Roku is an American manufacturer of digital media players. The company primarily focuses on video streaming. Similarly, its products include hardware and software. These products allow users to consume content, including games and movies, through the internet. Primarily, Roku operates in the OTT market, providing content over the internet. It also comes with other features. Currently, Roku has over 51 million users.
What is Roku?
Roku is an American company that operates in San Jose, California. The company started its operations in 2002 under Anthony Wood. However, it wasn’t the first company or venture the founder started. Wood even named Roku to symbolize that it was his 6th venture. The term “Roku” literally means six in Japanese. Wood received his education from the Netherlands as an exchange student. There, he took computer classes and learned other skills.
After he returned to Texas, his home, Wood started learning to program. He launched his first company in high school and later started his second as well. The second company, SunRize Industries, was his first successful venture. The company grew to $100,000 in profits. However, he shut the company due to low grades in high school. At the time, he wanted to focus on his degree instead of the company.
After graduating, he moved out to Silicon Valley to launch another version of SunRize. However, it didn’t work for the founder as its product demand started decreasing. Wood moved to launch a software company called iBand in 1995. In one year, the company became popular and started receiving attention. Within a year, Wood sold iBand to Macromedia for $36 million. However, it also required him to stay at Macromedia for a year.
Wood left the company in two years and moved toward his next venture. This time, he used a real-life issue to create a solution. Wood came up with the idea to create one of the first-ever digital video recorders. This idea came under the ReplayTV brand. Initially, Wood financed the venture through his capital. He also brought other investors later. However, the product offered by the company was more expensive than the alternative TiVo.
Within two years, Wood sold ReplayTV due to significant losses. This transaction got Wood $42 million. However, it also required him to stay at SONICblue, the acquirer company. Wood innovated the product with an ad-skipping feature. However, it followed several lawsuits for the company, which caused it to go into bankruptcy. In 2003, the company sold its assets to the Japanese electronics company D&M Holdings.
Wood moved on to his next venture, this time Roku. This venture started in 2002 as a concept, which was his sixth company. Later, he met Netflix’s CEO, who offered Wood a position at his company. Wood took the offer, although he left soon. Netflix spun off his project into Roku. At the time, Netflix also became the firm’s biggest investor. However, it sold its shares later.
How does Roku work?
Roku offers users a digital streaming device that they can plug into their TV. These devices act as the home for all entertainment needs. Similarly, they help users streamline their setup and replace their other devices. Similarly, Roku devices are compact and do not bother users with expensive cable equipment tools. Users can watch all of their favourite content while also saving money.
Roku designs its products to focus on simplicity and ease of use. It uses a single-connection setup to allow users to plug-in devices and use them immediately. Once set up, users can download, install and purchase streaming channels. Similarly, they can remove existing ones if they don’t want them. Roku offers users a selection of different devices from which they can choose. Each device comes with a specific price tag.
Setting up Roku is straightforward. Users must connect the Roku device to their TV. Usually, these devices connect through the HDMI port on any TV. They also come with an HDMI cable for easy connectivity. Some devices also allow ethernet connectivity, although it is an optional feature. Users can connect their Roku device to WiFi as well. Lastly, some Roku devices also require a power source.
Once users connect the device to their TV, they can turn it on after choosing the correct input on their TV. This input will show a Roku logo and move forward. At this time, users can use the Roku Remote to set up their devices. This process comes with various steps, such as selecting a language, choosing display settings, etc. Users must also create a free Roku account and link their Roku device.
Creating a Roku account is straightforward. Users must have a valid email address to receive an activation mail. Once they receive the email, they can follow the link provided to activate their account. It will also ask them to provide their payment details. Once users set up an account, they must link it to their Roku device. This process is also straightforward by using the instructions provided.
What is the Roku business model?
Roku’s business model shows how the company makes money. However, Roku does not generate revenues from a single source. The company uses various revenue streams to make money. Primarily, Roku is well-known for its hardware devices. These devices form the essence of the underlying service provided by the company. Therefore, Roku uses a product-based business model.
Similarly, Roku uses a licensing business model. Under this model, the company makes money through its software, which is also essential to its service. Roku licenses its OS to smart TV manufacturers. In exchange, the company receives a licensing fee. The licensing business model is common in other industries, primarily the hospitality industry. However, Roku has also adopted it to its business.
A part of the Roku software is the advertising it displays to users. Although users pay for the hardware device, Roku shows them ads through the software. The company makes money from the advertisers that want their ads to be a part of the Roku UI. The advertising business model allows Roku to make money even after selling hardware.
Lastly, Roku also sells subscriptions to other services. This way, the company makes money by allowing users to subscribe to streaming services. However, this process occurs through the Roku platform. Roku takes some profits from the streaming service provider. Essentially, this feature makes the business model close to the commission-based or affiliate marketing business model.
How does Roku make money?
Roku makes money from various sources. An explanation of each of these is as follows.
Hardware sales
Roku sells and markets players, smart TVs and audio solutions. The company is well-known for its Roku streaming devices. Usually, these devices are available in retail stores and electronic shops. The company sells these products at different products and specifications. Usually, these devices are cheap and come at costs lower than $100.
Advertising
Roku also makes money through advertising. The company also has its independent channel. Through this channel, the company shows advertising between content and when paused. The company deals with various licensing partners who can display their ads through this feature. The company does not have to share its advertising revenue due to its IP.
Licensing
Roku sells smart TVs, which comes bundled with its operating system. However, it also licenses its OS to other smart TV manufacturers. This sale occurs through a license. The company makes money from each partner using its operating system. Currently, Roku provides these services to over 15 brands. The company also makes money for each unit sold with its operating system.
Subscriptions
Roku also has a subscription on demand (SVOD) platform. Through this platform, users can purchase subscriptions to other streaming services. In exchange, Roku withholds a percentage of the fees paid by users to the streaming service. However, users do not have to pay this amount. Instead, the charge occurs to the partner. The company does not disclose how much it charges those partners.
Branded content
Roku also makes money through branded content. In 2021, the company launched its Roku Brand Studio. Through this studio, the company produces branded content for advertising partners. The company receives money from the partners in exchange. Usually, this money comes on a fixed or contractual basis. Roku does not disclose how much money it makes through branded content.
Conclusion
Roku is an American company well-known for its streaming devices. These devices allow users to consume content through the internet. However, Roku also makes money from various other sources. The company uses several business models to help generate revenues. However, its primary income source is its hardware sales.
