Two Investing Legends Join Forces for One Night ONLY…

and reveal the massive market events that will shape 2020 — and what they recommend you do NOW with your money.

Tue, December 10 at 7:00PM ET
 
 
 
 

Apple Inc.’s HomePod Is the Harbinger of Doom for Other Smart Speakers

Consumer audio brands should be nervous at the prospect of premium smart speakers like Apple HomePod and Google Home Max

One of the things that’s become clear in the wake of recent product announcements from the big consumer technology companies is that they are not only taking smart speakers seriously, they’re also taking them upmarket and to a broader audience. Apple Inc. (NASDAQ:AAPL) and most recently Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google are both releasing smart speakers that are designed to not only wrestle market share from Amazon.com, Inc. (NASDAQ:AMZN), they have also have premium wireless speakers in the crosshairs.

Apple Inc.'s HomePod Is the Harbinger of Doom for Other Smart Speakers
Source: Google

AAPL is betting that a $349 HomePod smart speaker is going to have a big impact and help boost AAPL stock at a time when the company can see the end of runaway iPhone sales growth.

Smart Speakers Have Become Big Business That Will Get Bigger

When Amazon first released the Alexa-powered Echo smart speaker in 2015, people weren’t sure what to make of it. At $179.99, it was expensive for a Bluetooth speaker, but its audio wasn’t nearly on par with wireless speakers in that price range.

As the Echo insidiously wormed its way into becoming a leading smart home hub, Amazon expanded its offerings but with less expensive (and even less acoustically impressive) models. The Amazon Tap and Echo Dot expanded its smart speaker lead, but were no threat to the companies that specialize in audio gear. No-one buys an Echo Dot to replace their Bluetooth speaker.

With the Amazon Echo continuing to grow in popularity, in 2016 Google came after the Echo with its Google Home. At that time — just a year ago — analysts were estimating 500% growth for smart speakers and a market that could be worth $2 billion by 2020. Earlier this summer, that number was revised to $13 billion in annual smart speaker sales by 2024.

In other words, while we were distracted by flashier high-tech gear like smartwatches, smart speakers have quickly ramped up to becoming one of the fastest growing consumer electronics product categories.

Going Upscale

Something funny happened while Amazon was busy expanding Alexa’s impressive skills library and selling boatloads of Echo Dots slashed to $35 for Prime Day.

Apple announced it was coming after the smart speaker market, but it was going upmarket with the sole offering of a $349 Siri-powered HomePod. This made the companies that sell premium audio gear take notice. With adaptive multi-room audio, multiple drivers and a stylish look, the HomePod was suddenly a competitive threat to companies like Sonos.

From Apple’s perspective the move makes sense. It has always been a premium product company with no interest in slashing prices in a race to the bottom. It also owns Beats Audio, a premium audio company in its own right. For Apple, the customers who were going to buy its smart speaker are unlikely to be swayed much by the price difference between a $99 speaker and a $349 speaker –especially when the HomePod does double duty as a legitimate option for playing high quality music.

The wrinkle with the $349 HomePod is that it not only takes on Amazon in the smart speaker race, it takes on Sonos and a host of other audio companies for consumer audio dollars. That problem got worse on Wednesday when Google announced the $399 Google Home Max, a super-sized smart speaker with premium audio that supports multi-room audio, offers AI-powered audio tuning and comes with a 12-month free subscription to YouTube Music.

Smart speakers that are good enough to replace traditional compact home stereos and premium wireless speakers are now officially a problem for audio manufacturers. They are fighting back, of course. Sonos just announced its own smart speaker that offers Alexa integration, with support for Siri and Google Assistant promised for 2018. Harmon Kardon — now owned by Samsung Electronics — has a Cortana smart speaker arriving shortly.

But Google, Apple and Amazon hold the advantages of system-level integration of their smart speakers with their other products. They can offer features like free voice calling that third parties are unlikely to be able to match, even if they do integrate the voice assistants. The tech giants can also give away stuff, like Google’s free 12-months of YouTube Music or Amazon’s discounted $3.99 Amazon Music Unlimited rate for Echo owners.

Audio manufacturers need look no further than Bluetooth headphones to see what happens when Apple takes interest in a market. With the introduction of the AirPods (along with new Beats models), Apple quickly took 40% of the wireless headphone market.

With premium smart speakers like the HomePod and Google Home Max, those smart speaker numbers may need revising upward yet again. Not only is the revenue per sale looking like it may be much higher than it was even a few months ago when $179 was the upper ceiling, but the smart speaker market is expanding to begin eating away at the traditional home audio market as well. Good for GOOGL and AAPL stock holders, but a potential nightmare for companies whose bread and butter is premium wireless speakers.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/apple-inc-s-homepod-doom-smart-speakers/.

©2019 InvestorPlace Media, LLC