Where technology and economics collide
Apple is responding to the runaway popularity of Amazon’s Echo smart speaker with a Siri-based competitor. The new speaker, dubbed HomePod, was unveiled at the Worldwide Developers Conference in San Jose, California, on Monday.
Apple is playing catch-up. Amazon introduced the Echo way back in 2014, and Google started shipping its competitor, Google Home, last year. The HomePod won’t start shipping until December 2017, and at $349, it’s about twice as expensive as the Echo ($179) and Google Home ($129).
Of course, it’s not unusual for Apple to charge a premium for upmarket technology products. The iPhone, for example, is one of the most expensive smartphones on the market, yet Apple sells tens of millions of them every year.
In his talk introducing the device, Apple’s Phil Schiller positioned the HomePod as a smart speaker for music lovers. He bragged about the sophisticated hardware in the device. It has a ring of seven small “tweeter” speakers arranged in a ring around the bottom of the unit and a large 4-inch woofer in the middle.
In contrast, reviewers have panned the sound quality of both the Google and Amazon speakers. “While neither speaker is outright awful, I wouldn’t buy either of them if sound quality was my primary aim,” CNet wrote last November. The Echo has just two speakers, including a 2.5-inch woofer that doesn’t compare favorably to the one in the HomePod.
The big question is how important audio quality is for success in this market. Apple is betting that some customers will pay a big premium for higher sound quality. Amazon and Google are betting that most customers won’t care.
HomePod’s premium price reflects Apple’s upscale business model
Amazon and Google’s smart speakers play a supporting role in the companies’ larger business strategies. Amazon’s goal is to make the Echo ubiquitous to help sell Amazon Prime subscriptions and other digital content. Google wants to get users hooked on as many different Google services as possible to support its advertising business. For both companies, the priority is to attract as many customers as possible, without worrying too much about making a profit from each one.
In contrast, making devices is the main thing Apple does. Apple needs its users to be excited enough about the product to pay a hefty premium. It doesn’t care that much if marginal customers wind up going to Amazon or Google, any more than it cares about customers who buy dirt-cheap Android phones.
The big question for Apple is how important the “platform” aspect of these smart speaker platforms turns out to be. Amazon is betting that ubiquity is the key to success in this market. It is not only selling a $49 mini speaker called the Echo Dot, it is also encouraging third parties to put Alexa, the Echo’s intelligent assistant, into everything from lamps to washing machines. The rapidly growing number of Alexa devices is encouraging developers to create “skills” — the smart speaker equivalent of apps — for Alexa. If you buy an Alexa-enabled appliance, you’ll also be able to ask it to call you an Uber or play trivia games with you.
Google is pursuing a similar strategy, offering its smart assistant not only on Google Home and Android but also on iPhones.
Siri, in contrast, is only available on Apple devices. And because Apple devices are aimed at a premium market, that dramatically limits the number of people who can potentially become Siri users.
If developer mindshare turns out to be as important for voice assistants as it was for smartphones and PCs, then this could be a serious disadvantage. Apple is already three years behind Amazon. The HomePod might never get enough traction for developers to take it seriously, relegating it to also-ran status like the Windows Phone in the smartphone race.
Apple, in contrast, is betting that the “smart” part of the speaker doesn’t matter that much. The company hopes that making a speaker that does a great job of playing music and podcasts will be sufficient to earn it a loyal customer base. Siri is never going to be as ubiquitous as Alexa, but Apple believes it can be a highly profitable business anyway.