Apple’s first smart home device is now more affordable. But that doesn’t make it any more successful.
In February, market researcher Consumer Intelligence Research Partners (CIRP) said Amazon’s Echo products and Google’s Home devices had 94% market share in the U.S. smart speaker market. At 6% market share, Apple was far behind.
In a statement at the time, CIRP suggested Apple’s HomePod pricing was killing consumer adoption. In an interview with Fortune on Friday, CIRP co-founder Josh Lowitz said that argument still holds.
“Without an entry-level product, it will be hard for HomePod to gain a strong position in the smart home market,” Lowitz said. “More than 50% of Amazon Echo and Google Home devices are the Dot and Mini, which start at $50 each and are often discounted.”
Lowitz’s comments to Fortune came just days after Apple quietly dropped the price on its HomePod smart speaker by 14% from $349 to $299. The move inched the HomePod closer to some of its top smart home competitors, including the $150 Amazon Echo Plus or $129 Google Home.
But in a bid for smart home dominance, inching towards affordability isn’t enough.
Apple pays the price
Most industry watchers agree the smart speaker market presents a major opportunity for companies. In December, Deloitte said it expects the global smart speaker market to grow to $7 billion in 2019—a 63% jump compared to the $4.3 billion the market generated in 2018. The company said it expects consumers to buy 164 million smart speakers this year, up from 98 million units in 2018.
The study’s findings also revealed a problem for Apple: Deloitte said the average selling price on those smart speakers will be $43—a far cry from the $299 Apple’s HomePod sells for.
Lowitz, who acknowledged Apple’s price cut was “a move in the right direction,” cautioned that even at $299, the smart speaker is “way above the average purchase price of the competitive products.”
In an interview with Fortune on Friday, Wedbush analyst Dan Ives was clear on his views of Apple pricing. He called the HomePod’s initial $349 price tag “a disaster” and said that the price cut is already “a year too late.”
Apple, which has been quiet on HomePod plans, didn’t respond to a Fortune request for comment on the HomePod and its position in the marketplace.
Lesser in (nearly) every measure
Apple released the HomePod in February 2018. At the time, the company pitched HomePod as a smart speaker that could deliver high-quality audio and fill a room with sound. Apple said the HomePod was a speaker first, but the device also shipped with the company’s Siri virtual personal assistant. Apple didn’t say why it downplayed Siri performance, but most industry watchers believed it was due to Siri’s relatively small slate of abilities compared to competitors, like Amazon’s Alexa and Google’s Assistant.
Indeed, over the last year, Alexa and Google Assistant have become more powerful and provided users with more features to control smart home products, like lightbulbs and thermostats, hail cars via Uber, and even order a pizza. Apple’s Siri, which focuses on some smart home integration and responding to user queries, lacks many of those skills.
In other words, the HomePod has fewer skills, a much higher price, and far less market share than competitors. In nearly every measure—save, perhaps, for its high-quality audio—HomePod has problems.
“Apple on the HomePod has missed the boat on a massive home speaker market,” Ives told Fortune.
The next gateway device
So, what can Apple do to make a bigger splash in the smart speaker market?
CIRP’s Lowitz thinks Apple needs to expand its HomePod product line to include more options for customers on a budget.
“HomePod needs a broader product line, with devices designed to fit different places and uses in the home,” he said. “Amazon and Google are quickly gaining a foothold with users that have multiple units in their home.”
Apple might agree. According to several recent rumors, the company is working on a new HomePod that could hit store shelves this year. The device isn’t expected to ship with the same quality speakers, but could hit a much lower price target to appeal to deal-seeking shoppers.
The stakes are high for Apple. Both Lowitz and Ives believe smart speakers can be gateways to company “ecosystems.” Customers who buy an Echo, Google Home, or HomePod might be more willing to buy other products from the company. They might also sign on to the respective company’s digital services to buy music, movies, and other content.
“There is some cross-pollination where loyal customers in one category are more likely to be loyal customers in another,” Lowitz said. ” If Apple is unable to gain a meaningful position in the smart home market, they will lose the synergies it offers with the parallel markets.”
That’s important for Apple. Last month, the company spent an entire press event focused not on high-powered hardware, but its fast-growing Services business. At the show, Apple unveiled a new television service called Apple TV+, a new game-delivery platform called Arcade, and a magazine-subscription offering called Apple News+. If nothing else, it sheds light on how important Services are to Apple—and how they could be boosted by a more popular HomePod.
The good news for Apple is that there’s plenty of time for the company to catch up. Neither Amazon nor Google has cemented its position as the dominant force in smart speakers. The issue, however, is that it won’t be easy for HomePod to become the dominant force.
“Apple has an Everest like uphill battle to gain share in this market,” Ives said.
