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Amazon’s Fire TV Box: No-Brainer Strategy, But Will It Light Up Retailer’s Revenue?

Amazon poured millions of dollars into creating the Fire TV device — but it’s not clear when, or even if, the company will see a return on that investment.

Amazon undoubtedly will sell a healthy number of the boxes, much as it has successfully pushed low-priced Kindle tablets to its global customer base. The $99 Fire TV is a hybrid: It offers access to both video-streaming services like Netflix, Amazon Prime Instant Video, YouTube and others, and it’s also designed for games as sort of a poor man’s videogame console.

The jury is still out on how big a footprint Fire TV will achieve, given that Amazon trails leaders like Apple TV and Roku by years and the gaming features aren’t robust enough to give Xbox or PlayStation a run for their money. Analysts also said the $99 price point was too high for the device to change the game, even with its incremental feature enhancements (like voice-enabled search and predictive-analysis technology to enable faster video-stream starts).

“It remains to be seen how well this will sell,” Forrester Research principal analyst Jim Nail said. “But Amazon is a smart company, and they have a strong relationship with not only 20 million Prime users but also millions of other people who purchase from them. This is their strategy to try to build world domination in video.”

SEE ALSO: Amazon Unveils Fire TV, Video-Streaming and Gaming Set-Top for TVs

Fire TV is a logical next step for Amazon, which wants to use it as a conduit to drive content purchases (movies, TV shows, music, games and apps) and provide another reason for customers to sign up for Prime (which boosts e-commerce sales). Indeed, to complete the virtuous circle of content and commerce, Amazon was practically forced to roll out its own set-top to control its direct-to-the-TV destiny — since Apple TV, for one, isn’t likely to play ball with the Seattle e-commerce powerhouse.

Amazon may believe that hardware sales alone could make Fire TV a great business. The company built a better mousetrap, one that’s simpler to use and higher performance than Roku, Apple TV, Chromecast, Xbox, Samsung Smart TVs, or any of the dozens of other TV-connected video devices, according to Peter Larsen, head of Amazon’s Kindle division.

“We are selling millions of these streaming-media devices on Amazon.com,” Larsen said at the Fire TV launch in New York. “We hear from customers every day. We hear about what’s working and what’s not working.”

It’s worth noting that Amazon’s video services are already on many of the platforms Larsen denigrated — including Roku, Xbox, PlayStation and the Nintendo Wii. That should continue, unless those partners have a change of heart with the launch of Fire TV.

Roku, as you’d expect, disagrees that Amazon has crafted an earth-shattering, category-killing box. “We focus exclusively on offering the widest selection of streaming entertainment, simple-to-use players and great value — this has made Roku the most-used device for streaming to the TV in the U.S.,” the company said in a statement.

But Fire TV isn’t just a device: Amazon wants to make buying stuff through the TV one-click simple. Fire TV comes preloaded with a customer’s Amazon account information. It’s offering Netflix and Hulu Plus, because it has to in order to gain traction, but the aim is to make Prime Instant Video the easiest-to-use SVOD service on the box — again, to encourage Prime memberships. Here’s why: In the U.S., Prime users spend around $1,500 per year on merchandise, compared with $500 for non-Prime users, according to Bernstein Research estimates.

Amazon wants to have the best-in-class Internet-video device in a crowded category. The real money, however, isn’t in consumer electronics but in providing a portal to the broader e-commerce catalog, said John Barrett, director of consumer analytics at Parks Associates.

“Amazon sells everything,” Barrett said. “The core features of Fire TV are the media features, but I’d be shocked if we didn’t see e-commerce make it to the device.”

Added Barrett, “Their interest at the end of the day is not be Netflix. It’s to be Amazon.”

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