Market Insight

Amazon’s Fire TV: suddenly, the streaming box market is a 3-way race

April 03, 2014

Paul Erickson Paul Erickson Senior Research Analyst, Service Provider Technology

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Fire TV, Amazon’s latest hardware venture and $99, Android-based over-the-top set-top box, is now shipping. Intended to compete against standalone devices from segment leaders Apple and Roku, Amazon’s device contains a robust hardware set, including a quad-core processor, 2GB of RAM, dedicated GPU, dual-band MIMO Wi-Fi, and voice-enabled remote control.

The company explicitly states that with Fire TV, it is attempting to solve complaints about competing boxes surrounding their closed ecosystems, sluggish performance, difficult user interfaces, and cumbersome search tools. On the media side, the device supports Amazon’s own applications, its video ecosystem – Instant Video – as well as numerous popular services including Netflix, Hulu, Watch ESPN, and Showtime Anytime.  With regards to content search and discovery, voice-based searches are combined with a learning-enabled personalized recommendation engine. The device’s suitability for Android-based gaming is also being marketed heavily, with separate game controllers available for purchase to enhance the gaming experience. 

Our Take

Fire TV is first and foremost the next hardware-foothold in Amazon’s strategy to expand as widely as possible the potential market for its products and services. Due to its support for numerous 3rd party content services, its integration into Amazon’s broad media ecosystem, and its integration with Kindle Fire HDX tablets, the Fire TV remains a mainstream-friendly Trojan horse for driving consumption across Amazon properties.

The device’s competitive positioning is best understood in the light of its price point, its content offering, the user experience afforded by its raw hardware capability, and its relationship to the Kindle Fire.

Relative to its Kindle Fire brethren in the broad tablet space, Fire TV has the potential to hold greater mainstream appeal in the far smaller, OTT set-top segment that it occupies. While lack of access to core Google services and to the open Google Play app market is a significant drawback in the Kindle Fire tablet series, the Fire TV competes in a space where expectations of openness simply matter less. As long as Amazon offers access to a majority of in-demand content services, app curation on the streaming box will likely be perfectly acceptable to most consumers.

Another critical distinction from less successful streaming boxes such as the Logitech Revue and the Boxee/D-Link is the Fire TV’s price point of $99. Both Apple TV and Roku – the two leaders in this market – priced their systems below $100, while failed systems cost considerably more. While IHS has not torn down the Fire TV, its Bill of Materials cost will almost certainly keep the system profitable on the hardware alone, despite its impressive set of specifications, including the HD processor.

On the hardware and content side, the device profiles strongly. In part, this is attributable to the fact that the Fire team regroups many former Logitech employees who were involved in the failed Revue Google TV set-top box; lessons learned from that failure have likely been translated into a more curated, refined Fire TV experience.

At a content level, Fire TV is more or less capable of serving as a credible alternative to Apple TV, and Roku. The subscription-based usual suspects – Neflix; Hulu Plus – are common to all three devices. For Amazon Prime subscribes, Amazon’s Instant Video is increasingly positioned as a Netflix alternative, although the content line up is appreciably smaller, and the growing quantities of investment in original production from Netflix, Amazon and Hulu mean that the landscape is increasingly becoming more like US Premium pay TV, where one offer simply stands-in as a substitute for another. On the transactional video side, Apple TV serves as a gateway to iTunes, Fire TV provides access to Instant Video for non-Prime households, and Roku offers Vudu, M-GO, and Instant Video as well. This leaves the Fire TV at a disadvantage relative to the Apple TV as iTunes continues to have the most developed transactional video offer in the US. And while the lack of M-Go and Vudu are unlikely to matter much to consumers, the absence of HBO Go may well count against Amazon. Nonetheless, given Fire TV’s inclusion of the usual suspects, and its tie-in with Amazon Prime – as of year-end 2013, 6.8m Prime subscribers use the video offer in the US – the proposition is relatively compelling.

At a hardware level, while Apple TV is rumored for a refresh this year, the Fire TV contains powerful innards compared to its current competitors, and is likely to enjoy speed advantages in both user experience and app execution. Voice searching is clearly a unique feature of the Fire TV. However, based on prior attempts in the Smart TV and console gaming space, it remains to be seen how well consumers respond to this functionality in the Fire TV. Should the recognition capabilities prove natural and robust, this may materialize over time as an advantageous feature of the Fire TV user experience, particularly when matched with Fire TV’s recommendation engine and pre-emptive content queuing feature.

The joker in the deck here is Chromecast. Given that Google has already moved over a million Chromecasts since its introduction 7 months ago, it would be a mistake to discount the device’s current and future positioning in the market. In the US – Fire TV’s exclusive launch market – Fire TV will be competing not in an Apple-Roku duopoly, but in a 3-firm market. In the UK, in addition to Apple TV, Roku, and the recently-launched Chromecast, Fire TV will also bush up against Sky NowTV box. What is not yet clear is whether Chromecast’s price, at $35, allows it to complement streaming set-top boxes, or whether sales of the dongle mutually exclude the purchase of an Apple TV, Roku, or Fire TV in all instances.

Either way, Amazon is well-versed in the practice of selling hardware into an already-established market. Based on its price and feature set, and Amazon’s popular, healthy content ecosystem, a dangerous competitor has emerged in the OTT box market. For smaller players in this space, there is likely to be little oxygen left in the long run should Amazon’s Fire TV enjoy even moderate success with consumers.


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