Amazon’s plans for getting into the over-the-top (OTT) set-top box game in time for the holidays have apparently hit a snag.
The company was angling toward a holiday release of its own branded streaming standalone box, according to reports that stretch back to April and a report in Businessweek. The idea is to offer built-in access to an à la carte video on demand (VOD) store, which features newer films and TV shows, while showcasing Prime Instant, which offers a range of streaming TV and movies as part of an annual $79 membership.
The Wall Street Journal, citing "people briefed on the company's plans," recently clarified the timing to be Q4, and said that the box would be a Roku-like box, which like the Kindle e-readers will be built on a customized version of Android. As such, the device won’t just showcase Prime but will allow third-party apps.
The WSJ also noted that Amazon's STB plan "could be shelved or delayed due to financial performance or other considerations.” Now, the Verge reports that the company has indeed decided to delay the device, possibly beyond the holiday season—though it doesn’t provide details as to why.
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Amid the hubbub, it’s worth asking whether a STB is the right strategic play for the e-tailer. Consumers already have a lot of options for third-party set-top boxes, all of which offer a different user experience outside of the cable/satellite/IPTV hegemony: Apple, Google, Roku, Boxee and even the venerable TiVo are in the market with their own TV “special sauce.” So how would Amazon’s approach make its mark?
For one, sources told the WSJ that it could provide a physical platform through which Amazon can sell cloud-based gaming and "expand beyond its core online marketplace business.” And, Amazon could provide "a truly complete package of streaming sources." Amazon has been also been knocking on the doors of media app developers and cable operators who might want to tie in to the device, the report said. Absent that, the strategy provides direct-to-TV hardware to enable Amazon's OTT TV service to bypass the current reach of secondary platforms (like game consoles) on which Amazon's apps are preloaded.
Not everyone is as bullish as Amazon itself. There are a number of flaws in the plan, according to Michael Greeson, analyst at the Diffusion Group. "There is little chance that an Amazon iSTB will approach the reach of these 'secondary platforms,' a truism Netflix acknowledged years ago," he wrote in a briefing. "Unlike other early OTT entrants, Netflix stopped to ask why in the world would anybody want to add hardware costs to a thin-margin OTT service that can ride on the hardware of others. The results of this decision speak for themselves."
He added: "Just ask incumbent pay-TV players how nice it would be not to have to subsidize their set-top boxes. And that's what this will end up being, a subsidy, as Amazon sells its hardware at break-even or below so that it can sell its services."
Amazon's core business is and will be online mass merchandising. And the purpose of vertically integrated hardware products, like the iPhone/iPad/iPad touch, is to provide platforms through which to sell services and merchandise. It's not about the hardware itself, as Apple has demonstrated by making much more money off of apps than any of its iProducts.
The issue is that Amazon is already leveraging third-party hardware to accomplish the same thing, he believes. "Cloud-based game services reduce games to apps on a myriad of secondary platforms, so this offers nothing unique for Amazon," Greeson said.
Also, if its purpose is to become an aggregator of content from multiple sources with a differentiating user interface, for that "complete" set of OTT content, then it distracts Amazon from its goal of pushing its own offerings. And if it prioritizes its own fare above others, then it diminishes how compelling the device will be for consumers.
"The issue is how creating a meta-service above this diverse set of content to help organise and improve the user experience," Greeson said. "Roku has done well executing on this vision, and that's what takes: execution. And let's be honest: Amazon may allow in other third-party apps, but will most certainly preference its own content."
The operator plan is likely to fail as well, as unsuccessful efforts to do the same thing by Apple, Roku and lately Intel show. Overall, Amazon should toss the hardware idea and vigorously pursue a Netflix-like embedded app strategy, concluded Greeson.
So perhaps a delay is not a bad thing for Amazon. "It must focus its efforts on differentiating its service from Netflix, not wasting millions on rolling and supporting a new iSTB," he said. "Keeping the video service tied in some way to the larger mass merchandising market vision is critical, and this was accomplished in part by tying the service to Prime membership (very smart move). Nonetheless, it is important to remember the end game, not get overly distracted by a new toy."
Edited by Alisen Downey