Roku Wants to Transition from Devices to Services. What's the Problem?

Roku Inc., a leader of the streaming devices market, has launched a free streaming channel, and gone public with its first IPO.

Roku Inc. has proposed its platform as an alternative to traditional and more expensive subscriptions to cable TV. It acts as a gateway between video platforms, advertisers and consumers through smart TVs and streaming media players.

Created in 2002, Roku means “six” in Japanese because it is the sixth company created by its founder and CEO Anthony Wood.

Now, Roku has become the leader of streaming devices in the U.S., and the company is taking steps to cement that position.

Roku Leads the Streaming Media Player Landscape

Roku is the top maker of streaming media players in the U.S., far ahead of other big names like Google, Apple, and Amazon.

According to Parks Associates’ recent report, Roku, for Q1 2017, has increased its market share of streaming devices to 37%, up by 7% from the same period last year.

Coming in second, Amazon’s streaming devices (Fire TV and Fire TV Stick), represent 24% of all devices sold.

Google, with its Chromecast, has 18% market share, while Apple TV fell to just 15% of the market.

Targeting U.S. households that don’t have a traditional cable subscription, Roku counts over 15 million active users, who streamed the total of 7 billion hours of video in the first half of 2017. Each user generated an average of $11.22 USD in annual revenue.

Sales of streaming devices still account for the bulk of Roku’s revenues. The rest is generated through the “platform business”, advertising and commissions from its partners that use Roku’s platform such as Netflix, Amazon Video, YouTube, HBO, Hulu, and thousands other advertisers and content publishers.

Roku Launches a Streaming Channel, and Goes Public

Last year, Roku brought in close to $400 million USD revenue, which is up 25% from the $320 million USD of 2015.

Roku’s business was not yet profitable, even with this figure, as it was still in a deficit of $43 million.

Roku says that the biggest content publishers on its platform, like Netflix and Google, generate little to no revenue for the company.

And Roku has already taken the measures to remedy this by leaning more toward the service aspect of its business.

Last month, Roku announced the launch of its new service: The Roku Channel.

The new channel will come at no extra charges but will be ad-supported, with half the advertising per hour compared to traditional TV.

Roku has made its first, and firm, steps in the stock market. In just two days as a public company, Roku stocks soared to double its pre-IPO valuation.

Overnight, Roku saw its market capitalization almost double, from $1.33 billion to $ 2.5 billion USD.

This “stock rush” could be explained by the promising prospects investors see in the streaming market, as television continues its convergence toward internet.

We see Roku following in Netflix’s footsteps and offering its own original content to really break open the market.

What do you think Roku will do from here?