Does Apple Have a Shot at Living Room Dominance?

At its very core, Apple (Nasdaq: AAPL) is all about creative genius, inspired interfaces and simplicity cased in elegant convenience. Its shocking and exhilarating move from the Mac for professional creatives to creative iPods for the masses has indeed been awe-inspiring. Now Apple is positioning to move from the street beat of portable MP3 players to the sanctity of American living rooms.

The question is, will Apple peel out on the race for dominance in the home?

"No, I don't think so," says Michael Wolf, research director, digital home, ABI Research. "Apple is a premium model and not for everyone. The masses are more likely to use set-tops by operators."

That's not necessarily the consensus view on Apple's aggressive play for the home market, though.

"Apple stands a good chance of having some success as a living room technology play -- but there are serious and well-entrenched alternatives that also stand to gain significantly," says Kurt Scherf, vice president and principal analyst, Parks Associates.

"The Apple TV product that was officially unveiled last week brings more Web content directly to the TV. At the same time, however, there are a host of incumbent players and service providers -- set-top box manufacturers and their television operator customers -- who also deliver tightly integrated user experience, and who are at the same time incrementally opening up their walled gardens to more Internet content," he added.

Not Even a Toe in the Door?

Some say Apple has yet to ring the doorbell, much less close the door on its competition, when it comes to home products.

"Apple's inroads into the home market have not been as aggressive as their efforts in consumer branding. Apple TV, their wireless streaming product, for instance, has several gaps to be filled," notes Vidya S. Nath, senior research analyst at Frost & Sullivan. "Its one-way function of being able to store and play iTunes content is attractive, but if it had DVR [digital video recorder] capabilities for television and the ability to transport television content to other devices in the house, it would have been more exciting as a product."

Apple's earlier success with the iPod and iTunes in what was then a tired and mature portable music player market suggests the company could execute another coup in the newly opened hearth market -- but it's also possible that Apple could fall short of the welcome mat.

"The good thing is Apple occupies a niche space and is likely to see some demand in the iTunes-driven market. However, for the larger mass market that is buying large screen LCD displays and has a large DVD penetration, it is redundant," says Nath.

Xbox Marks the Spot

Apple may also find its left hand competing with its right.

"iTunes has not yet become a media content platform for families, and so at [US]$299, it is an expensive alternative to using a cable to hook up the iPod directly to the television," adds Nath.

Microsoft's (Nasdaq: MSFT) Xbox already has the edge, she points out." In comparison, Xbox has taken several steps ahead, combining gaming, DVD and HD DVD playback -- and now, even set-top box abilities."

Perhaps Apple's oversight on the gaming option will prove to be a serious mistake.

"Microsoft's and Sony's (NYSE: SNE) gaming platforms give then a strong advantage over Apple in the living room that Apple doesn't have a clear answer for," says ABI's Wolf.

Still, all may not be lost.

"It's too early to say what Apple's overall impact is going to be on the digital home. One key lesson that Apple has provided, however, is that easy-to-use products with intuitive interfaces [iPod] that tap into a well-organized and well-structured content source [iTunes] are a good model of success to follow in the digital home space," says Parks' Scherf.

How, then, will the home market likely shake out?

"Apple's aim seems to be focused on consumer electronics, and they are fast moving into the league of Sony, LG Electronics, Samsung and others. The computer, be it a PC or a Mac, is likely to achieve more colorful, larger proportions in its utility due to convergence, more penetration of IPTV, and increasing broadband," Frost & Sullivan's Nath predicted.

"The market will change quite a bit in the next few years, and Microsoft, Sony and Cisco all have their own connected entertainment strategies. Microsoft obviously has a lot in the PC-centric model, but are hedging their bets on the non-PC based model, which is what Xbox is all about," says Wolf.

Apple most likely will continue to build upon its successful ecosystem around iTunes -- but that system is unlikely to make Apple a star on the home front, Wolf and Nath agree.

"Content through iTunes comprises a very small percentage of all media content consumed over the Internet or via traditional content. Apple's strategy, however, is to be lauded," Nath maintains, "and as they continue to provide exciting consumer products, they are likely to be the next-generation consumer electronics favorites."