The "smart home" trend is still in its early stages. As part of the broader Internet of Things trend, connected appliances are here to stay. Currently, a mere 4% of consumers own connected smart-home appliances, but 30% of consumers plan to purchase a smart home device within the next two years.
Here's how Apple (NASDAQ:AAPL) can revolutionize the smart home and catalyze mainstream adoption.
Where the smart home is now
Right now, there is no universal standard for smart appliances. A wide range of products exists, each with its own set of proprietary protocols, interfaces, and apps to control the devices. Device makers all have a vested interest in promoting their own protocols in the hopes of creating consumer lock-in.
The first wave of smart appliances with obvious use cases will include things like smart lighting, such as Philips Hue or Belkin WeMo Smart LED bulbs, and smart thermostats, such as Google's Nest. Belkin WeMo is a prime example of a manufacturer attempting to create a proprietary platform, offering a slew of Belkin devices under one umbrella. For what it's worth, Belkin has inked partnerships with other manufacturers in order to support their devices as well, broadening the potential appeal of WeMo.
As smart devices proliferate, the market risks severe fragmentation and segmentation, as each company attempts to claim its own portion of the smart home for itself. Imagine in a few years having a dozen connected appliances, each with its own separate app, set of protocols, and varying levels of compatibility, security, support, and interconnectivity with other appliances.
Other companies like SmartThings, Z-Wave, or ZigBee are attempting to create smart-home platforms. SmartThings and ZigBee offer open standards, while Z-Wave is playing the proprietary card. Each of these companies hopes to offer protocols and standards for the industry to adopt, which would help mitigate the fragmentation risk. But you've probably never heard of any of them.
Where the smart home is going
What these companies lack is the sheer scale to create a mainstream, cohesive platform that facilitates interconnectivity and interoperability between all smart appliances. That's where Apple comes in with HomeKit.
With an iOS installed user base in the hundreds of millions, Apple brings immense global scale to the table, and offers manufacturers a strong incentive to adopt its protocols, even if they are proprietary. This is precisely what the industry needs to truly move forward.
Additionally, since Apple has no interest in actually creating appliances like smart garage-door openers or smart door locks, it won't be competing directly with manufacturers. Apple will offer manufacturers access to its massive user base while sitting on the sidelines of competition. That's a compelling pitch for a smart-appliance manufacturer.
The smart home needs to be smarter
Once upon a time, Steve Jobs envisioned the Mac as a digital hub for your digital life. While the company moved away from this strategy in favor of the cloud, it could use a similar strategy for the smart home with Apple TV. Apple's latest beta software for Apple TV hints that the company's set-top box will be used as a remote access peer, serving as a smart-home hub. That would resemble SmartThings -- a company Samsung is reportedly looking to acquire -- , which also sells a $99 hub that ties its platform together.
Adding this functionality to Apple TV could be the extent of Apple's direct revenue opportunity, but Apple would still benefit in the form of broadening and strengthening its overall ecosystem. Manufacturers and consumers benefit by having a unified platform to rally behind.
Apple could finally make the smart home smart.
Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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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