The real apple tv is coming

In the last week there have been a few stories in the blogs about the upcoming apple tv. The one with a real LCD screen and not the size of a hockey puck. It was supposed to be one of Steve Job’s last projects.

With internet enabled TV’s here apple has to get into the business or face seeing its iTunes store become irrelevant with the resulting risk to its iOS device core businesses.

Here are my predictions. It will be introduced early next year or 2013 at the very latest. I think 2012 because there are leaks going to the blogs already. Expect to see the hype intensified in the next few months. It’s going to cost approximately what the competition costs. Expect full iTunes integration along with air mirror or whatever it’s called.

Here is where I think it’s going to turn the industry on its head. I predict the upcoming apple TV will come with it’s own network access via Lightsquared Networks. This will solve the problem of having to pay for Internet access on top of your TV content. This will allow to bypass the cable pipes and deal with the content creators directly. And I think that Comcast and Time Warner will go along as well because it will save them a lot of capital expenditures in upgrading their networks.

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How Apple will disrupt the game console market

I have read of rumors of Apple entering the video game console market this year but I don’t really believe any of them. The financial details of the business are not something that Apple likes and it is hard to enter an existing market unless the current players are not serving a market need. Mac sales took off after the Vista OS caused an unprecedented level of hysteria about rolling back to an older operating system. The original iPhone had a killer web browser and GUI for interacting with the device.

Then I read this article this morning and it got me thinking. The current game console business involves years of R&D, the release of a powerful system that is initially sold at a loss which is then made up by a tax on game sales. Historically the average time between console releases has been 5 years with the older model selling for another year or two after the release of a new model. The X-Box 360 and PS 3 may buck this trend due to the release of the PS Move and Kinect which are killer products for interacting with a game console. In the past the standard for measurement of a new console has been graphical horsepower, the new fad is how you interact with the product as well as content consumption.

From a technical standpoint a traditional game console is a box with a powerful processor and dumb controllers to send commands to the box. If you want to play at your friends’ homes you have to take some storage with you for the game data, controllers and the game.

But what if someone were to change this? What if someone were to make a small and cheap box to receive the data from the processors and display them on the TV and the console along with the controller will always be with you? And instead of a 5-10 year life cycle what if the devices not only had a 2-3 year life cycle but each year the processing power of this handheld console increased by a factor of 5, 7 or 10 as new models are released. And what if the games for this console cost $10 or less compared to $60 for the traditional console.

Yes, i’m talking about the Iphone, the iPod Touch and the iPad along with the Apple TV being used to display the picture. The current theory is that these devices compete with the handheld gaming devices sold by Sony and Nintendo, but I don’t agree. I think that Apple has a clear plan and road map to disrupt the home entertainment landscape as we know it. The Apple TV is the current dumb terminal in the Apple ecosystem. It displays 720p which is the current standard for console games. The Iphone, IPod Touch and Ipad are the handheld game consoles. The cost ranges from $199 to $829 with a cell phone contract being required in some cases. The current CPU power of the A5 may not be as powerful as the X-Box 360 but the power of ARM CPU’s as well the GPU’s that Apple ships with their products is increasing every year with 2012 being the year where ARM is supposed to reach parity with the current generation of consoles. There are also the issues of depth, replay ability and multiplayer with the game consoles winning on all counts.

But what if you look out 3-5 years? Flash storage is becoming cheaper every year and soon we will be carrying over 128GB of flash everywhere we go. Samsung and other companies are building new factories to produce Flash storage with ever small circuits. This will enable iOS games to become longer with deeper story lines as well as give people the ability to carry their games with them everywhere. Wifi and cellular networking in your gaming device will bring new dimensions to multi-player games. People will be able to play a game during lunch break at work or on the train back home. There will no longer be a need to schedule a multi player session since everyone will have their console with them and the network infrastructure is everywhere. Apple’s Game Center will also grow and mature to become an X-Box Live competitor.

I think that in the coming years we will see Apple disrupt the game console business as they have disrupted other businesses. I don’t even think that Apple has to reach processing power parity with the current game console players to disrupt their businesses, just the perceived value of the products in the eyes of consumers. At some point in the near future the processing power and storage of these devices will be so great that most people will not buy multiple consoles and some will not buy any. As the installed base of iOS devices grows into the hundreds of millions publishers will be able to sell games at cheaper prices than traditional consoles.

Just think about this for a minute, if you buy a Playstation 4 or X-box 720 for the $399 price what do you get? You get a box that can play games that cost $60 each. Since the games are so expensive you spend a lot of time reading the reviews to only buy the better games and keep your purchases confined to holidays and special occasions. You also get the ability to watch DVD/Blu-Ray, listen to music, and stream some TV and movies depending on which product you buy. If you buy a $199 iPod Touch for your kids you get a device that can play games that range from free to $15 anywhere, surf the internet, receive email, help with home repairs, help your child in school with tens of thousands of educational apps, read books, listen to music, play movies, monitor health statistics, text via imessage, sext with friends, and look cool in front of other people. And what if this device was 50% to 80% as powerful as the traditional game console with cheap games?

My prediction that the lower cost of Apple devices combined with the lower cost of content and shorter release cycles will disrupt the game console industry and cause the weaker companies to exit the market. My prediction is that Sony and Nintendo will exit the hardware console business just as Sega did so many years ago. Microsoft’s plan to make the X-Box into a complete home entertainment system with the ability to stream live TV is what I believe will allow them to stay in the living room. I believe that over the next few years the history of the last few decades will repeat itself. Cheaper mobile devices that offer more value than stationary devices will gain market share and the market for stationary legacy products will decline.

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Amazon cannot survive without the Kindle

This week Amazon announced their new line of Kindles including the flagship Kindle Fire. It seems everyone is wondering how or why they can sell it so cheap and how they will make up the $10 or $50 loss per unit.

I don’t think the loss per unit is important or if they will even make money on it. I think that Amazon can’t survive without a Kindle. Selling books, music, games and movies is a core Amazon business. It’s the main reason many people buy anything from there at all. 15 some years ago when Amazon first started as a company these products were fairly open in that anyone with eyes could read a paper book and the devices used to play back games and movies were fairly open as well. A Toshiba DVD player played back any DVD just like a Sony model.

Fast forward to 2011 where we have MP3’s, Spotify, Pandora, protected AAC, iTunes movies, Amazon digital movies, Netflix streaming, Vudu, Zune and other “cloud” services of which there are too many to name. They sell the same content with the main difference being that in this day and age the content is locked down to specific devices, applications or services. A copy of Transformers bought from iTunes won’t play on any DVD or Blu ray player. Same with books with the main platforms being kindle, nook and ibooks. A book bought from amazon can’t be read in ibooks or on a nook.

Consumers are buying these digital products and services with all their limitations and if Amazon doesn’t stake out a market position they will see their core businesses vanish along with a good number of their customers.

Even if the Kindle ends up being a small loss I think that it is still better financially for Amazon that losing a major portion of their revenue base. In the best case selling digital products is a huge cost savings from running warehouses where people come down with heat stroke on a daily basis.

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