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Apple Inc's iPhone Could Unlock This $71 Billion Market

By Leo Sun - Mar 17, 2015 at 7:05AM

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Will Apple launch a “super dock” as the central hub of its HomeKit platform?

Apple ( AAPL -1.17% ) could soon launch an iPhone dock as the central hub of its HomeKit smart home initiative, according to a new patent application published by the USPTO.

The patent application, initially filed in 2013, reveals designs for a dock equipped with a Lightning connector, proximity sensors for gesture controls, a touch-sensitive display, Wi-Fi, and support for wirelessly charging accessories. That's a big step up from Apple's older iPhone docks, which are basically simple charging stands.

Apple's iPhone 5s dock. Source: Apple.

A new dock isn't newsworthy on its own, but the new features suggest that a docked iPhone or iPad could be used as a smart home hub as well as a charging station for the Apple Watch. It also explains why Apple hasn't launched a dedicated dock for the iPhone 6 and 6 Plus yet. Therefore, let's take a moment to revisit what we know about HomeKit, and how a new dock fits seamlessly into those plans.

The $71 billion opportunity
In "smart homes", most doors, windows, lights, appliances, and other home objects will eventually be controlled by machine-to-machine connections. Juniper Research expects revenues generated by smart home services to soar from $33 billion in 2013 to $71 billion in 2018.

That makes it a great market for Apple and Google ( GOOG -0.87% ) ( GOOGL -0.68% ), the top smartphone OS makers in the world, to expand into. Apple's platform, HomeKit, will synchronize smart lightbulbs, locks, power outlets, and other objects with iOS devices.

Google's smart home hub is Nest, the "smart thermostat" it acquired for $3.2 billion last year. Google further expanded that ecosystem by acquiring Wi-Fi webcam maker Dropcam and smart home platform developer Revolv. Not to be left out, Samsung (NASDAQOTH: SSNLF) acquired Internet of Things (IoT) company SmartThings for $200 million last year, and subsequently unveiled a central hub for compatible smart home devices.

Why hubs matter
Apple, Google, and Samsung all value the smart home and IoT markets because they can turn mobile devices into universal remote controls for their homes. Although most smart home device makers support multiple platforms, consumers will likely rely on single hubs and app ecosystems to simplify the home automation process.

Until now, Apple TV was expected to be HomeKit's primary hub, because it wasn't usually taken outside of the home network like the iPhone or iPad. Widespread rumors also suggest that iPhone and iPad owners could use Siri to connect to Apple TV and control their homes from outside the home network.

Apple TV. Source: Apple.

The problem with that plan is that Apple TVs are nowhere near as popular as iPhones and iPads. Apple recently announced that it had sold 25 million Apple TVs since 2007, up from 20 million last April.

By comparison, Apple sold 74.5 million iPhones and 21.4 million iPads last quarter. Apple TV only controlled 17% of the U.S. streaming device market in 2014, trailing in third place behind Roku and Chromecast, according to Parks Associates. That combination of slow sales and mediocre market share doesn't make it the ideal HomeKit hub.

But if iPhone and iPad owners consider the rumored "super dock" to be an essential accessory, its sales could quickly surpass the Apple TV, giving HomeKit much firmer roots to grow from.

Let's not get ahead of ourselves yet
As most Apple investors know, Apple rumors and patents are a dime a dozen. However, the idea of a wirelessly connected smart dock replacing Apple TV as HomeKit's main hub makes a lot of sense.

In my opinion, Apple will likely launch the dock earlier if Apple TV sales remain sluggish. That's probably why Apple lowered its price from $99 to $69 and signed an exclusive deal with Time Warner ( TWX ) to launch HBO Now. If Apple TV sales perk up, it will probably launch a more spartan dock first to see if HomeKit's growth can keep boosting set-top box sales.

Therefore, it might be a long time before Apple's IoT "super dock" arrives, but it casts the spotlight on a market that investors shouldn't overlook -- the $71 billion smart home market.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Apple Inc. Stock Quote
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Time Warner Inc.
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