- In the U.S., Microsoft sold 960,000 Xbox consoles and 750,000 Kinect sensors
- Xbox is selling more units because the available content has gotten drastically better
- Microsoft's TV strategy so far has been best, but Apple could still pull a rabbit out of its hat
"The problem with innovation in the television market is the go-to-market strategy," Steve Jobs told Hillcrest Labs' Dan Simpkins at the D8 conference in 2010.
"It's not a problem of technology; it's not a problem of vision; it's a fundamental go-to-market problem."
I don't think Jobs was trying to throw Apple-watchers off the track with a coy answer. I don't think we've taken this problem seriously enough when it comes to the future of television and living-room entertainment. And I don't think either Apple's current set-top box approach or the endlessly renewable speculations about a fully integrated big-screen Apple television set solve this problem.
The best approach we've seen to this problem, and the best approach we're likely to see for some time, has been Microsoft's efforts with Xbox 360. I want to explain why I think Microsoft is beating and will continue to beat Apple in this space. Then I want to outline what Apple would need to do differently in order to beat back Microsoft, Sony, Google and all other contenders if it wants to conquer the living room.
Xbox is winning because of content, not Kinect
For me, a light bulb went off when I saw Microsoft's Black Friday sales numbers for Xbox 360 and Kinect. In the U.S., Microsoft sold 960,000 Xbox consoles and 750,000 Kinect sensors, including both standalone units and bundled with Xboxes.
It was Xbox's biggest week ever; mighty impressive for a six-year-old game console likely to be displaced by a next-generation model in a year or so. But the total numbers are less interesting to me than the spread between them. It means there are at least 200,000 people, and quite possibly hundreds of thousands more, who are buying brand-new Xbox consoles without Kinect.
As ZDNet's Mary Jo Foley writes, "who is buying all these Xboxes?" Are they gamers disaffected with the PS3 and Wii? Xbox superfans who want a second unit for the bedroom or basement? Media center shoppers who see the Xbox as an upgrade over the Apple TV or Roku boxes? Or Black Friday crazies who don't know any better?
The mix doubtlessly includes all of these. But it suggests to me that Xbox's growing popularity has less to do with Kinect than we might think. The emerging market isn't being driven by the attraction of new user interfaces. It's extremely price-sensitive, and it's fundamentally driven by the availability of content. And that includes content of all kinds, from movies to gaming.
Xbox is selling more units because the available content has gotten drastically better. On Twitter, Joystiq's Chris Grant writes that "six years after the launch of Xbox 360, we're seeing games really push the thing: Gears [of War] 3, Rage, Crysis 2. They all look incredible." And now, software updates bring live and on-demand TV content from both cable programmers like HBO and cable companies like Comcast and Verizon, plus a slew of other features that integrate all this content.
The fundamental mistake of Apple-watchers (and almost everybody else)
The major mistake made by most gadget reporters and future of technology speculators is drawing too close an analogy between smartphones and smart televisions. We've assumed that the next generation of televisions would have a silver-bullet user interface, as gesture-enabled touchscreens were for smartphones. And every time a new user interface comes along, whether it's Microsoft's Kinect or Apple's Siri, we argue that it's the future of television.
As a consequence, we've misunderstood television's user interface problem. It's not really about too many cables and too many remotes, as annoying as that can be. It's really about having the right kind of user interface for the task at hand.
That means pluralism, not minimalism. It means that remote controls and game controllers, with all their ugly buttons, aren't going away, because they're actually quite good at what they do.
Instead, they'll be connected to and complemented by specialized interface devices like cameras, microphones, and touchscreen smartphones and tablets. These will take over some functions, introduce new ones, or even duplicate functionality.
It's not one ring to rule them all. It's e pluribus unum.
What will Apple do?
Let's be clear; we don't know what Apple is going to do. So when I say "Apple is wrong," I really mean that the conventional wisdom about what Apple will do is wrong. If true, it's the wrong strategy to bring a product to the market. I also have my doubts that this is what Apple will actually do.
Piper Jaffray analyst Gene Munster, who's been beating the drum like mad for an integrated Apple TV since at least early 2009, thinks he knows exactly what Apple will do, telling audience members at the Ignition conference that they should wait to buy a new TV set until Apple releases its own in 2012. (Note: On Wednesday, I called and emailed Piper Jaffray to ask for a copy of Munster's full analyst report and an interview, but they haven't responded; I'm unfortunately stuck with relying on secondhand accounts.)
In 2009, Munster thought the Apple TV set would be a large HDTV and would sport a built-in Cable Card and DVR, and replace both the cable box and TiVo; now, he thinks it will come in many different sizes, will still require a cable box, and will be controlled by Apple's new Siri voice/AI technology.
Munster also thinks that Apple TVs will be priced at roughly twice what comparable "dumb" TVs would cost; i.e., if a 40″ LCD TV costs around $1000, a 40″ Apple TV will cost $2000. In this way, Apple will be able to both pack serious tech into the guts of the TV set and turn the high-volume, low-margin business of selling TVs into something closer to the high-margin, high-end computing product market that has propelled it into the most profitable tech company in the world.
I think Munster's argument has become more or less the conventional wisdom for what Apple will do next with television. This was reinforced by Jobs' statements about his vision for television to his biographer Walter Isaacson. (If anyone else has articulated a better or radically different vision or interpretation of what Jobs meant, please let me know.)
