How Apple Will Use the iPhone to Crush Google, Samsung

Updated from 9:21 a.m. to include thoughts from Cantor Fitzgerald analyst in the third paragraph.

NEW YORK (TheStreet) -- While the "Internet of Things," a phrase first coined by Cisco (CSCO), may not have a lot of meaning to everyone, Apple's (AAPL) potential move into the smart home may just show how important connected devices are about to come, as the iPhone maker looks to squeeze more revenue out of its iconic device, and the arms race with Google (GOOG) heats up.

Over the long holiday weekend, the Financial Times reported that Apple may announce a plans for its smart home initiative at its Worldwide Developer Conference (WWDC) next month. The smart home initiative would use the iPhone as its base remote, with the smartphone controlling everything in your house -- lights, appliances, security systems, and other connected devices, as technology companies turn their wares to the next "big thing."

Cantor Fitzgerald analyst Brian White, who rates shares "buy" with a $777 price target, notes that such a platform could be a precursor to the unveiling of the long-awaited iWatch. "During our China Tour last October, we indicated that we believed "iWatch" could be used as a multi-purpose gateway for consumers to control their home," White wrote in a note.


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Despite Apple being seen as a devices and consumer electronics company, with nearly all of its roughly $170 billion in revenue coming from the iPhone, iPad, Mac and iPod, Apple in recent years has been turning its attention to peripherals, making these devices more and more useful. Apple reported second-quarter earnings of $11.62 a share, generating $45.6 billion in revenue. The company shipped 43.7 million iPhones, 16.4 million iPads, and shipped 4.1 million Macs during the quarter.

The company has been busy filing patents over the years, particularly as it relates to the connected or smart home, with the iPhone being seen as the key, given its status and market share in developed and emerging market countries.

Apple announced Tuesday it would be live-streaming the keynote address for WWDC this year, which starts at 1 p.m. EST, a move the company typically makes for only its most important events.

Apple declined to comment for this story.

In August 2013, Apple received a patent that would allow the iPhone to essentially work as a television and smart home remote, allowing users to manage and recall entertainment:

"Systems and methods for saving and restoring scenes in a multimedia system with minimal configuration are provided," the patent filing stated. "The techniques of the present invention can allow the states of the components in the multimedia system to be captured in a scene. Once the scene has been saved, the scene can be restored at a later time. A remote control system for recommending scenes by comparing states of components in the current scene with states of components in saved scenes is also provided. The remote control system can also recommend scenes based on usage patterns. Moreover, the remote control system can allow users to designate one or more saved scenes as favorite scenes."

This isn't the only patent Apple has received related to home automation, as it continues to compete with the likes of Google, Samsung and others for consumer dollars. Over the years, Apple has filed other patents as it relates to home automation, including two from Anthony (Tony) Fadell, the creator of the iPod and the co-founder of Nest, which was recently sold to Google for $3.2 billion, as part of Google's move into the home.

The first patent reads:

An electronic device operative to monitor and control processes and operations based on the power cost of those processes and operations are provided. The electronic device can identify processes or networked devices requiring power, determine the expected amount of power required for the process or networked device, and calculate the cost of the power requirement. For example, the electronic device can receive data or algorithms defining the manner in which a power supplier computes the cost of consumed power, and predict the expected cost of the particular power requirement. Based on the importance of the process or device, and the expected power cost, the electronic device can perform a process or provide power to a networked device, or alternatively delay or cancel a process to ensure that the power cost of the device remains within preset boundaries (e.g., the power cost of the device or of a home network of devices does not exceed a maximum cap).

The second one reads:

A port that supplies power in accordance with a standard is equipped with a variable power supply and a power line communications module. Power line signals on the power conductors are used to allow a port controller to negotiate power requirements with peripheral devices and the power supply is adjusted accordingly. If the peripheral device does not support such negotiation, power is delivered in accordance with the standard. The port may be a data communications port that supplies power and data in accordance with a standard. 

While these patents show that Apple is indeed working on network or connected devices, perhaps this patent, credited to Timothy Pryor, shows how deep and expansive Apple's ambitions are as it relates to the home:

The disclosed invention is generally in the field of control of appliances in the home, and in their networking and connectivity also with audio systems and internet sources and the integration of these elements in a connected manner. Preferred apparatus generally employs a video projection system and one or more TV cameras. Embodiments of the invention may be used to enhance the social interaction and enjoyment of persons in the kitchen and reduce the work of food preparation. The invention may be used in many rooms of the house, and contribute to the well being of seniors and others living therein.

Apple, under CEO Timothy D. Cook, is continuing to use its playbook from the past, under Steve Jobs, as it watches a market emerge, then attacks with vigor, as it seeks to become the dominant player. Samsung has first mover advantage in the "Internet of Things" ecosystem, with its smart dishwashers, refrigerators and ovens, but that doesn't seem to have taken the world by storm.

Google has had mixed results as well, with the recent Nest recalls of its smoke alarms over concerns of a defect that could cause it to turn off without user notice. The recall comes amid controversy that Google recently said in a letter to the Securities and Exchange Commission that it could place ads anywhere, including thermostats, such as the ones from Nest.

There's also been recent speculation that Google could buy Dropcam, a company that makes Wi-Fi cameras that allow users to see a live stream of what's going on in their home in real time.

Assuming Apple's plans for an integrated system are real, Apple again would be entering a new market to compete with other technology companies, something Cook has promised investors time and time again. With the back half of 2014 set to see refreshes to the iPhone, iPad and the launch of the iWatch, an iHome would just be "one more thing" coming out of Cupertino, Calif., to excite both Apple enthusiasts and shareholders alike.


Also See: CES 2014: Day One Recap

Also See: Apple's 'Smart Home' Levels Android All Over Again

Also See: Apple's iPhone: The Tech Titan's Secret Weapon for TV

-- Written by Chris Ciaccia in New York

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