gigantic developing markets, selling aging or downright old products at premiums over competitors, and releasing new products that are more expensive than their predecessors. Does Apple want to be an affordable luxury brand, or just a luxury brand?

At some point, Apple will have made enough money that making more shouldn’t be a primary or even secondary motivator — like billionaires who turn to philanthropy, hitting trillionaire status would have been that moment for most companies. If Apple has that moment of realization, it should resolve its conflict in favor of public good rather than pure profits. That means getting its great products into as many hands as possible, even if that means going “downmarket,” with the resultant need for creative solutions to reduce store overcrowding.

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The alternative is shrinking the Apple user base at a time when competitors would be thrilled to pick up disenchanted customers. Losing customers — and thus, viewers — is not the sort of strategy that builds a company, say nothing of a TV audience. Since it was launched, the Apple TV has been an extended “hobby” for the company, but now billions of dollars and an untold number of content partners are depending on the platform to succeed. The best way to make that happen is to reverse course on the short-sighted decisions that have relegated Apple TV to a niche until this point, and start making choices to expand its user base.

Source: VentureBeat

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