By this time in 2014, Apple Inc (NASDAQ:AAPL) was sitting on 30% gains. This year, AAPL stock is up a comparably mere 7.5% year-to-date, so the iPhone-maker now seeks new growth engines to make up for the drop in demand for its flagship device.
This includes wearables such as the Apple Watch, connected cars and smart home technology (Apple HomeKit). Smart home devices will contain sensitive user data and put users at risk of hackers, so consumers will value privacy and security.
This should allow AAPL to dominate the industry, and leave behind rivals such as Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). Buy Apple stock to profit on the growth of this new industry.
Apple Stock: The Smart Home Opportunity
Earlier this month, Apple released iOS 10, which includes a dedicated Home app for users to control Apple HomeKit devices. Smart home technology enables users to communicate with various appliances at home via a smartphone or tablet and change the temperature, dim the lights and lock doors. This will offer people an unprecedented degree of convenience and control, free up time and cut energy bills.
Research and Markets estimates that the global smart home market will reach $78.27 billion in sales in 2022, growing at a compound annual growth rate of 12.46% from 2015 to 2022. Success in home automation will strengthen AAPL’s position as an Internet of Things powerhouse and boost Apple stock as it collects a $4 licensing fee for each compatible device sold through its “Made for iPhone” certification program. Also, if Apple’s smart home platform succeeds, it would increase demand for iPhones and iPads.
Yet, connecting the home to the internet poses risks. It doesn’t take much imagination to think of the havoc a hacker could wreak on a smart home. One had a habit of hacking into Chinese-made baby monitors to scream obscenities at children, since the manufacturer had neglected security. Burglars could spy on the occupants of a house by hacking into the smart thermostat. At an MIT hackathon for smart homes, hackers took over 25% of the devices within three hours.
Since connecting the home opens up a can of worms, consumers may pay more for better security and privacy protections. Indeed, Icontrol Networks in its 2015 State of the Smart Home Report found the following:
“71% of consumers share the fear that their personal information may get stolen. In fact, consumers say they are more worried about this than they are worried about the cost of the technology.”
As discussed before, AAPL has the edge over competitors such as Google when it comes to security and privacy, and this should benefit Apple as mobile devices get more of our medical and financial data.
AAPL Values Privacy
In the privacy arena, Apple comes out on top. Google gets most of its revenue from advertising, while Apple makes money by selling products. Google already plans to advertise on smart home devices such as refrigerators and glasses, and this involves user data. Apple does not advertise, and this allows it to emphasize privacy, which gives it an advantage over Google.
Apple holds smart device makers to very high standards in security. Last year, Aaron Tilley at Forbes wrote that:
“Apple is requiring device makers using both WiFi and Bluetooth LE to use complicated encryption with 3072-bit keys, as well as the super secure Curve25519, which is an elliptic curve used for digital signatures and exchanging encrypted keys.”
The devices initially could not handle that much encryption, and this caused unacceptable lag times (40 seconds for a smart lock). This forced the device makers to re-engineer the products and improve them.
In the long run, this should pay off as smart homes go mainstream and attract the attention of hackers. People already are paying good money to protect their homes, as the home security industry can attest to. The New York Times put the number of security systems in the United States at 36 million in 2010, with half of these in homes.
Smart homes offer convenience, but they bring new security challenges. Connecting your appliances such as ovens to the Internet exposes you to dangers from hackers, burglars and pranksters.
People value their personal safety and privacy very highly, and will likely be willing to spend more for security features. This will benefit Apple, which boasts a stronger reputation for privacy and security.
As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.
