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Is Apple Turning up the Heat in Home Automation?

Apple (NASDAQ: AAPL  ) could be the trade of the week as we head into the World Wide Developer Conference conference in just six days. The Financial Times added fuel to the fire with an article discussing how Apple is intending to unveil its plans for the smart home in San Francisco. This may just be the tip of the iceberg, but it represents an important shift that extends Apple's influence into a market Google (NASDAQ: GOOGL  ) has already entered and Amazon (NASDAQ: AMZN  ) is probably actively working on.

FT article marks a new direction for Apple
The Financial Times discussed how Apple is on the verge of developing a platform for home device networking. This would be a break from Apple's traditional approach of owning all of the hardware, if the article is correct. At first glance, it sounds like more of a defensive move than an offensive one, countering Google's $3.2 billion January acquisition of Nest, which actually produces devices.

Playing well with Oothers
Under Tim Cook's leadership, Apple seems to be taking a new approach to working with partners. CarPlay appears to be the first initiative where the company used partner-developed software as the base for an Apple-branded solution. In the case of CarPlay, BlackBerry owns the intellectual property to plug into existing auto manufacturers' entertainment systems, so why reinvent the wheel? In the case of smart devices, why not offer the fragmented market an Apple-branded framework to plug into?

The concept makes sense for the hardware provider who wants to reach Apple's installed base and now has a choice of taking on the development and management cost of an elaborate independent app or just plugging into Apple's framework. Apple would be acting as an enabler, which would extend its influence in the home. Whether this new approach to partnership is due to a change in leadership or lessons learned from building out the iTunes ecosystem isn't as important as offering new functionality for iPhone customers.

Google was first but the sector is likely to get crowded quickly
Google was the first to embrace lower-level devices with the Nest acquisition, but there is much more to this acquisition than meets the eye. Nest is best-known for its learning thermostat, but offers a smoke alarm that offers status messages to help you differentiate between a low battery and an actual alarm.

The two founders offer an interesting wrinkle to the story as well. Tony Fadell and Matt Rogers were both Apple employees that were deeply integrated into hardware development. According to TechCrunch, Fadell is known as the "father of the iPod" and Rodgers was one of the first engineers on the iPhone. Both are now employees at Google and likely to continue creating innovative devices.

Amazon needs to step up as well
Amazon probably isn't setting records for its Fire TV sales if the company is now offering "select" customers a free 30-day trial. But slow sales of its set-top box are not likely to derail other projects. Even if people go to hardware stores for the initial equipment to wire their homes, contractors will go to Amazon for discounts, and homeowners will buy replacement parts there as well.

If Amazon wants to prevent Apple from possibly getting in the flow of this traffic, it may need to offer a homewide remote control option. The focus on the Fire TV's voice-activated remote control and the Dash wand makes it clear that Amazon understands the need for easy-to-use, handheld controls.

Since the official announcement has not yet come from Apple, we don't know the details behind the smart-device initiative. But anything on the product front would be welcomed by shareholders. As we head into Apple's most important conference of the year, stay tuned for more announcements from Apple and possibly from competitors.

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David Eller

I started contributing to the Motley Fool in 2013. I have held research positions at two investment banks and two hedge funds before trying more entrepreneurial ventures. I'm passionate about helping people find freedom in financial independence. Feel free to add comments and start a discussion. I hope to use these articles as forums to learn from you as well as share my opinion.

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