Six Colors
Six Colors

by Jason Snell & Dan Moren

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by Jason Snell

The smart TV business model

Via Daring Fireball comes this Engadget story about TV-maker Vizio’s finances:

Issuing its first public earnings report earlier today, the company revealed that in the first three months of 2021, profits from its Platform+ business — the part that sells viewer data and advertising space via the SmartCast platform — were $38.4 million…

Its device business (the part that sells TVs, sound bars and the like) had a gross profit of $48.2 million in the same period, up from $32.5 million last year. While the hardware business has significantly more revenue, profits from data and advertising spiked 152 percent from last year, and are quickly catching up.

When I was pondering the role of Apple’s TV hardware earlier this year, one statement I kept hearing (with no evidence) was that the makers of smart TVs and set-top boxes don’t actually make money on their hardware. The story, which is a riff on “if you aren’t paying for it, you’re the product,” generally goes that the hardware is sold at a loss or break-even and then the profits come based on nefarious sales of personal data.

The truth, like life, is more complicated. Vizio has made its money up to now primarily from selling hardware for profit. However, Vizio also now uses ad revenue and revenue from data collection—from a platform that’s turned on by default on all of its TVs—to supplement its income, and that piece is growing rapidly.

Few companies can resist an area of rapid revenue growth—witness Apple’s aggressive focus on services revenue. Given the growth rate of data and advertising sales at Vizio, I’d expect that every single product in this space (with the possible exception of Apple TV) will make every effort to increase tracking, advertising, and overall post-sale monetization of customers. The customer experience will degrade. At least you can opt out of most of this stuff—but that requires a level of trust that will also be eroded by a company’s increased focus on enhancing ad and data revenues.

So no, they’re not giving away this stuff and making it up on data sales and advertising. But it’s probably only a matter of time before those revenue streams eclipse all others. I’d need a lot of convincing—including from experts who have tested what network traffic is transmitted after you opt out—before I’d agree to have a device like that hooked up in my home.

—Linked by Jason Snell

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