Investing in the HomePod: The Stocks Behind Apple's (NASDAQ: AAPL) Latest Product Reveal
Apple Inc. (NASDAQ: AAPL) held its annual Worldwide Developers Conference (WWDC17) this week, and not too many people outside the tech world even noticed.
Perhaps the cloud of political commotion surrounding #ComeyDay was diverting the public’s attention, but usually when the world’s leading device maker reveals a new product, everyone’s ears perk up and listen.
But not this time. In fact, I’d venture to guess not too many of our readers have heard yet that Apple has an entirely new product coming in December: an intelligent home speaker that’s been dubbed the HomePod.
Of course, it’s not that the HomePod is getting zero coverage at all, but compared to the hype that once surrounded the iPad and Apple Watch when those products were first released, it’s all been little more than a whisper.
One can speculate on the many reasons this might be the case. Maybe there wasn’t sufficient buildup to the reveal, or perhaps the considerable $350 price tag is keeping excitement at bay.
Most likely, though, consumers just aren’t seeing enough innovation here. The immediate response to the HomePod was actually pretty brutal — so much so, in fact, that Apple was forced to disable comments on its YouTube video revealing the product.
Consumers immediately ripped on Apple for simply “putting Siri on a speaker” and for limiting its use to Apple Music. Overall, it’s been received as an underwhelming response to the Google Home and Amazon Echo, which both retail for lower price tags and have considerably more robust AI offerings.
I already wrote a little on this topic back in April, calling artificial intelligence the single biggest threat to Apple, and the scenario is so far turning out...
I don’t want to spend too much time on this, but the crux of the argument is as follows:
Apple, while absolutely dominant in the realm of build quality and sleek hardware design, has failed to position itself as a collector of the information and data that will be necessary for building a particularly compelling digital assistant.
Since its early days of success, Apple has thrived by keeping its ecosystem as tight as possible. The company has even gone to extremes of making its own asymmetric screws to prevent people from getting inside its devices.
In doing so, Apple has kept its consumer base confined to its line of products, but also smaller than it could be. Despite its brand-name dominance, Apple’s iOS market share has been pegged between just 10% and 18% in recent quarters.
Meanwhile, Google’s Android operating system has been taking 80% of the global market, actively learning about its consumers by analyzing their locations, spending habits, and points of interest.
In other words, Google has been spending a decade collecting information from mobile devices and figuring out various ways to utilize it, while Apple has largely been concerned with collecting money upfront.
Put simply, Google has a wider breadth of knowledge than Apple, giving it a huge advantage in AI applications.
Google’s “Knowledge Graph” already contains 18 billion statements about 570 million entities, with a schema of 1,500 entity types and 35,000 relation types. All told, the company’s knowledge base is armed with 70 billion facts.
This means you can ask Google Assistant a question, and instead of directing you to a website, it can answer you directly in 70 billion different scenarios. Siri, despite being around since 2011, doesn’t even come close to doing that.
The Verge sums it all up pretty nicely:
But Apple seems to be making its digital assistant a secondary focus, unlike its competitors. Siri will be limited to specific categories that Apple thinks make sense for the HomePod — weather, reminders, unit conversions, and so on — which means you aren't going to be ordering a pizza, hailing a cab, or making a dinner reservation all by voice...
Apple could have used Monday's announcement — at an event expressly for developers — to offer a way to code deeper, more valuable interactions with Siri. Instead, it didn't say a word about any of that with relation to the HomePod. It did expand Siri's functionality slightly, but those features were limited to iPhones and iPads.
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Of course, there are plenty of people who will continue buying Apple products if they’re already inside the Apple ecosystem, regardless of its limited AI capability. If you use Apple Music and have the money to spare, the HomePod is a compelling hands-free home sound system.
Whether or not the HomePod can manage to outperform Google Home or the Amazon Echo, though, isn’t all too important for investors who want to play the picks and shovels opportunity here. The fact of the matter is that Apple gave us further confirmation this week regarding what I’ve been saying for some time now: the future of interface is voice.
I’ve shared these projections before, but they’re worth emphasizing more than once:
Gartner projects that by 2018, 30% of our everyday contact with technology will be conversational.
And ComScore estimates that 50% of all web searches will be through conversation by 2020.
The investment opportunity here is pretty clear, at least to me. If we’re going to be interacting with computers by voice, that’s going to be a win for the companies that enable our devices to listen.
Specifically, we’re talking about makers of MEMs microphones, or the tiny listening devices embedded in our mobile devices and, now, in our digital home assistants.
The kicker here is that these digital assistant hubs use arrays of multiple mics in order to parse out what users are saying as accurately as possible. Amazon’s Echo uses seven microphones per device; Apple’s HomePod uses six.
If every consumer gets a digital assistant hub for their home or apartment, that’s roughly a tripling of current mobile device sales for MEMs microphone manufacturers. And if the tech giants like Apple, Amazon, and Google get their way, we’re looking at one of these hubs in every room of tomorrow’s voice-controlled smart homes.
For the full scoop on that opportunity, click here.
Until next time,
Jason Stutman is Wealth Daily's senior technology analyst and editor of investment advisory newsletters Technology and Opportunity and The Cutting Edge. His strategy for building winning portfolios is simple: Buy the disruptor, sell the disrupted.
Covering the broad sector of technology and occasionally dabbling in the political sphere, Jason has written hundreds of articles spanning topics from consumer electronics and development stage biotechnology to political forecasting and social commentary.
Outside the office Jason is a lover of science fiction and the outdoors, and an amateur squash player at best. He writes through the lens of a futurist, free market advocate, and fiscal conservative. Jason currently hails from Baltimore, Maryland, with roots in the great state of New York.
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