Roku (NASDAQ: ROKU) has made it clear that it's competing against some much bigger companies. It lists Apple (NASDAQ: AAPL), Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google, and Amazon (NASDAQ: AMZN) as some of its biggest competitors. All four companies make devices for streaming video on television sets, and that's one of Roku's main businesses.
While Roku has shifted from making most of its money on its devices to primarily making money from selling premium subscriptions and video ads, it still needs people to use its devices to support the platform business. To that end, it's one of just two competitors that has seen significantly more people use its devices for streaming video over the last year or so.
The percentage of people who use a Roku device to regularly stream video increased 8 percentage points from last September, according to a recent survey from William Blair analysts. Amazon was the only competitor with a similar increase, with Fire TV usage increasing by 7 percentage points. Google's Chromecast didn't improve at all, while Apple TV was up just 3 percentage points.
Image source: Roku.
What Amazon and Roku have in common
Amazon and Roku have taken similar approaches with their device lineups. Both have multiple devices ranging from relatively high-end set-top boxes that can compete with Apple's Apple TV to low-end streaming sticks that will compete with Google's Chromecast. They also have several options in between. What's more, they both are open to licensing their platforms to television manufacturers: a strategy that's worked very well for Roku and that Amazon followed earlier this year.
The two companies are most interested in getting their devices into consumers' living rooms because they're both focused on building platforms. Amazon wants Fire TV users so that more consumers stream Prime Instant Video. Amazon has found that Prime members who stream video are more likely to convert from free trials and stay subscribed the next year. Roku found that it can make a lot more money from selling premium subscriptions and ads than it can from selling a premium device.
Selling a device to watch your favorite video service
Both Amazon and Roku have their own video platforms as well. Amazon's Prime Instant Video is a premium service, and the Fire TV clearly caters to Prime members. The Roku Channel is a free ad-supported service that's now available on the web, but it's best enjoyed on a Roku device.
Google, for its part, has YouTube and YouTube TV, but the main service has grown so popular that Google doesn't really need to sell its own devices to boost viewership. In fact, it's wielded the power of YouTube to hurt its competitors in the past. Late last year, Google pulled its YouTube app from the Fire TV platform in an effort to hurt the latter's sales, as it had a spat with Amazon's retail operations. It's unclear whether the strategy worked.
Apple is also, notably, working on its own original video content. That could boost Apple TV and subscription sales down the line, and it's something for Roku investors to keep an eye on.
Plenty of room to grow
Ninety-five percent of respondents to the William Blair survey said they stream TV regularly, but only 29% use a Fire TV device and just 27% use a Roku device. There's relative parity between streaming devices today, but that also means there's a lot of room to grab market share.
Amazon and Roku are the ones gaining share right now. With the way both companies are investing in their video platforms and devices, there's no reason to see that slowing down. Meanwhile, Google's device usage is standing still. Despite a big focus on increasing YouTube viewership on television sets, it's happy to let other companies sell the devices that people use.
Apple could be a dark horse if it launches a video streaming service or integrates more video into Apple Music and Apple TV. Apple typically favors its own devices for its services, and a hit service could give a boost to Apple TV.
For now, Roku seems to be making good progress despite strong competition. Moreover, the success of Amazon hasn't kept Roku from finding an audience of its own, which is just as important. With so much more room to grow, Roku has a lot of potential. The competition for new streamers is going to get fierce, but I still think Roku's relative agnosticism toward streaming services makes it one of the best ways to invest in the cord-cutting trend that keeps growing.
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