“I finally cracked it.”
Here’s something else I wrote back in 2011. It’ll be relevant until Apple ships a TV, which according to Gene Munster, is any minute.
Four words. Just four words and the Internet is erupting with rumors of an Apple branded TV. Every tech blog and AAPL analyst wants to weigh in on the rumors. The consensus seems to be that we’ll be seeing an Apple branded TV sometime in the calendar year 2012. I’m not so sure. If you put the quote into context, Steve said that he cracked the UI portion of the TV experience, but didn’t say anything about the manufacturing and distribution, which is a whole different set of issues. I’m going to pose several questions that Apple would need to consider before jumping into the flat panel pool. I’m by no means an expert. I’m just asking questions based on my own experiences.
Why?
If you know me at all, you’d know that I love to ask “why?”. It’s perhaps the most important question. The manufacturing and distribution of the rumored “iTV” is no exception. There has to be a reason Apple would make such a move. Being that Apple isn’t a non-profit organization, you have to assume they make decisions that will make them money. Based on their latest earnings report, I’d say they have that decision making process down to a science. So, why would Apple want to produce an Apple branded TV? Considering how they’ve dominated the digital music, mobile phone and tablet industries, TV is the next logical step. It’s an enormous opportunity for them in terms of users. But why make your own TV when the hardware market is so saturated and commoditized? I don’t think they will. Not yet, anyway.
Subsidies
As I mentioned earlier, Apple likes to make money. Their most profitable product is the iPhone. Want to guess why? Spoiler alert: subsidies. When you buy your new iPhone from AT&T for $200, AT&T is paying Apple about $850. Of course AT&T makes it up over the life of the two year contract you just signed, but up front, you’re paying only a fraction of the cost for the actual hardware. Such deals don’t happen in the TV market. DirecTV isn’t going to subsidize the cost of your new Apple flat panel. You’re on the hook for what will almost certainly be one of the most expensive TVs on the market. The more expensive the set, the smaller your potential market is. Not only would there be fewer people to make the initial purchase, but upgrades would likely be much more spaced out. Several people I know get the new iPhone when it comes out. $200 or even $500 for a new iPhone every year is much more palatable than $2,000, or more. However, I think this is the lesser of the challenges. Historically, Apple has chosen to remain in the upper end of the price spectrum. Only recently have they been able to leverage their enormous buying power and translate it into lower prices. I think there would certainly be a huge market for an (expensive) Apple branded TV. Apple’s goal wouldn’t be to ship as many TVs as they can. They would undoubtedly approach this category just as they’ve approached the personal computer, digital music, mobile phone and tablet categories. They’ll make the best product they can and people will either buy it, or they won’t. If I had to guess, I’d say demand wouldn’t be a problem.
Retail
Apple’s retail business is an enormous focus for them. With over 300 stores all across the world, they’re seeing record numbers of visitors and generating billions of dollars annually. Needless to say, Apple retail stores are the preferred channel to sell to customers. They allow people to go in and actually experience what makes Apple products special. They provide face to face interaction with the experts and people that are (mostly) excited about Apple tech. I can’t think of a single store that comes even close to reproducing the level of excitement you feel in an Apple store. All that said, does selling flat panel TVs fit in with their current retail model? I don’t think it does.
If Apple wants to be taken seriously in the TV market, they must make big panels. A rumor surfaced earlier this week that Apple was readying 32” and 37” panels. Ridiculous. Apple will go big or go home. Unlike the smartphone market, when you’re talking TVs, bigger is absolutely better. That said, would Apple be able to properly display large flat panels in their store? Possibly. As of right now, the largest box Apple stocks is for the 27” iMac, which is about a quarter the size of a 55” or 60” flat panel box. If Apple wants to sell these things in the stores, where are they going to stock them? Forget stocking them, how the hell are they going to receive them? I work for a company that distributes a ton of flat panels so I can tell you from experience that they take up a lot of space and taking delivery usually requires a full-sized dock…which Apple stores don’t have. Let’s say you get them in the stock room. Several Apple stores are in malls. Are you going to put a 60” TV on a cart and wheel it through the mall, all the way out to your car? If they don’t stock them in the stores, how would Apple distribute them? Would they rely on Amazon? Not likely since Amazon is steadily encroaching on Apple’s space with the Kindle Fire and their own growing content offerings. Will they partner with Best Buy? Maybe. Apple already has mini Apple stations inside of several of Best Buy’s stores. But again, Apple retail stores are the pride of the company. Why would they give a third party first dibs on what would surely be the hottest iDevice since the iPad? They probably wouldn’t. Apple could opt to sell them through their own online store. But who wants to go into a store, see a beautiful TV and not leave with it? Even for such a big-ticket item, TVs can be impulse buys. If not an impulse buy, they certainly trigger the instant gratification urge.
Let’s assume Apple manages to sell one or two of these things. Once the customer gets it home, who’s going to hang it? Is Apple going to create their own Mobile Genius Squad? Since Apple’s so famous for controlling almost every aspect of the user experience, it’s reasonable to assume that they’d want to make sure someone qualified installs it in the customer’s home. What about service after the sale? Once one of these things has been hung on the wall, who’s responsible if it breaks? Will Apple send an Apple employee out to the house to service it or will they rely on (mostly shitty) traditional TV service centers? All this really means is that Apple’s retail strategy would have to take a pretty drastic shift to fully support the “iTV” in the same manner they support the rest of their products.
So what will they do?
Who the hell knows? This is Apple, after all and not knowing is part of the fun. Apple has some of the brightest minds on the planet at their disposal and will use them to make the best gear possible. They could look at a TV set as a loss-leader (which would be highly irregular for Apple), much like other manufacturers do. The only difference is Apple would use it as an avenue to sell more music, TV shows, movies and hopefully apps. They already have the best ecosystem for digital content and they could use a branded TV to make that stranglehold a little deeper. But considering the challenges laid out above, it might not make sense for Apple to dive all the way in just yet.