Blown Speaker

Apple HomePod's High-Priced Road to Nowhere

If the company is serious about reinvention, this isn't it.
Photographer: David Paul Morris/Bloomberg
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Each time Apple introduces a new type of technology hardware, it is inevitably measured against the iPhone. 

Apple Inc. hasn't yet sold one of its delayed HomePod voice-activated speakers, but it's already a flashback to the original iPhone in one way: It is a single product with a relatively high price of $350, or seven times the starting cost of similar devices from Amazon.com Inc. and Google parent company Alphabet Inc. 

Sure, you might think this is the very definition of Apple. This company makes high-priced luxury products. That was true in 2007 when people howled at the $500 starting price for the iPhone. 1 But Apple isn't solely a gadget maker for the well-heeled anymore. Apple now sells multiple versions of its popular products in a fairly broad price range. People can buy a $1,150 iPhone X but also a $350 iPhone SE. New iPads start at $329, and the Apple Watch at $250. Apple's products aren't cheap, but they are also not out of the mainstream.  

And then there's HomePod, which is decidedly out of whack and becoming increasingly more so before it even hits store shelves. Google and Amazon are both offering holiday discounts on voice-activated speakers, while Apple's HomePod gets fine-tuning before it takes a shot at occupying the high end of the young market. 

Apple's decision to stick with -- at least for now -- a single computerized home speaker at the high end could generate rich profits. But profits cannot be Apple's sole mission anymore, and the HomePod pricing feels like a missed strategic opportunity. 

Missing Out

The two market leaders in voice-activated home speakers have about 27 million devices in U.S. homes, up from about 5 million one year ago

Source: Consumer Intelligence Research Partners, survey of 500 U.S. owners of Echo or Google Home devices

To be fair, Google and Amazon aren't necessarily trying to turn a profit from their devices, and that is why they're engaging in a price war to the bottom on the lowest-priced versions of their home speakers.

Those companies view the speakers as a gateway to hook people on Amazon's collection of Prime membership benefits or to lure them to Google apps and internet services. Not surprisingly, the lowest-priced speakers appear to be selling the best. Amazon has said its Echo Dot, discounted to $30 from $50, was the best-selling item across its entire product catalog over the Thanksgiving shopping period. 2

Apple doesn't necessarily want to sell more gadgets than anyone else. Market share didn't matter when Apple could grab the lion's share of profits without having the best-selling hardware. Its gross margin, or the share of revenue remaining after production costs, has been roughly 38 to 40 percent for years -- a level that generates envy among hardware makers. 

That's Not Gross

Apple's gross margins in recent years have been fairly consistent at 38 to 40 percent of its revenue

Source: Bloomberg

Note: Apple's fiscal year ends each September.

But if Apple truly wants to become more than a hardware company, it needs to think different -- to steal from a Steve Jobs advertising campaign. It needs the quality of its digital music service, mapping app, Siri, future web video products and more to be up to par and not only good enough to help differentiate its hardware from that of rivals. Apple doesn't necessarily need to sell $50 Siri speakers. But if Apple wants its software and internet offerings to stand on their own, then it needs to borrow from Amazon and Google and make the hardware a means to an end -- and rethink gadget prices, too. 

And Apple also may need a do-over on the biggest selling point of the HomePod. Apple has said it doesn't matter that it isn't the first to market with a home speaker that can flip on the lights or play music on command. That's true. The Amazon Echo devices are far from mainstream, and Apple has a history of honing niche technologies and taking them to the masses. 

This time, Apple says it's different from the first arrivals because the HomePod's audio quality is better than anything else. To that I respond: Huh? 

Maybe that spin will appeal to audiophiles. But this is not how Apple defines new product categories. People didn't buy the original iPod because it sounded better than digital music players that came before. Apple was pitching an experience with music that was completely different from what came before. People didn’t buy iPhones because they made crisper calls than other mobile phones or had a better digital Rolodex than the old Palm Pilots. The iPhone was a re-imagined mobile computer that happened to make calls.

The company's history makes Apple's focus on better sound fidelity for the HomePod seem like a failure of imagination, or worse, a failure to make a truly groundbreaking product. 

Apple wants to reinvent itself from the iPhone company into a company that has an enduring and profitable long-term relationship with people, as Google and Amazon do. That is a far different Apple from the company Steve Jobs led when he introduced the iPhone more than 10 years ago. And that's why it feels odd for a company that is trying to be different from its 2007 self to market a HomePod as a flashback to that old hardware-centric Apple. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. And people who bought the iPhone out of the gate were doubly upset when Apple cut the price a few months later. 

  2. Both companies also have higher-end voice-activated speakers. The Google Home Max is $399, and Amazon sells a $230 tabletop home video conference system called the Echo Show, which it has temporarily discounted to $150.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net

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