How would you like to have a hobby that nets you $1.1 billion (£660 million) in yearly sales? Ask Apple, which recently announced that in 2013, it made over a billion on Apple TV, a product that Cupertino has long referred to as a hobby.
"I guess it is no longer a hobby," Apple CEO Tim Cook quipped at Apple's recent shareholder meeting.
If you do the sums, that means Apple sold about 10 million Apple TV devices. But Cook would not say what the company has up its sleeve for a next-gen Apple TV, which is something shareholders would really like to know.
I was at the D5 conference when Steve Jobs told the audience that Apple TV was a hobby. He hinted that it was something Apple was interested in, but downplayed its long-term role in Apple's corporate strategy. But since then, Apple TV has improved and evolved into a really powerful platform for over-the-top (OTT) content, and provides major links to personal content that is connected to your iDevices and iCloud. It is now a serious business for Apple, and one that has a lot of ramifications for the company's future.
The idea of viewing a product as a work in progress is not a new concept, though the industry does not generally refer to these projects as hobbies. Actually, most companies won't admit that their efforts are a work in progress. A good example is the Samsung Galaxy Gear smartwatch. Samsung was terrified that Apple would be the first to release a smartwatch, so it rushed to market with the Galaxy Gear. It was pretty much panned by reviewers all over the world given its bulky design and relatively weak software. Yet Samsung still sold 800,000 Gear smartwatches last year and just released updated models at MWC in Barcelona. Samsung is clearly committed to the smartwatch category – but this is a work in progress, and was launched to put a stake in the smartwatch market.
Apple is the best at evolving its product lines. Just look at the first generation of the iPod, iPhone, or iPad and you can see them become more polished devices. Apple TV, however, took a different path. I am not really sure if Steve Jobs saw a light at the end of the tunnel when he introduced Apple TV. Apple is one of the most strategically driven companies I know, and with the iPod, iPhone, and iPad it was clear Apple had a powerful roadmap in mind from the day they were launched. But it seems like Apple TV only took root once the OTT market started taking off. While the idea of connecting one's iDevice to the TV screen is a legitimate application, the killer app has been its ability to stream digital movies and other digital content beyond Apple's own content ecosystem.
So now that Apple TV is a real business, where does it go from here? I don't believe Apple is making an actual television set, despite Jobs telling biographer Walter Isaacson that he wanted to "create an integrated television set that is completely easy to use." While Apple could do an actual TV as a showcase device, the real market opportunity is to retrofit or equip existing TVs with Apple content, apps, and services. Ideally, it will work better with Apple devices, but I know many friends with Android or Windows Phone devices and Apple TV, and it works fine for them as is.
What is important to realise about Apple TV is that it has now become a serious platform that could unleash a lot of new opportunities for Apple and developers within the home. I suspect that at the moment Apple is working hard on things like user interfaces, an SDK for developers, content ecosystems, and marketing and channel campaigns that go well beyond a hobby stage.
Keep in mind that once Apple really gets behind a product it wants to take to the explosive growth level, Cupertino makes sure that it has its ducks in a row. When Apple takes this to the next level, it will be a full-blown platform that completely changes how users interact with the TV.
So how soon will we see Apple's next big thing in TVs? Tim Cook has gone on record several times saying that he is excited about the new products Apple has in store, and suggested that this could be a big year for new products from Apple. I suspect that is true for new iPads and iPhones, for sure. As for a new Apple TV or even an Apple smartwatch, Cupertino will not do anything unless it is truly ready for the market regardless of calls from shareholders or the media.