Please ensure Javascript is enabled for purposes of website accessibility

Apple Inc.'s HomePod Will Not Be Enough

By Evan Niu, CFA - Updated Oct 9, 2017 at 2:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

And I'm not talking about the price point.

Despite initially unveiling HomeKit way back in 2014, Apple (AAPL 0.88%) is still meaningfully behind in the smart-home arena, and rivals Amazon.com (AMZN -1.85%) and Alphabet (GOOG -1.79%) (GOOGL -1.77%) subsidiary Google are taking full advantage of that opening. Amazon established an early lead with its original Echo speaker, and Google followed suit with its Google Home device last year.

Over the past couple of weeks, Amazon and Google have both expanded their smart-home product portfolios. Amazon has been on a tear this year, announcing Echo device after Echo device, and Google's unveilings this week similarly added new products to its mix that address both higher and lower price points. Apple announced its HomePod at WWDC in June, and is set to launch it in December. But it won't be enough.

Top of HomePod with Siri

Image source: Apple.

Too much, too slow

Before factoring in competitive differences with each companies' respective virtual assistants -- Alexa, Siri, and Google Assistant -- or support for different smart-home protocols, it all starts with the hardware. Echo and Google Home are becoming product families, compared to Apple's singular device that is currently positioned more as a high-fidelity audio offering as opposed to focusing on smart-home technology.

Consider the smart-home product portfolios of each company, including how they span the pricing spectrum.

Chart comparing different smart-home products and price points for Amazon, Google, and Apple

Data sources: Amazon, Google, and Apple. Chart by author.

Remember when CEO Tim Cook used to talk about price umbrellas? Well, at $350, the HomePod is leaving plenty of room for rivals to offer lower-cost products.

If Apple really wants to take smart-home technology seriously (which is debatable), then it's pretty clear that the HomePod will not be enough. Consumers are going to want to buy numerous affordable devices in order to make virtual assistants omnipresent throughout the home. What they won't want to do is buy multiple $350 audiophile-quality speakers just to add Siri to the bathroom.

Google's new Home Mini is explicit acknowledgement and validation of this fact, piggybacking on Amazon's strategy. Home Max may appear to be a response to HomePod, but it takes more than a few months to develop a product like this, so it's pretty clear Google has been planning Home Max for quite some time. Apple just happened to unveil HomePod first. By introducing smart-home products at both higher and lower price points, Google is turning up the pressure on Apple to eventually release a lower-cost device sans high-fidelity audio so that consumers can buy a lot of them without breaking the bank.

Platform disadvantages are hard to overcome

Apple never tries to be the first to market provided it can be the best once it gets there. The Mac maker has successfully implemented this strategy throughout its history, but this is a platform play. Alexa is so powerful because Amazon has created a vibrant platform for smart-home product manufacturers. This is another area where HomeKit is behind, in part because of Apple's onerous requirements for products to become officially HomeKit certified.

If you've ever wondered why Apple's selection of HomeKit-certified accessories is still relatively limited, this is probably why. Product makers are required to include very specific networking and security chips that are more expensive, according to a Reuters report from earlier this year. The products even have to be made in specific factories that Apple has certified, many of which don't specialize in smart-home products and/or charge higher prices for contract manufacturing services. Amazon's Alexa platform has no such hardware requirements, and focuses on software compatibility.

Apple has apparently realized the error of its ways, and announced several important changes to HomeKit in June. Apple opened up HomeKit to all developers so that anyone with an Apple developer account can create a HomeKit device. However, products that are intended for commercial sale still must sign up for Apple's MFi licensing program. Perhaps more importantly, HomeKit devices no longer need special chips for hardware authentication, and Apple is shifting to software authentication for security. These changes will help the HomeKit platform by making it more flexible, but the company is still facing an uphill battle.

For a company that should be intimately aware of how hard it is to overcome platform leads (like when Windows won the PC), Apple should realize that it can't wait too long.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$174.55 (0.88%) $1.52
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$119.55 (-1.77%) $-2.15
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$142.10 (-1.85%) $-2.68
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$120.32 (-1.79%) $-2.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
402%
 
S&P 500 Returns
129%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.