Will Apple Miss Out on This Huge Opportunity?

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The market for smart speakers was on fire last year. The Consumer Technology Association estimates that sales of smart speakers in the U.S. more than tripled in 2017 to 25 million units. The holiday period alone turned out to be a huge catalyst for smart speakers, with 11 million devices shipped in just three months.

This is great news for Amazon (NASDAQ: AMZN) and Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google, the early pacesetters in this market thanks to the growing adoption of their Alexa and Google Assistant-based systems. Amazon commanded 67% of the global smart speaker market in the third quarter of 2017, followed by Google at 25%, according to the latest available data from Strategy Analytics.

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However, smartphone giant Apple (NASDAQ: AAPL) is nowhere to be seen despite its early efforts to make a dent in this market. Let's see why.

The problem with Apple's smart-home strategy

It is surprising to see Apple missing out on the smart speaker revolution. The company's Siri intelligent virtual assistant was launched in 2011, so Cupertino already had a head start over Amazon in the voice assistant space when Alexa was nowhere in the picture. But it seemingly failed to capitalize on this opportunity.

Apple formally announced its smart-home platform -- HomeKit -- in June 2014. Cupertino had given developers access to the application programming interface (API) so they could centralize the controls of all smart-home devices into a single platform. The HomeKit platform came with the ability to control any smart-home appliance with Apple's Siri virtual assistant.

The start looked promising as Amazon's Alexa was yet to hit the market, but Apple's development seemingly fell behind schedule. Cupertino took a full two years to launch its HomeKit-based mobile application -- Home -- that gave consumers the ability to control their smart homes from their mobile devices.

Meanwhile, Amazon debuted its always-on, always-connected Echo smart speaker based on the Alexa digital assistant in November 2014. Almost two years have passed since Apple's Home app was launched, but there aren't enough devices on the market that work with its platform.

This can be attributed to Apple's strict hardware-software requirements for any vendor to develop HomeKit-based speakers or other smart-home products. Amazon, on the other hand, sells development kits from chipmakers like Synaptics on its developer website for just $349.

Amazon has been proactive with smart speakers, launching a set of different Echo devices at various price points to attack the smart-home opportunity. Apple will debut its HomePod smart speaker very soon, but that might not change the status quo.

Has Apple missed the train?

I mentioned earlier that Amazon and Google have established an early lead in this market. Apple is going to find it quite difficult to catch up as its rivals have upped their game. Google, for instance, recently announced that it has linked up with 15 original equipment manufacturers (OEMs) that will make smart speakers based on the Google Assistant system.

What's more, four of its OEM partners will be manufacturing speakers with an integrated smart display. This could extend Google's lead over Apple in this space and help it get closer to Amazon as users of its smart display systems will be able to see results as well as hear this, which might prove to be a big selling point.

For instance, Google's smart display can show traffic on a route or give a graphic representation of the weather forecast. The company can tap into its extensive search engine expertise to pull results from the internet and show various recommendations on the screen based on the user's habits.

Amazon is selling its own version of a display-equipped smart speaker, known as the Echo Show, for $229. So, Apple is clearly behind its rivals in this race as its $349 HomePod is yet to hit the market. But even when it does hit the market, it might be a tough sell because of a steep price tag, and the fact that it is aimed at music lovers rather than smart-home customers.

A look at Apple's HomePod product page makes it clear that the company wants to take "the listening experience to a whole new level." Of course, Apple does mention that it has smart-home features, allowing users to control the lights through Siri, but that's just about it.

Apple has been late to the game, and it might have priced itself out at a time when cheaper and more capable devices are available from rivals. Apple's HomePod might not do much to turn around its weak position in this burgeoning market, making Amazon and Google the better bets in this space.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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