Apple TV: Chicken or Egg

By Richard Menta 3/23/07

Apple TV is a typical chicken or egg scenario or in this case, "which came first the market or the product". Bridging the PC and the TV has been attempted quite a few times before (remember WebTV?), but no "solution" ever gained any traction. Of course, companies keep trying, because whoever does pull it off gains some control over those connected TV sets and the eyes that watch them. That opens up a whole slew of opportunities for advertising and marketing. But for that to happen you need to tap into a reasonably large number of folk.

Apple TV

Now it's Apple's turn, a company that took the very niche MP3 portable market and turned it into a mass consumer toy. A company that not only has experience creating those early chickens, but success in getting them to lay golden eggs.

The biggest problems that arise with building the first products for any mass market are the market unknowns that require the maker to simply deduce, or more accurately guess, what the consumer wants. First generation products are given a lot of leeway among early adopters, but Apple's target market for Apple TV is much broader. They are going after new owners of flat-screen HD TV sets.

Normally, going after a mass market from the beginning with a chicken/egg product is highly risky. But digital television is already changing the conventional TV market, which must convert to all digital by 2010. Millions of consumers are already spending a couple of thousand on their new flat-screen HD TVs, which means millions are already committing to change.

Which also means that millions of consumers are open to accessories for that new set and are prime candidates to shell out another $300 for an Apple TV that will extend its usability. Do you know what happens if Apple TV gets into active use in millions of homes? It means that have their own highway to the entertainment system in the living room. It means more sales for iTunes for its television programs and, because most HD sets are connected to surround sound systems, more opportunity to sell music too.

Just as important, the first company to successfully claim this market gets the opportunity to set new standards, which in Apple's case are always proprietary and rarely shared. Such control would have another effect - opening up more Hollywood content to Apple.

The movie industry has been very wary of Apple, worried that the company will leverage too much control of their content like it has with the music industry. But if Apple TV wins the eyes and ears of millions, then revenue opportunities are being lost by those who do not participate, while those who do will enjoy less competition. That's important for Apple as it will pressure the studios to free more content to iTunes.

All of this comes later, of course. First Apple TV has to be compelling enough for consumers to buy in strong volume. Then those who buy it have to actively incorporate it onto their daily entertainment activities so value is extablished. It does Apple no good if Apple TV turns into the toy consumers use for a few times then ignore.

But it's a new market with leeway for experimentation. If the experiment is a success Apple TV becomes the next Tivo.

But it hasn't succeeded yet. That will all depend on how good Apple TV really is and how quickly it evolves.

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