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Will Apple's Second Bet on High-Fidelity Audio Pay Off?

By Evan Niu, CFA - Jun 6, 2017 at 7:54PM

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You probably forgot about the iPod Hi-Fi. Apple wishes it could.

The second time's the charm?

Over a decade ago, Apple (AAPL 2.45%) introduced the iPod Hi-Fi, a large high-fidelity speaker that was clearly positioned to target audiophiles. The $350 device, which could be used as a stationary speaker plugged into a wall socket or a portable one using D-cell batteries, is one of Apple's most prominent flops, one that it would probably rather forget. The iPod Hi-Fi lasted a mere 18 months before Apple discontinued it.

In the new Siri-powered HomePod, Apple is hoping it can redeem itself.

HomePod on a shelf

HomePod starts at the same $350 price point as the iPod Hi-Fi. Image source: Apple.

Lessons learned?

It's probably worth remembering why the iPod Hi-Fi flopped in the first place, which may provide lessons for HomePod going forward. iPod Hi-Fi fell flat for a handful of reasons:

  • Expensive relative to other comparable iPod docks at the time
  • Awkward docking position for the iPod that was prone to accidents
  • Exclusive compatibility with select iPods through the 30-pin dock connector
  • Newer iPods and iPhones even required an adaptor for the same 30-pin dock connector due to different voltage requirements
iPod Hi-Fi

Image source: Apple.

Needless to say, the market for home speakers has come a long way, as has the expectation of constant connectivity. Most of these reasons no longer apply, given the current state of both music streaming services and local wireless streaming technologies.

That's where HomePod comes in, which is launching later this year at the same $350 price point as the iPod Hi-Fi. Compared to's (AMZN 3.58%) immensely popular Echo, which starts at $180, that's a pretty hefty premium that Apple is now tasked with justifying to consumers. In no uncertain terms, Apple is again betting that high-fidelity audio is enough to differentiate the HomePod and warrant the premium.

How much is high-fidelity audio worth to the average consumer?

During the unveiling, Apple spent a lot of time discussing spatial awareness. Using a handful of sensors, HomePod can detect its location within a room by measuring acoustics, as well as whether or not there are multiple HomePods operating together, in order to dynamically adjust its audio output in a way that is optimized for the environment. Echo can't do that.

Visualization of HomePod recognizing its surroundings and adjusting audio output

Spatial awareness is one of HomePod's differentiating features. Image source: Apple.

What's far more debatable is how much the average consumer values high-fidelity audio, and how much they're willing to pay for it. Apple said that comparable systems comprised of high-fidelity Wi-Fi speakers paired with a smart virtual assistant can cost anywhere from $400 to $700, which it used to justify the $350 price tag. For example, high-end wireless speakers like the Sonos PLAY:5 cost $500 and could be paired with a $50 Echo Dot for comparable functionality for a total cost of $550.

Even if HomePod's audio quality is superior to Echo, which early impressions suggest is the case, that doesn't mean most people will pay for it.

Meanwhile, Siri is behind Alexa in terms of smart home capabilities, so Apple is hoping that superior hardware can make up for deficiencies in software and services. The curve ball is that hardware is immutable, while software and services improve over time. Echo will never sound better than the day you bought it, but Siri can potentially catch up with smart home integrations over time.

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