When it was released last summer, the Google (GOOG) Chromecast was huge news. A $35 HDMI dongle that plugged into TVs and promised streaming video, audio, games and websites seemed like a dream come true.
Many of us thought this was the disruptive device the living room was waiting for. The realty was slightly less spectacular. Netflix (NFLX) and YouTube were there at the start, but Google Chromecast-enabled apps have been slow in arriving.
However, that’s true of many successful GOOG products. They start slow, then ramp up. Now that Google has opened up the Chromecast SDK to all developers, the company could be on the verge of pulling an Android on your TV set.
Apple (AAPL), Roku and perhaps even Amazon (AMZN) — if it’s truly working on that rumored set-top streaming box – should be worried.
Google was criticized early on for not charging a licensing fee for using its Android mobile operating system. After all, Microsoft (MSFT) was charging somewhere in the $20 to $30 range to license its Windows Phone OS. Of course, we know how the competing strategies have played out: Android is now on more than 80% of smartphones and the majority of tablets, while Windows has less than 4% of the market in both smartphones and tablets.
The free OS strategy that GOOG employs — along with a policy of selling Android hardware like the Nexus 5 smartphone at cost — ensures more people are using devices with its core services (like Google Search, YouTube and Google Maps), in turn driving its all-important ad revenue.
The company is calling from the exact same playbook with the Google Chromecast.
With the Chromecast selling at $35, GOOG is breaking even (at best) on the hardware and seriously undercutting the competition. When Apple shrank its Apple TV to the current form factor and dropped the price to $99, that looked like an unbeatable combination. Especially when AirPlay (AAPL’s streaming/mirroring protocol) is factored in.
AirPlay lets Apple device owners stream content from their device to an Apple TV. But Apple keeps close control — there’s no official support for other platforms (although some Android developers have managed workarounds), and Apple charges a licensing fee to AirPlay-enabled devices.
GOOG completely upset the applecart in the living room when it released the Google Chromecast.
It significantly undercut Apple (and Roku) on price, and the Google Chromecast looks tiny compared to the Apple TV (although there are more wires sticking out the back than people might realize). Access to Netflix, YouTube, Pandora (P) and a few other streaming apps make any TV into a “smart” TV for just $35. The device let Google Chromecast owners mirror content from GOOG’s Chrome browser on their smartphone, tablet or laptop onto their TV as well.
But the release of the public Google Chromecast SDK is where Google seriously cranks up the heat on the competition.
Now any app developer can easily incorporate Chromecast capability. And any is a very broad group. It’s not just Android — GOOG is officially supporting Google Chromecast connectivity in iOS, Mac OS, Chrome OS and Windows too.
GOOG isn’t charging any fees, and it’s even gone to the extreme of making the Google Chromecast SDK part of its Google Play service package — this means the functionality will be compatible with older versions of Android, side-stepping that fragmentation issue that plagues GOOG.
Here’s the scenario that’s playing out.
The Google Chromecast is essentially an impulse buy at $35. It’s a third of the price of an Apple TV! For Android fans — the majority of the mobile world — and Chromebook owners (a rapidly growing group), this is a dirt-cheap way to extend your functionality to the big screen of your TV.
If you’re an iPhone, iPad, Mac or Windows PC owner (no joy for Windows Phone), GOOG isn’t going to try to get you to switch devices, but it’s going to offer the best of the Android experience on your platform. Just like it does by offering Google Maps or Goggle Now on iOS, it has made Google Chromecast compatibility a free and easy option.
As Chromecast adoption gains momentum, expect developers to pile on, especially cross-platform developers who now have any easy way to offer a consistent TV streaming experience for their apps, regardless of whether the user is on an iPhone, a Galaxy S4 or a Windows PC.
Combine a dirt-cheap streaming device in the Google Chromecast with apps coming from all major PC and mobile platforms, and you have a recipe for Google to pull away from the competition and dominate the set-top streaming market.
The Apple TV — a living room pioneer that’s limited by AAPL’s walled garden approach — is in danger of becoming an also-ran; Roku will find it difficult to entice developers to release apps for its Channel Store; and if Amazon releases a set-top box, it’s going to face a much tougher market than it would have faced a year or two ago.
This is all well and good, but what’s the GOOG end game? Having the Google Chromecast become the dominant TV streaming device is great, but it doesn’t make any money from being number one.
Remember that Google is all about ad revenue. This developer has already found evidence in Google Chromecast source code that supports the display of banner ads.
I think it’s safe to say that GOOG intends to stay on script, turn the Google Chromecast into the Android of TV streamers and leverage all those eyeballs to generate ad revenue. After all, the company may not be “evil,” but it has to make money.
As of this writing, Brad Moon doesn’t own any securities mentioned here.