Amazon’s power move in the living room

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Some quick initial thoughts on Amazon’s big set-top box announcement today:

Power ranger: With 2GB of RAM and a dedicated GPU Amazon’s FireTV is now the most powerful streaming box available apart from dedicated game consoles: more powerful than Roku and Apple TV, and more powerful than most cable and satellite STBs. Among other things, that horsepower will make watching FireTV much more like watching traditional linear TV, with little latency between remote control inputs and response, and relative ease in switching between “channels,” or in this case among the myriad OTT services available on the FireTV box. It will also enable Amazon to run a pretty slick UI and recommendation engine locally making the experience in some ways superior to watching traditional linear TV.

In short, the FireTV is a cord-cutter’s dream and I would expect it quickly to become their STB of choice. Even among non-cutters, it’s ease of use and broad content selection will make it very easy for users to simply stay on Input 2 rather than switching back to linear channels on Input 1, encouraging cord-shaving at a minimum.

Second-screen integration: That said, FireTV’s tight second-screen integration, including X-ray for TV, promises to enhance the experience of watching linear TV, making it potentially cord-friendly. If I were a pay-TV operator I’d be thinking about integrating my service with FireTV rather than fighting it.

As I discussed in the recent report, Mobile Disruption in the Living Room, the communications link between set-top and mobile device also opens hailing frequencies to linear TV audiences for advertisers who either cannot afford or simply want to avoid paying the full cost of a 30-second ad insertion. And as I noted in a post last year, when rumors of an Amazon STB first started getting serious, Amazon has been quietly building a real-time bidding platform that plugs into existing ad exchanges allowing Amazon to target its users anywhere on the web. Connecting that to FireTV would enable advertisers to target a show’s viewers based on the vast purchase history Amazon has compiled on those users — a gold mine for marketers. That could turn out to be very disruptive to the networks’ advertising business.

At some point I would expect Amazon to enable 1-Click ordering in synced ads creating an even more powerful marketing platform.

Gaming: Even with its enhanced processing power, the FireTV is not going to compete with Xbox or PlayStation for hard-core gamers. But it could become the first platform to successfully blend casual mobile gaming and set-top play while putting tremendous pressure on Roku and especially Apple to step up their own set-top games.

Pricing: The processing horsepower and software stack packed into the FireTV don’t come cheap, and at $99 Amazon will need to sell a hell of a lot of boxes to break even on them. But the list price seems pretty clearly aimed at drawing a contrast with Apple TV, which offers much less functionality and content for the same price. It’s also in keeping with Amazon’s pricing strategy for the Kindle Fire and its philosophy of making its money from services, e-commerce, and ultimately advertising rather than from hardware.

Your move, Apple.