How Apple Could Own the Interactive TV Market

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Bajarin is the president of Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to Big Picture, an opinion column that appears every Monday on Techland.

There has been a lot of speculation around Apple and its TV plans ever since Steve Jobs told his biographer Walter Isaacson, “I’d like to create an integrated television set that is completely easy to use. It would be seamlessly synched with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it.”

The wording of this quote has caused many to predict that Apple is actually making a full-blown TV set. While this is possible, I am in the camp that believes this is not Apple’s plan. I think the company has a more game-changing approach to creating the interactive TV of the future.

(MORE: Why the TV Industry Can’t Ignore Apple)

For one thing, people have their TVs for an average of seven years and although Apple could update the software on an Apple TV set, this would limit doing anything in component or hardware innovation on Apple TV sets that would already be in people’s homes. Also, Apple’s model so far is to get people to buy new hardware every two years or so, which allows the company to deliver hardware and software innovations in new models on a regular basis.

For Apple to really shake up this market, I believe that it is looking at two distinct approaches that would be game changers in their own right. The first would be to build up content for the current Apple TV set-top boxes, and perhaps more importantly, create a dedicated version of iOS that becomes an actual platform for interactive television. Jobs said that he wanted to deliver a simple interface, but today’s iOS user interface would not translate well to a TV. However, Apple could clearly use iOS as an interactive TV operating system and create a new interface on top of that to make navigating interactive content on a TV very simple.

Apple could then create a software developers kit around this special version of iOS designed just for the TV and set third-party software vendors loose to create and develop apps just for the TV.  Also, since the operating system would be based on iOS, all of Apples existing media content would work seamlessly on current and new Apple TV devices.

The Wall Street Journal wrote an article recently suggesting that Apple was talking to the cable companies about letting consumers use an Apple device as a set-top box. While this is also possible, I think something even more interesting may be going on here.

Apple would love to have a content relationship with the cable companies for existing iTunes media offerings. And while Apple could perhaps create a set-top box for cable companies to use, I think a more likely scenario is for Apple to co-develop a next-gen cable box that uses a dedicated iOS interactive TV operating system that has access to Apple’s ecosystem of content, software apps and hardware links to current Apple mobile devices.

In fact, this represents the second approach to Apple’s cracking the code for future interactive TVs. In what would be a landmark decision for Apple, I think that the company could be considering licensing its iOS interactive TV operating system not only to cable providers and set top box suppliers, but also to existing TV manufacturers.

Imagine for a minute if Apple’s new iOS TV operating system, with a new and easy to use interface was on your cable box or your TV and it would let you tap into Apple’s entire ecosystem of content and services. It would work seamlessly with your iPod, iPhone and iPad as well. And since Apple would give the developer community the ability to create TV-optimized apps, it would also add value to any device that has the interactive iOS operating system, too.

I realize that the idea of licensing any Apple operating system is heresy but the chance of using this approach to eventually dominate the future TV might be too hard for Apple to pass up. If Apple only kept it for itself and used it in a dedicated TV set and future versions of the Apple TV set-top boxes, the company’s potential to dominate the market would be limited.

But there would be another advantage to this approach. To date, Google TV has been a complete flop. It uses a modified version of Android and its user interface and connection to Google’s ecosystem and Android mobile devices is very weak. I believe the key to its meager reception lies in the fact that Android was designed only as a mobile OS and unlike iOS, cannot be adapted for the TV in the same way. In fact, an early backer of Google TV, Logitech, took a huge financial loss from backing Google TV and got out of this program completely.

Now imagine if TV vendors were offered the chance to license the Apple iOS interactive TV software, with access to apps capable of running on other Apple devices that are sold in huge quantities each year. And given the sorry state of set-top box software and user interfaces, it would not surprise me if Apple has success with some of the cable companies, too. If this happens, Apple could push Google’s Android-powered TV platform aside and end up with a dominant position in the interactive TV market. It could make it difficult for Google to catch up.

MORE: How Apple Could Reinvent TV

Bajarin is the president of Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to Big Picture, an opinion column that appears every Monday on Techland.