It’s not always a fair fight when your competitors have “alternative motivations”
In most cases, when your product/solution/service has a direct competitor for the same customers, you are all trying to accomplish the same thing: selling more widgets because you make money when you sell those widgets. It’s old school business: I sell boxes, you sell boxes, my boxes are cheaper, your boxes are stronger, etc. You are competing on price, quality, features and all of those goodies.
However, there are other times when one party is selling widgets for widget profits while the other company is selling widgets because they are a gateway to a completely different revenue stream or business objective. This where things get complicated and — in the eyes of the widget-only business — it stops being a fair fight.
Example: The Blossoming Battle for Internet TV
Last week Sony announced that PlayStation TV will be coming to Western markets later this year. For $100 or so you can get a box that plugs into your TV so you can watch streaming Internet programming from the likes of Netflix, but you can also rent and purchase programming from their own stores and subscribe to a service that lets you play video games over the Internet, as well as play PlayStation Vita games.
Earlier this year Amazon introduced the Kindle Fire TV, another box that lets you watch Netflix, HBO Go, etc., and play some video games and buy all kinds of stuff from Amazon. There is the Chromecast doohickey from Google that lets you watch stuff from your Google-powered devices as well as Apple TV, which has been kicking around for years, letting you watch those same streaming services and buy things from iTunes really easily.
All four of these solutions will “work” without you having to give another dime to Sony, Amazon, Google or Apple. But that obviously isn’t the point. Their real goal is to get to you to buy and/or subscribe to even more stuff that they are selling.
Interestingly, no one has decided to actually give any of these things away yet, and they are probably still doing OK on covering their costs and potentially even turning a profit on the devices themselves. In time, however, there isn’t anything stopping these massively profitable, deep-pocketed companies from just giving the devices away if those services and additional purchases start adding up across their user base.
You Can Do Everything Right & Still End Up in an “Unfair” Market
None of these companies have “made the market” for Internet TV devices — that honor and distinction falls to Roku. Roku was a pure hardware play; they developed a cool solution to let you lean back and watch Netflix and other streaming services. They created a fantastic platform that lets pretty much anyone build a channel and have way more content than anyone else. They also sell their devices for the same or less than Sony, Amazon and Apple are, despite the fact that the box is where they are making the vast majority of their money.
Roku didn’t make any traditional “mistakes”. Their products are solid. They have introduced cheaper versions to saturate the different price points. They have continued adding more and more content (and therefore more value) to their existing customer base. They haven’t had any upgrade-now-or-you’re-screwed moments that Apple throws at its iOS users every couple of years.
Roku identified a market opportunity, executed well and delighted its customers while changing the way many people consume television and movies.
What’s a Roku to Do?
The folks at Roku haven’t been hiding their heads in the sand as others have started to encroach on their turf. In January they announced that Roku-powered TVs will be coming to market, with TCL and Hisense the first to sign up. However, how many TCL and Hisense TVs have you seen in your friends’ living rooms? Meanwhile, companies such as Samsung, Vizio and yes, Sony, have been creating their own Smart TV platforms that run Netflix and the like.
So, where can a company that made its bones on boxes but whose real value is in the platform running on them find opportunities for growth and survival in this new cluttered landscape full of competitors with “alternative motives”?
Increase Services Revenue: In the case of Roku, we don’t mean IT services here, we mean digital media services. Even if Rokus aren’t flying off the shelf like they used to, there are still an awful lot of them out there and Roku controls that user experience. Whether it is exclusive content of their own or revenue-sharing partnerships, they need to make sure they are getting a piece of the action being consumed on their devices.
Become the Platform of Choice for Everybody Else, Part I: Not everyone is Amazon or Sony and is willing to commit the R&D expenses and risk to produce their own devices. But other players out there may still have their designs on owning the living room experience to drive traffic and dollars their way, and a device running the Roku platform may be their ticket to assert themselves.
Become the Platform of Choice for Everybody Else, Part II: As anyone who has tried to configure their new TV already knows, TV software and UI stinks. That’s because anyone not competing for the top-of-the-line customers are competing at the bottom line and trying to make TVs with good-enough specs and squeezing every penny they can out of what is essentially a commodity at this point.Roku could become the default UI for these second-tier televisions by giving it away for almost nothing and then driving way more customers to those preferred services they are further monetizing.
Don’t Box Anyone Out: When the barbarians are at the gate, some may be inclined to get vindictive. Roku could be tempted to, say, kick Amazon Prime Instant Video off of their platform or not let some new service that also have its own hardware designs get on there. This would be a critical mistake because as long as a customer can get what they want on a Roku, they are much less inclined to consider an alternate solution. As the king of content for the moment, Roku should be able to cling to their market dominance for a while longer.
Think About Bigger Boxes: A platform’s full potential usually lies far beyond what it is powering at the present. For example, a Roku-powered set-top box with a DVR AND streaming Internet TV services as part of your cable TV package? Who wouldn’t be interested in that? And if you get even one major provider on-board you are talking about some major units. And I’m pretty sure those smartypants could figure out a way to have a small Roku box mooching off the big DVR in the living room to power any other TVs in the house.