Despite Apple investor Carl Icahn’s protestations that Apple will introduce a TV in 2016, the Wall Street Journal reports that Apple shelved efforts to build a television last year. Here are five reasons Apple will likely leave those plans on the shelf for a very long time.
The key to Apples success in hardware is great margins. The company consistently charges more than other vendors for products with essentially the same hardware features. That is how it has been able to edge its gross profit margin towards 40%. In Q3 of 2014, Samsung’s overall profit margin was just 8.7%. If that difference wasn’t enough to scare any would-be TV manufacturer away, consider this. Samsung’s Digital Multimedia and Appliance division, which is responsible for manufacturing TVs, has a profit margin of just 1%. And even in a good quarter, profitability hasn’t exceeded 6% for at least 4 years. Yikes!
Televisions typically live in people’s homes for 8 or more years. Apple thrives on interface and service innovation and an eight year old processor and graphics engine simply won’t be able to render the latest experiences it needs to deliver. Enough said.
Maintaining any sort of differentiation in television hardware is virtually impossible. Curved screens, OLED displays, voice control, super-thin designs, and Ultra HD all were market-leading innovations. Within a year all the major manufacturers had them. And maintaining a premium price for a new feature is also nearly impossible. Consider that 55” Ultra HD TVs were selling for $15,000 at the beginning of 2013. Today, you could easily pay a tenth of that price, or less.
All the action is the cloud
Most meaningful innovation these days isn’t happening in the devices that hang on our walls or sit in our back pockets, it’s happening in the cloud. Features like voice recognition, search, and even the apps themselves are implemented as services running on servers that live in the cloud. For example, maybe you think the Charter or Cablevision TV guide your looking at on the television is an application running on the set-top box in your home. Actually, it’s an app running on servers in the operator’s private cloud.
For a static device like a television that sits in the connected home it makes much more sense to implement advanced features in the cloud.
Everything meaningful can be done with Apple TV
The market for television services has changed a lot since Apple TV was first released in 2006. Back then, not being able to integrate pay TV into the experience was a serious drawback and SVOD services were thin on the ground. Today, the situation is very different. SVOD services are plentiful and even premium cable brands like HBO are available outside of the pay TV bundle. Add to that, Apple is working on its own live streaming service which it can bring in to the mix. The rumored update to the Apple TV box should bring Siri search, iTunes store, games and more. All that’s required is Apple’s deft touch with the interface and experience and life without cable might suddenly seem possible for many.
And for that, Apple just might be able to get its 40% margins!
Why it matters
Once again we have confirmation that Apple will not be releasing a television set.
Poor margins, long TV lifecycles, hardware commoditization, the shift to the cloud and Apple TV virtually guarantee there never will be an Apple television.
The refreshed Apple TV plus Apple cloud TV service could mount a serious threat to traditional pay TV.