Chromecast: Google's best weapon to breach the TV biz

When it comes to its ambitions for television, Google's hoping that the third time's the charm.
This morning the company unveiled Chromecast. Google's latest foray into the television is a low-cost stick that plugs into a HDMI input to let a wide swath of smartphones, tablets, and devices using the Chrome browser seamlessly fling what they're playing onto the TV.
Google argues that it is solving a unique problem, but it really isn't. In fact, a myriad of devices already exist to do just that. But by coming out with a cheaper, more innovative offering, Google fired its loudest shot across the bow of Apple TV and all of the other streaming TV peripherals with the Chromecast. And at $35, it claims to have a winner.
The television is "the most immersive experience in the house," said Sundar Pichai, Google's head of Android, Chrome, and apps at the breakfast unveiling Wednesday in San Francisco. He noted more than 200 billion online videos are watched globally by users every month, and Netflix and YouTube combined represent nearly half of peak downstream Internet traffic in North America.
"It's very difficult to get your online media onto your television in your house," said Pichai.
True enough. It has been difficult, but largely only for Google.
Set back by past attempts
Google famously flubbed its two previous attempts at a television product. Its Nexus Q was costly and limited to Google-only services, and its Google TV software is handicapped by complexity, slow response times, and difficult operation -- and lately, a lack of attention from Google.
Those missteps made it easy for competitors, like Apple TV and Roku set-top boxes, to push ahead of Google. For instance, Apple sold 5.3 million of the $99 Apple TVs in the last year, and it has become the most popular way consumers are employing the AirPlay wireless streaming feature that Chromecast replicates. Roku in April said had it sold 5 million of its boxes since it launched its first player in 2008. It also touted 8 billion streams of video and music and more than 750 channels.
There's also the technology MHL, short for Mobile High-Definition Link, which directly connects mobile phones and other portable consumer electronics devices to high-definition televisions and displays. It has given rise to a stick-like device that streams free Web videos from smartphones, tablets, and Chrome browsers (sound familiar), called PLAiR.
The technology has also found its way into Roku's Streaming Stick.
But while the market for TV streaming devices is crowded, there remains room for innovative new entrants. And Chromecast does feature clear advantages. At $35, it's cheaper than the $99 Apple TV and even Roku, which can be had for about $50. It's compatible with nearly any device without taking up shelf space under the TV. And if it works as well as proclaimed, it won't get criticized for the sort of bugginess that has hampered PLAiR.
"With this, we're going into a world where you don't need a second device if you already have a phone with this kind of capability," said Aaron Kessler, an analyst at Raymond James.

Who's the Chromecast customer -- and why
For all the success that Apple TV has achieved, the fact it remains a fringe product compared with the ubiquity of the iPhone illustrates that it's a niche market. Compare the 5.3 million Apple TVs sold last year to to the 125 million iPhones.
With all the options for connecting media, people who want streaming capability have already been able to get it on their main television. The customer that Google may be after is people who want a cheap way to connect their other TVs to a portable device.
Pichai's comment about the TVs in the home suggests the second and third TVs are what Google is aiming for. At $35, Chromecast allows consumers enthusiastic about streaming video to outfit three more television in their home for little more than the cost of a single additional Apple TV.
However, the low price of Chromecast also suggests that device sales themselves aren't the end game Google is playing. It is likely taking a page out of Amazon's playbook, which prices the Kindle nearly at the cost to produce it -- and sometimes even less. The lower price is attractive enough to lure customers into the device's secondary revenue stream: the media and apps that run on the device.
In the same way, Chromecast can serve as a vehicle to drive up usage of Google's own media services, like the Play store.
"If Chromecast works as seamlessly as advertised, we think it would drive significantly more usage of Google's various digital media offerings, including YouTube and Google Play," Macquarie Capital analyst Ben Schachter said in a note.
A second-screen opportunity
If Chromecast works as seamlessly as advertised, it could also be a boon to content providers that rely on advertising and user engagement for revenue.
Despite the fact that mobile video streaming allows you to be anywhere when you watch, most of that viewing occurs in the home. A study released last month by the Nielsen-backed Council for Research Excellence found that the majority of mobile TV viewing -- 82 percent on tablets and 64 percent on smartphones -- occurred in the home.
Much to the chagrin of television providers, that has a big chunk of television being viewed in a way that is more difficult to measure, and those ratings are what programmers take to marketers to set the highest rates possible.
But a product like Chromecast eases the ability for that off-television viewing to jump back on TV. And because it immediately doubles the number of devices a viewer is using, it doubles the opportunity for advertisement to reach them.
"Anything that reduces the friction of second-screen usage is good for marketers," said James Dix, an analyst at Wedbush. "There could be pent-up consumer demand for getting the show that they're watching on their iPad onto the TV without it being too much of a pain."
Services are king
One of the major factors that will determine how popular Chromecast can be is the services that it can push to televisions. Initially, Chromecast will be able to shoot content from Netflix, YouTube, Google Play Movies & TV, and Google Play Music onto a connected television, with support for future services like Pandora coming soon.
The selection of streaming content is paltry compared to the rosters of channels on Apple TV and Roku. They both offer access to the biggest movie and TV streaming options after Netflix, Amazon Prime Instant Video and Hulu Plus. They both offer options in the critical category of live sports, with options like MLB.TV. And both have the ability to offer top-tier premium content like HBO GO.
While Chromecast's compatibility with Netflix, YouTube, and even Pandora is important, Chromecast has the ability to stream the contents of any tab in a Chrome web browser on a laptop or PC. That could provide users with a work-around to watch or listen to entertainment they like online before firm partnerships are in place.
However, it doesn't bode well that Google TV has been blocked by outside video services like Hulu and major content providers like ABC, CBS, NBC, Fox, and Comedy Central in the past.
One thing clearly bodes well for Chromecast's potential as a blockbuster, despite the questions hovering over it: immediate demand. Within an hour of its unveiling, initial orders of Chromecast in Google's online store were gone, listed instead as "coming soon." Amazon lists Chromecast as back ordered up to a month, and Google's ship time is is next month.
If that means the rest of the world has to wait to buy Chromecast, it will buy Google some time to answer those questions.

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