The HomePod story over the 2019 Holiday quarter was a double-edged sword for Apple. On the good news front, sales of the HomePod grew an impressive 62% year over year in the 4th quarter. Not so good is the fact that Apple still isn’t making up any ground in the smart speaker market, as they remain in 6th place with only 4.7% of the current market.
So bad news first here. I think the message is pretty clear that, while I and many other HomePod owners love its sound quality, Apple missed their best mass market opportunity by focusing on the wrong things. If you look at Amazon and Google, the leaders in the connected speaker and home automation markets, they offer products like the HomePod as niche devices. It’s their inexpensive home products that have driven rapid adoption of their platforms.
So Apple has missed the mark on two different fronts here, priority and price, and they are closely related. Their biggest mistake was focusing on the wrong priorities. By making a single connected speaker product that was focused on high sound quality, they kneecapped their market potential by pricing themselves out of the game. There is just no way that a product like the HomePod can ever be priced low enough to compete with the Echo Dots of the world and the market share numbers bear that out. By not coming out with an inexpensive competitor to push HomeKit, Apple has fallen far behind the pace.
So what is the good news for Apple here? Well, the numbers from last quarter also say that there is a market for a good connected speaker that is priced more competitively, even if it is at the margins. The big increase in HomePod sales last quarter was driven by substantial discounts down to $199. That tells me there is potential for Apple to continue to update and upgrade the HomePod and gradually grow their sales at the high end.
However, the real opportunity for Apple is to release a less expensive connected speaker that could sell far more units. If they are serious about expanding the reach of HomeKit, then this is their best opportunity to establish a permanent foothold into Apple users’ homes.
There are signs that something like this could be coming from Apple. They have been changing HomeKit to make it far easier for accessory manufacturers to add compatibility. They are also starting to open things up to give makers more flexibility with expanded access to the software. Lastly, Apple also joined the recent initiative to create a single, open communication protocol that will allow future accessories to work with all systems. But these steps are just the beginning of what has to happen to drive further HomeKit adoption.
Considering that Apple has de-emphasized the Apple TV hardware, which can act as an in-home HomeKit controller, by both lack of updates and by adding AirPlay2 and their TV app to several Smart TVs, another device to handle in-home control will be necessary. Unless Apple decides to punt on the smart home and home automation, which I don’t see happening, they will need to have a new piece of home-centered hardware to handle this role.
So we know that neither the Apple TV or the HomePod (at least as it stands now) are that device. Because Apple has been putting increased time and investment into HomeKit over the last year, it stands to reason that something else is coming to take on the role of a less expensive home integration device, because their home platform can’t grow without it. The good news of last quarter is that, if Apple prices such a device low enough, it should be able to sell at a level that the HomePod can’t. If Apple wants to find itself higher than 6th place in this race next year, this is what it will take to get there.