Now, I think this conventional wisdom is wrong for a handful of reasons.
It's the wrong price for the market. The bulk of television buyers are extremely price-sensitive. I know, I know; mobile phone buyers were (and are) price-sensitive, too. But 1) people replace their phones a lot more often than they replace their television sets, and 2) the iPhone didn't take off when it cost $700, but when it cost $200. Likewise, the MacBook Air didn't take off when it cost $1800-$3100, but when it dropped below $1000. If an Apple TV costs double its equivalent, it's like the Mac Pro, or the first Apple TV; a specialty product, a marker, a hobby. I think Apple is through with hobbies.
It doesn't match Apple's strategic trajectory. Now, a premium television set could be a strong, profitable product. And Apple could start at a high price and gradually work to lower the cost and bring it to more customers, like they did with the iPod, iPhone or MacBook Air. But this seems more like a move Apple would have made ten years ago, or even four, when its products didn't have great market share, and its customers were overwhelmingly concentrated in the U.S., where it sold premium computers to a dedicated base.
Everything Apple's done in the last three years has been moving in the opposite direction. So has the market for HDTVs. I don't think either of those will backtrack easily. And if they do, it's actually a step backwards, not forwards. If Apple's going to succeed in television, I think it will be by surprising everyone like they did with the first iPad: by bringing in a product right away that's both inherently compelling and priced much lower than everyone expects. That will also keep copycat products from Google, Sony, Samsung or whomever at arm's length.
It's the ecosystem, stupid. The iPad was a success because it stood on the shoulders of the iPhone, the iPod Touch, the rejuvenated Mac lineup and the iOS App Store. At this point, Microsoft is trying to go in the other direction, borrowing elements from Xbox to drive interest in Windows Phone and Windows 8. In order to succeed, an Apple television set will have to employ the same kind of leverage. Only part of this can be the networked interaction between Mac and iOS devices or even apps common to all of them.
We've written before about the role Apple's iPods still play as a gateway device to the iPhone, iPad and Mac. It's been easier for Microsoft to drive content agreements for Xbox because it can point to its fifty million units. Apple needs to do something similar for TV. iPads are part of that, but so is that little Apple TV box.
If Apple introduced a new television set, don't be surprised if they also overhaul that little box, but with much greater capabilities. It's the iPod; it's the Mac Mini; it's their best chance to quickly turn an ecosystem of millions into tens or hundreds of millions.
A cool interface will not save you. Siri is remarkable, and over time, I can see both its voice interface and AI elements playing a huge role in search and commands on the television. But just like Kinect, Siri alone won't get it done. Munster argues, and I agree, that the UI will have to incorporate and accommodate a mix of remotes, voice and touch control.
The problem is that still doesn't get you applications like group chat or any serious gaming. You can wave around an iPhone or iPod like it's a Wiimote, or play Angry Birds on a big screen. But if you're otherwise still stuck plugging in your Xbox or Wii to the new Apple TV, aren't we just back to the cords-and-remotes problem again?
Xbox solves this problem with some elegance; Kinect gives you motion and voice, remotes give you familiar interfaces that work for 80% of you want to do, paired smartphones give you added versatility, and wired or wireless controllers give you complete control for serious gaming. It's easy to forget how huge the gaming industry is, and how closely it's become tied to television, the broader world of entertainment, and global markets.
But Apple hasn't forgotten. They know how exactly how many games they sell for iThings. They have to deliver something that takes advantage of that opportunity.
You have to deliver compelling content. Google tried to make a software-driven TV with a snappy interface that hooked into a cable box. Content makers and intermediaries balked. Google TV was stillborn, and the company's now mulling getting into the cable business itself. Apple is and always has been much better at dealing with the entertainment industry than Google.
But its content strategy isn't as clear as Microsoft's, which has been willing to partner with anybody and everybody to bring movies, televisions, games and applications to Xbox.Does Apple continue on with iTunes a la carte model? Does it switch to a subscription model? Does it partner with the cable companies or try to route around them?
Either way, you're stuck with the two problems Jobs identified back in 2010. If you partner with cable providers, you're stuck with the fact that there are no truly national providers in the way that there are national cellular carriers. If you try to disrupt cable providers, you have to overcome the inertia that comes with a subsidized cable box, and that tangled mess of cords and remotes once again. There are no good moves here; Microsoft's strategy so far has been the best. But Apple could always pull a rabbit out of its hat.
Microsoft has been more successful at partnering with telecom operators like Comcast and Verizon because it already has a large installed hardware base and because it has software developers who can work with content companies to create compelling Xbox-native experiences. It's also not limited to the domestic market, but can roll out content partnerships globally. That's where Apple needs to get in order to bring a comparable product to market.
I fully believe that Steve Jobs did have a vision for how he wanted television to work. I believe Apple has the technology to bring that vision to fruition. But remember where we started: It's not a problem of technology. it's not a problem of vision. It's a problem with the market.
There are two ways to read Jobs' now-famous line about television, "I finally cracked it." The first is exuberant, a promise of an achieved future en route to delivery. The second is wry, ironic, wistful: the pronouncement of the consummate salesman who knows exactly what he wants to do, but also that he doesn't have enough time to bring it all the way home.
The opinions expressed in this commentary are solely those of Tim Carmody.