From the time that Apple Inc. (AAPL) - Get Apple Inc. Reportfirst unveiled its $349 HomePod speaker in June, it's been clear that the device didn't aim to take on sub-$150 smart speakers powered by Amazon.com Inc.'s (AMZN) - Get Amazon.com, Inc. Report Alexa and Alphabet Inc.'s (GOOGL) - Get Alphabet Inc. Class A Report Google Assistant as much as connected home audio systems from the likes of Sonos and Bose.
But as a pair of other audio-related Apple offerings keep gaining converts, it might be short-sighted to think that Apple, which once revolutionized the music industry via the iPod and iTunes, is just trying to provide consumers with a Siri-capable alternative to Sonos. The device can also be seen as a useful addition to a multi-part strategy to profit from an explosion in digital music listening that's been driven by streaming services.
The HomePod, whose launch was recently delayed to early 2018, has been promised from the start to deliver a high-end audio experience. Whereas Amazon's sales pitch for its Echo home speakers very much starts with its Alexa voice assistant, Apple has often talked up HomePod features such as powerful bass (made possible by an Apple-designed woofer), multi-channel echo cancellation, dynamic audio frequency-tuning and (thanks to spatial awareness tech and 7 beam-forming tweeters) the ability to simulate surround sound.
And while Apple's HomePod pitch certainly doesn't ignore Siri, much of the emphasis here is on how Siri works with Apple Music to let subscribers easily pull up songs and playlists, as well as play tracks based on a user's listening preferences and sync playlists and preferences with Apple Music apps on other devices. Indeed, Apple chose to limit Siri's non-music feature set on the HomePod to 14 fields (news, sports, timers, etc.) it thinks would be of use, along with support for the HomeKit home automation platform.
Revenue-wise, don't expect HomePod to significantly move the needle for Apple, which just wrapped up a fiscal 2017 in which it did $229.2 billion in sales. Even if Apple was to sell 5 million HomePods next year -- for comparison, Amazon was reported earlier this year to be planning to ship over 10 million Echos in 2017, and Amazon's average selling price (ASP) is much lower -- it would be equal to less than 1% of Apple's sales. It would also be about 75% more revenue than what Sonos once said it was on track to achieve in 2015.
But while the HomePod by itself might not be a needle-mover for Apple, the company's broader digital music hardware and services business is starting to be.
As of September, Apple Music had over 30 million subscribers -- up from 20 million in December and trailing only Spotify's 60 million-plus. Assuming an ASP of $11 -- standard Apple Music plans cost $10 per month, and family plans $15 per month -- 30 million paid subs would spell nearly $4 billion in annual revenue.
And from all signs, Apple's $160 AirPods -- like the HomePod, their launch was delayed -- have been a smash hit. The wireless headphones were very supply-constrained for much of 2017, as their wire-free design and a slew of intelligent features (e.g., automatic iPhone pairing when taken out of their case, automatic pausing when taken out of one's ear) fueled strong demand.
There's also, of course, Apple's Beats unit, which remains a top player in the premium headphone market and which saw a well-received product refresh in the fall of 2016. Beats' annual sales were estimated to be around $1.5 billion before Apple bought the company in 2014.
Apple doesn't break out Beats or AirPods revenue, but did say on its Nov. 2 earnings call that its total "wearables" revenue -- believed to cover Beats, AirPods and the Apple Watch -- rose 75% in fiscal 2017 and was equal to that of a Fortune 400 firm.
And while it's unlikely that many Apple Watch buyers purchased the smartwatch for its music features alone, it does look as if Apple has come to realize music-listening is a popular use case. Whereas the Watch previously only played music from playlists synced from one's iPhone, devices running watchOS 4 (launched in September) can stream Apple Music tracks via Wi-Fi or (if possible) 4G connections. Likewise, Apple has gradually improved the music feature set of its Apple TV set-tops via updates to its tvOS.
All of this is being done as streaming service adoption leads total music listening to grow -- particularly among younger consumers -- and puts the music industry on better footing than it has been in decades. The RIAA estimates U.S. retail music revenue rose 11.4% in 2016 to $7.7 billion, thanks to a 69% increase in streaming revenue to $3.9 billion.
And in a recent study, Nielsen estimated that 90% of the U.S. populace listens to music and spends an average of 32.1 hours per week doing so. Those numbers are up from 86% and 26.6 hours in 2016. It also estimated that streaming now accounts for 41% of listening time, up from 32% in 2015.
As consumers spend more time listening to music and more money on services providing it, it's not a stretch to imagine sales of headphones and speakers delivering quality music experiences also rising. And as is true for Apple's efforts in many other fields, the whole of what it's trying to offer a customer base prone to using two or more Apple devices daily, from the HomePod to headphones to its various Apple Music and iTunes apps, is more than the sum of its parts.
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