After clashing for years in the smartphone and tablet markets, Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) are now looking toward the fertile market of smart homes -- which Juniper Research forecasts will grow from $33 billion in 2013 to $71 billion in 2018.
Earlier this year, Google acquired smart thermostat and carbon monoxide detector maker Nest for $3.2 billion, and Apple introduced HomeKit, a home-automation platform for smart devices. Neither company has made much progress yet, but the long-term plan is clear -- both companies want to control the foundation for home automation devices connected to the Internet of Things.
Apple's strategy with HomeKit is similar to its HealthKit one. Just as HealthKit gathers data from various fitness apps, wearable devices, and medical records onto a single unified dashboard, HomeKit is expected to be a "universal hub" for smart homes.
This means that smart device manufacturers will be able to synchronize their products with the user's iOS device. Apple unveiled 17 HomeKit partners in October, including Broadcom, Philips, Honeywell, Belkin, Withings, and Marvell Technologies. Some of these partners have already unveiled HomeKit-compatible devices like smart lightbulbs, locks, fans, thermostats, garage doors, and power outlets. Apple confirmed that users will use Siri to interact with these connected devices. Apple also added HomeKit support to Apple TV in October, indicating that the set-top box can also be used as a central hub for connected devices.
HomeKit should enjoy a strong start in the U.S., thanks to the iPhone's estimated 33% market share. If the Apple Watch is also a hit next year, it could convince even more companies to launch HomeKit-compatible devices. This would be similar to what Apple accomplished with iBeacon, its BLE (Bluetooth Low Energy) platform, which allows retailers and businesses to send alerts to nearby iOS devices.
Google owns the world's largest Internet search engine and mobile OS, Android. It ties these two massive markets together with the Google Now personal assistant. That's why Google integrated Now into Nest, allowing users to control their smart devices with voice commands.
Back in June, Google revealed that gadgets, cars, and universal remotes will all work with the Nest Learning Thermostat, which serves as the central hub of a smart home. Companies like Jawbone, Whirlpool, LIFX, and Daimler's Mercedes-Benz have already signed on with Google's "Works With Nest" program to develop Nest-compatible products.
By pressing the single button on Jawbone's UP fitness band, an entire home's climate can be switched between daytime and nighttime settings. Whirlpool developed a "smart" dryer that keeps the cycle running with a "Fan Fresh" mode if the owner is away, so clothes stay wrinkle-free. LIFX created Web-connected lightbulbs that turn red if elevated CO2 levels are detected. Mercedes-Benz is testing vehicles that activate a home's air conditioning or heating remotely by alerting Nest when the owner has returned.
Google's strategy is a reflection of its mobile one: Establish a standard "OS" for smart homes, then secure as many hardware allies on board as possible. Google is also buying out the competition. After acquiring Nest, Google bought two smart home start-ups -- Wi-Fi webcam maker Dropcam and smart home platform developer Revolv -- to further expand its presence in the fledgling market.
Why Google could be in trouble
Google enjoys a slight head start over Apple in the smart home race, but privacy concerns could prevent Nest from gaining ground among mainstream consumers. Google-connected devices might be convenient, but a company that generates revenue from targeted ads will face serious questions about putting Wi-Fi-connected webcams and cloud-connected devices in private homes. Moreover, security researchers at Black Hat hacked Nest in "10 to 15 seconds" in August, raising serious concerns about hijacked smart homes.
Google also has a history of launching services prematurely and subsequently being crushed by Apple. Google Wallet, for example, never gained traction as an NFC-payment system due to Softcard partners (AT&T, Verizon, and T-Mobile) banning the service from their Android devices. But the Softcard triumvirate let Apple Pay through, since they didn't want to upset the company's unified user base.
Google also tried to synchronize all electronic health records (EHRs) on a single platform with Google Health, but the platform was scrapped in 2011 due to privacy concerns and a lukewarm reception from health care providers. Earlier this year, Apple succeeded where Google failed with HealthKit, which quickly won the support of the country's top EHR companies and insurers.
With smart homes, history could repeat itself. Concerns about Google's true intentions will prevent many people from installing its HAL-like Nest Thermostat in their homes. Since Apple doesn't generate meaningful revenue from ads, it could win the upcoming smart home battle by simply being more subtle (and less creepy) about connecting smart home devices to its mobile ones. Therefore, I believe that Apple will eventually gain the upper hand in the upcoming battle over the smart-home market.
Leo Sun 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.