How Did Apple Get iTV So Wrong?

Forbes has a long story on how Apple (NSDQ: AAPL) got its iTV player wrong, and what led to the flop. Pertinent in light of, among other things, Sling Media’s buyout by Echostar (NSDQ: DISH). Sling operates in a similar market. This explanation is good: “Revered for sleek and snazzy products, the company and its man-in-black patriarch made a string of dubious choices about what features to include. And what to leave out. Apple TV comes with a hard drive and a link to the TV set, same as TiVo (NSDQ: TIVO) (now in 4.3 million homes). Yet Jobs decided against offering the ability to record shows. Worse, Jobs chose to shut out millions of Web downloads on YouTube and elsewhere and confined Apple TV to handling only the content you could get through Apple’s own iTunes. This parochial and proprietary approach, in an increasingly open, Internet-infused world, had relegated the company’s Macintosh line to a narrow slice of sales. Yet it also had let the iPod dominate online music, which may be why Jobs believed he could pull off the same thing in video. Wrong.”

On the costs. Apple struggled. It wanted to keep the price low at $300, but that resulted in cheaping out on components. The first box had 40 GB drive to store fewer than 50 hours at standard-def, and an older, slower Intel (NSDQ: INTC) chip. Even then the box’s insides cost a total $237, says research firm Isuppli. That left a scant $62 in gross profit, or 20 percent, to be split by Apple and retailers (half Apple’s typical 37 percent gross margin). The stores went along, but when Apple TV faltered, they had even less incentive to push the new product, the story says.

Staci adds: So the comments — accusing us and Forbes of being unfairly negative — already are starting to pile up. For those of you quick to pull out the “hater” language and assume the worst, hope Rafat doesn’t mind my mentioning that the post was written on a Macbook Pro by someone who also owns an iPhone and multiple iPods.

On the sales figures, Apple needs to sell beyond its own retail chain in order for the Apple TV to be a real success. On a purely anecdotal basis, I’ve been tracking the sales at some non-Apple outlets and they haven’t been moving. In fact, I was surprised to see the same units sitting on a shelf in one high-traffic store for weeks. Part of the problem is that the non-Apple stores may not know how to sell the units, or, as Forbes notes, have little incentive.

The other issue is how narrow the niche is for Apple TV as currently configured. Open it up even a little and sales probably will pick up. When Apple enthusiasts don’t rush out in mass, it’s missing something.

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