Apple’s forthcoming “HomePod” speaker may never catch up to Amazon’s Echo’s early lead in connected, voice-driven home appliances, argues Barclays analyst Mark Moskowitz. But that’s okay because Apple can still make its mobile devices the “control panel” for a collection of connected things in the home that will be enabled by “HomeKit” software, allowing Apple to make money down the road.
Barclays analyst Mark Moskowitz today casts a jaundiced eye on Apple’s prospects in the “home connected hardware market,” the term used to refer to connected devices such as Amazon’s “Echo” and the forthcoming “HomePod” device from Apple.
HomePod, unveiled in June, is slated to go on sale in December, for $349, a price that, as Moskowitz & Co. point out, is “95% more expensive” than the $179 Echo.
In conjunction with a 62-page report today, compiled with help from numerous colleagues at Barclays such as Blayne Curtis in semiconductors, Saket Kalia and Raimo Lenschow in software, Moskowitz, who has an Equal Weight rating on Apple shares, thinks Amazon is in the “pole position,” if, as he suspects, the user interaction in the connected home “shifts from mobile to voice.”
Want to publish your own articles on DistilINFO Publications?
Send us an email, we will get in touch with you.
He thinks that will be the case, and as such, HomePod may never catch Echo, he believes.
But that’s not necessarily bad for Apple, Moskowitz believes.
HomePod is just a kind of “buzz” generator, while the real game for the company is capturing the “control panel” of the connected home with the iPhone and its iOS software:
If Apple can carve out a bigger presence in the Connected Home, we believe that the company will further increase the stickiness of its ecosystem. However, we are skeptical that the company will be able to leverage its position to generate material revenue, at least near-term. Reason being, we view the HomePod as an ancillary offering to both the Connected Home and the Apple ecosystem more broadly we view the HomePod through a similar lens as the Apple Watch in that the product may generate buzz On the bright side, if iOS and iPhone are used as the central control panel of the Connected Home, it will be even more challenging for users to change platforms, in our view. This will further strengthen Apple’s moat and eventually lead to higher device sales in the long term.
There’s a lot at stake in the view of Moskowitz and colleagues: A $307 billion market by 2020, with $134 billion spent on devices like Echo, another $173 billion spent on services and software and sales much of which could go to Amazon, or to service providers and integrators like Comcast and Best Buy:
We believe the Connected Home market can reach $307 billion in revenue by 2020, comprised of $134 billion in hardware sales and $173 billion in services/software/advertising sales. The hardware opportunity is derived from the domination of the virtual assistant home speaker We also see the hardware upgrade cycle for many appliances in the home becoming “connected” with embedded radio chips to connect to a network. Amazon, Google, and Apple are all competing aggressively to own the user on-ramp to these other appliances.
Here’s their infographic for this brave new world:
The authors model 47.1 million units of Echo being sold this year, rising to a whopping 120 million by 2020; Google Home units may rise from 3 million this year to 50 million by then, with everything, including HomePod, having much less. They lay that out in this infographic:
Moskowitz and colleagues argue more and more people will do stuff in the home through the voice interface of things like Echo, with its “Alexa” assistant; right now, “Amazon is in the driver’s seat” in the home, the authors write.
They see Alphabet’s having fumbled an early lead in voice-activated assistants after it bought Nest:
However, despite its lead in voice-search, Android, Nest/Dropcam, what Google missed was that the choke point and user interaction layer was about to move up the stack from mobile as the hub to something new entirely with Echo. All the innovation in connecting phones with end points like Nest or Chromecast may ultimately prove inconsequential if the user chooses to interact via Voice with Echo. Google will become what third-party app developers are to Android, just another service provider at the whims of Amazon’s distribution choke point. This would be less than ideal for Google who generates nearly 100% of its profits from advertising and app distribution.
As a result, the “Google Home” voice-activated device now badly trails Echo, which may have an “installed base” of 20 million units, the analysts estimate, versus Home’s fewer than 1 million.
The authors don’t think it’s not over yet for Google: Amazon still has to catch up in areas of natural language processing:
Google’s strength is around Cloud, ML and getting better at NLP. The reduction in error rates from Voice search from the mid-20%’s to low single digit % of queries over the last three years speaks to this strength Amazon is leading device market share today, and has the greatest Voice dataset to work with, but it needs to catch up to Google in NLP and ML in order to secure its position as the leading player longer term. We feel comfortable that Amazon will get there given their strength in the cloud with AWS and long history in machine learning at Amazon.com.
Apple, meanwhile, can use HomePod to “strengthen iOS’ leading position as a platform and expand its reach beyond traditional hardware devices.”
Through its “HomeKit” software framework, writes Moskowitz, and iOS, and lots of partnerships with third parties, there will be other ways to make money for Apple down the road:
Apple’s Connected Home strategy is focused on the company’s ability to leverage its software ecosystem while maintaining its established position within its massive loyal user-base. This is an interesting approach when compared to Amazon and Google, which seems to be putting more emphasis on AI-powered speakers as the center of their Connected Home strategies. While we believe that AI-powered speakers could be used to drive incremental sales for Amazon, and gather additional data for Google, we wonder whether these devices can really be the center of the Connected Home in their current form. For Apple, we believe the iPhone will provide a natural control panel for the Connected Home due to its user-friendly interface and constant presence with the user. We note, despite the rapid growth of the Amazon Echo, Apple’s Siri still runs on significantly more devices. For context, we estimate that Apple’s installed base of devices is now much larger than 1 billion, including more than 700 million iPhones, compared to an estimated 20M+ Echo and Echo Dot units sold by Amazon at the end of 2016.
Date: Sep 05, 2017