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Apple, Inc. Is Still Working on an Amazon "Echo Killer"

By Evan Niu, CFA – Sep 23, 2016 at 2:57PM

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A Siri-powered speaker may be in the cards.

Image source: Apple.

This is what I've been talking about. A few days after I suggested that Apple (AAPL -3.67%) make a Siri-powered speaker to directly challenge Amazon.com's (AMZN -4.77%) Alexa-powered Echo, The Information reported that Apple was working on exactly that. Of course, this product has been in development for quite some time, so I won't pretend that I deserve any credit here.

Still, this is something that Apple needs to do if it wants to take its smart home strategy seriously. The Mac maker is emphasizing a handful of new smart home functionalities in iOS 10, so the company is clearly interested in having a larger presence there. This project is moving forward, according to Bloomberg.

It's in the pipeline

Bloomberg's Mark Gurman reports that Apple's smart home device has now progressed past research and development and has now entered prototyping. Much like the Echo, this product is intended to help users control their smart homes and all those Internet-of-Things things.

The company may be looking to add differentiating features such as better microphone and speaker technology, and possibly even facial recognition. Apple did acquire Emotient earlier this year, a start-up that specializes in facial recognition in order to gauge people's emotions.

Apple is now testing the Siri speaker, but it's still quite possible that the company will shutter the project.

Developers, developers, developers

Apple is hard at work expanding Siri's functionalities, recently opening up the virtual assistant to third-party service integration. This is arguably where Amazon has the biggest advantage. Amazon foresaw the opportunity here and opened up Alexa to third-party developers last year, hoping to turn it into a new platform. For the most part, Amazon has made meaningful progress. Earlier this month, Amazon said the number of Skills that Alexa knows has tripled over the past three months, and Alexa can now perform over 3,000 Skills (including getting daily updates from The Motley Fool).

For now, Amazon has a lead in terms of third-party integrations. But Apple's army of developers dwarfs Amazon's (there is inevitably some overlap), and once Apple puts its efforts toward rallying these developers, it can potentially catch up in short order.

Since Echo is mostly a stand-alone device without a broader ecosystem, the potential switching costs aren't very high if consumers want to consider switching to whatever Apple is working on -- assuming it gets launched at some point. That is, unless the primary use case for Echo is actually ordering things on Amazon with voice commands (instead of all the third-party Skills), since Apple would probably never bring this function to a Siri speaker.

One thing is clear: Apple is still on the hunt for the next big thing. Whether that's the smartwatch, an electric car, or a virtual assistant for the smart home remains to be seen.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Amazon.com and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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