Amazon Fire TV Sticks. Photographer: Al Drago/Bloomberg Well over a decade ago, after bringing the iPad to market and starting the search for a new product category, Apple Inc. explored developing a TV-like device. The idea was to make something with a huge display that could be nestled into a stand for TV viewing, but also serve as a touch-screen Mac or giant iPad if needed. It would have been a bit similar to the old-school Microsoft Surface (now known as the PixelSense) — something that could handle media, videoconferencing and even office work. At the height of Apple’s ambitions, it hoped the device would turn the industry on its head like the iPhone did years earlier. Teams at Apple built full-scale prototypes, crafted user interfaces, and started to contemplate plans for manufacturing and the supply chain. Apple fans, meanwhile, had long anticipated that the company might make a TV set — prodded in part by comments from co-founder Steve Jobs. Though he wasn’t referencing the Surface-like concept, he famously told biographer Walter Isaacson that something TV-related was coming: “I finally cracked it,” he said. The product would seamlessly sync with other devices and the iCloud service, Jobs said, and “have the simplest user interface you could imagine.” But once Apple started to seriously analyze the TV market as a business, work on the the project stopped. The effort never got as far as the Apple Watch or Vision Pro — or even the now-defunct self-driving car. TVs are a low-margin industry, and consumers don’t buy new ones very frequently. At the time, Apple was highly dependent on people upgrading iPhones, iPads and Macs as often as possible (that remains true today, but the company at least has a healthier services business). A low-margin device without a path to upgrades would have been a mistake. Apple also immediately encountered cost concerns, including the expense of air-shipping gigantic panels from factories to warehouses to homes. The company would have needed to develop and produce new chips to power the displays, as well as the input-output electronics. And the project would have required manufacturing facilities for the high-quality screens and adequate supplies of glass. Apple TV announcement in 2015. Photographer: David Paul Morris Given the challenges, it was clear that Apple wasn’t going to replace Sharp, Sony, Samsung and LG in consumers’ living rooms. So the company pivoted to bringing some of the most promising ideas to a new version of its Apple TV set-top box. In 2015, it launched the first model with Siri control, a touch-pad remote, an App Store and the new tvOS operating system. Over time, Apple has added more features: The device now works with 4K televisions and supports FaceTime via an iPhone rear camera. A year after the revamped box arrived, the company announced the Apple TV app. It was designed to offer a single place where users could tap into content from iTunes and third-party services. In addition to the Siri voice assistant, this is what Jobs was referencing when he said he nailed the future of TV. The app eventually became the home for the TV+ and Apple TV channels, where users can subscribe to video services a la carte. After that initial investigation of a TV years ago, Apple never seriously went to work on such a product again. But the itch didn’t quite go away either. In the late 2010s, realizing that the Apple TV box wasn’t a breakout success, the company reached a fork in the road. Apple’s services division was considering bringing its TV app and other content offerings to third-party televisions, starting with Samsung and LG. But before giving away its prized technology to other hardware makers, Apple again evaluated whether it should go it alone and make a TV. It ultimately ran into the same issues it did the first time around and didn’t move forward with the idea. Instead, Apple announced plans in 2019 to bring its services to third-party devices. Since then, it’s only made marginal tweaks to the Apple TV box, tvOS operating system and its living room lineup. That said, some people within the company see its Vision Pro headset as an offshoot of its TV ambitions. And it’s perhaps no surprise that Dan Riccio, Apple’s former head of hardware engineering, led development of the Vision Pro after long advocating for a standalone TV. The Vision Pro is indeed a great way to watch video, and it excels at some of the other tasks that the Apple TV set would have handled, such as communications and doing light computer work. But it’s also an overengineered and overpriced device, and — so far, at least — a commercial flop. It also suffers from the same drawbacks that an Apple TV set would have: low margins, production complexity, limited content and a lack of reasons to upgrade frequently. A customer trying on the Apple Vision Pro. Photographer: Betty Laura Zapata/Bloomberg And yet, Apple’s TV set dream isn’t dead. As I reported last week, the company is back to evaluating the prospect as part of a smart home push. Is it possible that the company actually does it this time around? Well, the economics of the television business haven’t changed. If anything, TVs have become more commoditized, and the business has become even less compelling. And Apple hasn’t grown more willing to take risky bets. For those reasons, I don’t expect management to do anything different this time. But something does need to change. The Apple TV set-top box is lagging behind rival products, and the company’s best video-watching device — the Vision Pro — is years away from being a consumer hit. Instead of a full set, the tech giant should create the building blocks for an Apple living room setup. That starts with making an HDMI streaming stick that can rival the Google Chromecast and Amazon Fire TV Stick. Those devices now sell for under $50 and are capable enough to run full operating systems. If Apple offered a cheap and quick way to access tvOS, the App Store and services on any TV, it could quickly create a foothold and increase its services revenue. As it stands, the company makes little to no money in Apple TV hardware. The devices don’t fetch the kind of 40%-60% margins that Apple sees in other categories, and it’s hard to command a premium price. Though the latest model costs 30% more than the $99 original Apple TV from 2010, the company has been looking to cut the cost to stay competitive. The best scenario for Apple in TV hardware would be a cheap stick (perhaps with no physical remote — use your iPhone instead). It’s an idea that Apple marketing executives detest, but it would help the company quickly expand its presence. If consumers want more power and storage, they can opt for the current box. At the top of the line, Apple could offer something like the new Mac mini, providing the best streaming quality and gaming options. For this exercise, let’s call these three tiers the Apple TV SE, Apple TV and Apple TV Max. It would use the same “good, better, best” strategy employed by the iPhone, Mac, iPad, AirPods, Apple Watch and even the Apple Pencil. Apple could then augment this new central hardware with accessories. It recently began allowing dedicated cameras to use FaceTime in tvOS, something that could be extended to a HomePod smart speaker or a sound bar with a built-in camera. And everything would be controlled by the company’s upcoming iPad-like smart home device, which is designed to be the central command center for modern households. It would be a roundabout route to taking control of consumers’ living rooms, but Apple could finally get there. |