After Xbox 360, Will Apple TV Have a Chance?

January 11, 2007, 10:45 PM by Scott M. Fulton, III

Scott Fulton, BetaNews: By the way, the other Apple announcement from Macworld that had some impact on CES this week concerned Apple TV, the company's new midrange set-top box. With as powerful a statement Microsoft made on Sunday with its Xbox 360 revision - more powerful, many feel, than its case for Windows Vista during the same keynote - Apple's introduction, tucked between its boosted statistics for iTunes and its iPhone revelation, seemed somewhat muted, perhaps an afterthought. Or perhaps it was just me...and a few million others who were expecting the company to make a bid to change the face of mobile communications.

Carmi Levy, perhaps like you, last Tuesday, I got my information second-hand from a blogger at the scene of Macworld, and I got the feeling that as he was going through the iTV announcement, the blogger was going, okay, 720p...yadda, yadda, yadda...come on, let’s get to the phone!

Carmi Levy, Senior Research Analyst, Info-Tech Research: Yea, it was certainly eclipsed, although interestingly, in the long run, it might very well be the most significant of these announcements.

Scott Fulton: If not a home run the other day, Microsoft scored a double or a triple with the Xbox 360 as set-top box concept. That’s hit a couple of nerves, and caused the STB manufacturers to sit up and take notice. I don’t see, at least from what I saw — and perhaps it’s only because of the filtration of the information — as complete a package as Microsoft. Maybe it’s because they weren’t interested in it.

Carmi Levy: I think so. I think Apple just wants to lay its claim to the space, and this is one of those rare cases where this is not even a Version 1.0, because Apple has made moves previously with the Mac Mini, but Apple is kind of quietly moving in that direction, but it is not a full-on assault on the set-top box manufacturers like Microsoft has done with its Xbox...

Scott Fulton: I’m wondering if 720p is going to be bad news for [the Apple TV device], just for the sheer meaning that it’s not really HDTV by the current specs.

Carmi Levy: You’re right, but at the same time, that’s not who Apple is going after, because for $299, you are not going to get a videophile’s dream system or dream machine. Really, what you’re doing is trying to carve out a niche in the consumer space, the populous space, and these are folks who quite frankly don’t fully appreciate the difference between lower grades of HD and higher grades. And so they’re not going to care any more than the audiophiles of yesteryear really cared about diamond-tipped cartridges versus ceramic ones.

Clearly, for $299, Apple is not going after the videophile market. There probably will be some grumbling that they could have gone further, and they could have gone past the 720p, but I think for the vast majority of their target audience who will be purchasing Apple TV, it’s a non-issue for them. This will gateway them into this space, this will likely be one of their first forays of advanced technology in the living room, and this will be an easy way to get started.

Scott Fulton: With the Xbox 360 IPTV, you’ve got people on their Vista machines playing games with people on their Xbox 360 machines separated by indefinite distances anywhere from UNO, as we saw in the demonstration, to Gears of War to any of these big role-playing games, and I’m wondering whether such a large “ecosystem,” to coin a phrase, applies here to the Apple TV model. I’m wondering if there’s enough of a device crossover in the Macintosh, perhaps even the iPhone realm, at some point, to bring them into an ecosystem, or is it just a little bitty economy?

Carmi Levy: I think it’s a little premature simply because Apple doesn’t really have a gaming heritage at all. There is no community out there – there are no Mac gaming enthusiasts, at least not at the same critical mass that Microsoft enjoys both on the PC and on the set-top box, Xbox side. So certainly you’ll have a certain core of Mac users who will look for this capability, will push for it, will trumpet it in their blogs and on their podcasts and on their RSS feeds and wikis, but for the most part, Apple isn’t really playing in that space, and they’re not ever going to compete against Microsoft. Unless something comes along that absolutely shakes up the landscape and results in Apple suddenly becoming a power, a gaming power, I don’t see this changing any time soon. Now I think Apple’s play is more media and content, whereas Microsoft is also a similar play, but Microsoft is going to leverage or springboard off of its strength in the gaming space. Apple doesn’t have that advantage.

Scott Fulton: Well, Microsoft didn’t use to have that advantage, and then it did.

Carmi Levy: They didn’t, but Microsoft rather intelligently invested billions of dollars in the Xbox division, supported it thorugh a first generation where for much of its existence, the original Xbox lost money on every unit sale. And Microsoft was very up-front about that; Microsoft said they would continue to support the platform because they believed it would eventually turn the corner and become profitable and establish its own ecosystem. So Microsoft didn’t turn and run just because it ran into some turbulence up front, and now it is reaping the rewards.

Apple does not traditionally hang on to loser technologies to the same degree. Apple runs – they dropped the Newton, bailed out on its licensing agreement with the clones [e.g., Power Computing] in the mid-‘90s. If Apple doesn’t succeed with version 1 or version 1.5 or version 2, it drops it. Whereas Microsoft has a very different philosophy. Microsoft now has that base on which to build, and Apple does not. So Apple’s going to have to take a very different course.

Scott Fulton: Some would say Microsoft continues to hang on to technology it could have dropped decades ago.

Carmi Levy: Could have, but at the same time, when you are sitting on piles of cash, as Microsoft does, then the rules that apply to you are very different from the rules that apply to everyone else. So Microsoft can afford it, and even if it keeps the stock price suppressed and even if it draws the ire of shareholders and the criticism of the rest of the industry, Microsoft’s response is, “Tough. We’re bigger than everyone else and we’ll do what we want.”

And looking at how so many of these long-term technologies are now starting to turn the corner, Windows Mobile is starting to hit its stride 10 years after the first version of Windows CE hit the market with a thud, and now Microsoft is well positioned with a strong group of partners, great hardware support, great operating system interoperability, great developer support, to capitalize on the newly mobile economy. So it’s hard to fault that kind of logic and that kind of tenacity when the market is finally starting to turn in the direction that Microsoft had always wanted it to go, only Microsoft had that patience to stay the course.

Scott Fulton: Thanks as always for your time, Carmi.