This column originally appeared on June 5 on Real Money, our premium site for active traders. Click here to get great columns like this.
As rumors swelled about the pending launch of an Apple (AAPL) home speaker/assistant device, many of those commenting about the reports couldn't help but point out a big challenge faced by Apple's effort: The company's Siri assistant generally isn't considered to be as Alphabet/Google (GOOGL) , Amazon.com (AMZN) and Microsoft's (MSFT) rival offerings.
Perhaps for this reason, and perhaps also for some others, Apple largely chose not to emphasize Siri when unveiling its HomePod speaker at its annual WWDC developer conference. Nor did it price the device to directly take on Amazon and Google's home speakers.
Rather, Apple focused on using some of its core strengths -- its top-notch hardware and chip engineering, and its ability to create fairly seamless user experiences tying together hardware, software and cloud services -- to deliver a compelling solution for the connected home audio market.
HomePod, which doesn't ship until December, is a $349 cylindrical device that's less than 7 inches tall, contains 6 microphones and is powered by Apple's A8 processor (found in the iPhone 6). There's no touchscreen, as some had speculated the device would have. But it is packed with audio technologies that one would more expect to see discussed in a Stereophile magazine column than at a tech giant's developer conference.
Apple's HomePod speaker
These include a 4-inch Apple-designed woofer that automatically adjusts bass playback via software modeling, multi-channel echo cancellation, spatial awareness technology that detects a room's size and a speaker's location in it and 7 beam-forming tweeters that promise "precise directional control of a multitude of [audio] beam shapes and sizes." The last two features allow HomePods to simulate surround sound, with different audio elements (vocals, instruments, etc.) directed towards different parts of a room.
In addition, two HomePod speakers can work in unison, with their music playback optimized to account for the other speaker's existence. And Apple promises setting up a HomePod will be as simple as holding an iPhone near it. Buyers will also be able to use Apple's new AirPlay 2 protocol to stream audio from iOS devices to HomePod speakers and third-party speakers in one or more rooms.
As one would expect, HomePod integrates Siri and works well with Apple Music. Siri voice commands can be issued to play specifics songs, artists and albums from Apple Music, as well as do things like play songs from a particular genre or provide relevant information for a track. Siri can also be used to do many of the things one normally associates with the assistant, such as set reminders, read messages and deliver sports scores and traffic updates.
But Apple SVP Phil Schiller spent far less time talking about the non-music features Siri can deliver via HomePods than its ability to deliver what he promised will be an unrivaled home music-listening experience. Moreover, Schiller signaled that Siri would only deliver services related to 14 specific fields (music, sports, messages, etc.), rather than fully replicate what Siri does on iPhones and iPads.
By contrast, the Alexa assistant powering Amazon's Echo devices and a smattering of third-party hardware now supports tens of thousands of "Skills" created by developers, in addition to the core assistant services delivered by Amazon. The Google Assistant service supported by the Google Home speaker and newer versions of Android isn't as far along as Alexa in creating a developer ecosystem, but it, too, has been gradually opened up. And Google can sell consumers on the arguably unmatched quality of its assistant, which integrates Google Search's Knowledge Graph and leverages Google's giant AI investments.
Throw in the price differential between HomePod and existing home speakers with built-in voice assistants, and it's clear that anyone looking to primarily buy a speaker for its assistant services has better options. Amazon's new Echo Show, which pairs stereo speakers with a 7-inch touchscreen, goes for $230. Its original Echo speaker goes for $180, and its tiny, hockey puck-shaped Echo Dot goes for just $50. Google Home officially lists for $129, but can be found for $20 less at several retailers.
At the same time, it looks like HomePod will easily outclass Amazon and Google's hardware when it comes to audio quality. From that perspective, while Apple is competing to an extent with Amazon/Google, the company it's really taking on is Sonos, whose Wi-Fi-controlled speakers -- managed via mobile apps and supported by many online audio services -- have become synonymous with connected, multi-room, home audio.
At $199, Sonos' cheapest speaker, the PLAY:1, also undercuts the HomePod. And Sonos is in the process of adding support for Alexa devices. But larger Sonos speakers respectively cost $299 and $499 (surround sound systems cost more stil). And the various audio technologies built into HomePod, along with its native support for Siri commands, are useful selling points.
Worth keeping in mind here: For all the hype surrounding it, the smart home speaker market still pales in size relative to a smartphone market into which Apple shipped 215.4 million iPhones last year. Digitimes recently reported that Amazon's contract manufacturers have been asked by the company to ship 10 million Echo devices in 2017 (more than 3 times 2016 shipments, admittedly). Meanwhile, ABI Research forecast in 2015 the total market for wireless and multi-room speakers would reach 90 million in 2020.
Given its strengths and weaknesses, it's hard to blame Apple for having the HomePod primarily target the latter market, even if the device only goes after a portion of it. Battling Sonos, which did close to a billion in sales back in 2015, is less headline-grabbing than battling Amazon and Google. But in this particular case, it's likely more profitable.
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