In his biography of Steve Jobs, Walter Isaacson detailed a conversation with the late Apple CEO in which he says the company nailed interactive TV in the way of UI, content, and hardware. Although he did not announce any new products, he basically laid the groundwork for a lot of speculation as to what Apple might do regarding TVs in the future.
Most theories suggest that Apple is going to make an actual television, and that it might even be out sometime in the next two years. Others interpreted Jobs' reference to mean the current Apple TV will become a greater vehicle for content and UI innovation.
Over the last two weeks, Apple has made some very important – and to us long time Apple watchers, curious – moves. Over in the US, it added Hulu to the Apple TV line-up, and let Amazon release its instant video streaming app for the iPad. I say that this is a curious development because these products compete directly with Apple's own iTunes store and, in theory, will impact its services revenue.
While Apple could still make a physical TV, I think this move incorporating Hulu and Amazon is very telling of Apple's future TV strategy. The key here is that for Apple's current TV device to make money, it needs content. By biting the bullet and offering competing services to iTunes, the value proposition of an Apple TV device rises. Apple can now accelerate its TV plans through areas it excels in, namely software and human interfaces. I believe that the company can do all that it wants to do in these areas through an external box that connects to a TV and delivers iTunes and its cloud services.
The problem with TVs is that people buy them and hold on to them for five to seven years on average. While Apple could design a TV that could be upgraded in terms of software, it makes more sense to create a sophisticated box that works with all televisions and allows the company to innovate around this model.
More importantly, as technology advances, Apple could redesign the box every year or two and, given its low cost, people could just upgrade to get these new features. That is what the Cupertino firm does now with the iPod, iPhone, and iPad – and it makes sense to carry that business model to the Apple TV, too.
While Apple is no doubt a hardware and software company, it is pretty clear to me that the software exists to help sell hardware and ultimately deliver a lucrative ecosystem of products and services.
I am not sure how much margin it has with the Apple TV box, but knowing Apple's way of thinking about margins, I believe that it makes enough profit to keep its "hobby" going. This buys time to innovate around the software UI and services that make these boxes very valuable to Apple customers and attract new users.
Also, Hulu debuted on the iPad in the States before its migration over to Apple TV. It is only a matter of time before Amazon's streaming service shows up on Apple TV as well. Apple knows content is king and that it helps sell hardware.
As I stated earlier, Apple could create a standalone TV, but I would be highly surprised if it did. Instead, I believe Jobs and his team saw the long-term evolution of what the external Apple TV could become. This box, tied to advanced UIs and innovative services with content that is at the centre of Apple's vision, can revolutionise the interactive TV experience.