One of the most tantalizingly frustrating companies in the markets today is Apple Inc. (NASDAQ:AAPL). With a market capitalization of $935 billion, it literally stands on the doorstep of $1 trillion. Yet for over three weeks, AAPL shares have made only slight progress. Could its smart-speaker system, the Apple HomePod, change this dynamic?
On surface level, the signs look encouraging. For starters, industry experts estimate that the smart-speaker market is currently worth nearly $2.7 billion. However, by the year 2023, that figure will likely jump to nearly $11.8 billion. Due to the lucrative nature of this emerging business, both Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL) are fierce sector competitors.
In addition, Facebook, Inc. (NASDAQ:FB) will enter the fray later this year. Ordinarily, such intense competition would raise significant doubts among investors. However, the Apple HomePod levers a notable advantage: it’s simply a superior platform compared to everything else.
Primarily, the vaunted consumer-tech company markets its virtual surround sound technology. Providing exceptional clarity, the Apple HomePod stands out. Furthermore, the device incorporates “spatial awareness.” In short, this groundbreaking technology adjusts audio levels based on where the HomePod is set up in your room.
Most importantly, the device utilizes Siri. With the Apple HomePod, you can play Apple Music, make and receive phone calls, and control devices connected to HomeKit, the company’s virtual-assistant product. Of course, it also helps that Apple smart devices are incredibly popular with tech-savvy Millennials.
But before you jump into AAPL, you should consider that this device probably has more downside risk than upside potential.
Apple HomePod Is Good, But not a Gamechanger
When looking at the HomePod’s technical stats, you can’t help but be impressed with it. If a correlation exists between a company’s product superiority and its share price, I’m looking to buy AAPL stock. However, that correlation doesn’t always pan out, and worse, Apple missed a golden opportunity.
Unlike the iPhone, Apple failed to strike first. According to CNET, the company announced HomeKit in June 2014, but without an accompanying smart-speaker system. In November of that same year, Amazon launched their smart speaker Echo in conjunction with the Alexa app.
Inexplicably, Apple never took advantage of the fact that it technically started the entire smart-home concept. Instead, Amazon and Google stole the tech giant’s thunder, and they’ve run away with it. Amazon is the undisputed king, bringing home 70% to 76% of U.S. smart-speaker market share last year. Google lags far behind but had a relatively respectable performance between 15% and 24% market share.
As great as the Apple HomePod is, making a dent against Amazon, or even Google, is a tall order. Not only that, their device is overpriced, and dare I say arrogantly so. Management is gambling that customers will pay $349 for the HomePod. In comparison, Amazon’s Echo Dot starts at $50, as does Alphabet’s Home Mini.
True, Amazon and Alphabet offer higher end models: the $230 Echo Show, and the $399 Home Max, respectively. But the challenge for Apple is that the HomePod has only one iteration. It simply doesn’t make sense that the company failed to offer a “fighter brand.”
I also don’t understand Apple’s overall strategy. To my knowledge, no company has ever succeeded in stealing market share by offering more expensive products. Their extreme faith in themselves may end up costing them.
The Smart Home Market Is Price-sensitive and Saturated
Unfortunately, the Apple HomePod faces two tough conditions straight from the get-go: a price-sensitive and saturated market. Alphabet has likely proved the former. According to a sales report from VoiceBot, the premium Home Max product took only 0.6% market share in 2017.
Another expensive smart-speaker system, the Harman Kardon Invoke, also came away with 0.6% market share. The lesson? Consumers definitely want cheap smart speakers.
Trying to muscle your way into this sector with one of the most expensive products just won’t work. Not only that, other manufacturers like Facebook are eager to jump on the bandwagon. The connected-home concept is no longer original. Customers have multiple options thanks to a saturated market. Competing with just one price point (and the expensive one to boot) is insanity.
For all its trend-setting ways, the company appears to have another disappointment on its hands with the Apple HomePod. If lowered sales forecasts and reduced orders are any indication, the HomePod will go the way of the iPad: popular at first, but shed interest later.
Except this time, Apple’s entry into a new and exciting sector has never resonated with customers. For a company that’s anxiously trying to wean off its dependency on the iPhone, it must try harder. The HomePod just isn’t getting the job done.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
