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Apple Might Miss Out on Smart Speaker Growth This Year

Evan Niu, CFA, The Motley Fool

The market for voice-controlled smart speakers is blowing up, and this year could be a pivotal one for the product category's adoption among mainstream consumers. Being able to simply ask a smart speaker to play whatever song is stuck in your head at any time has proven to be a remarkably compelling use case. Even incumbent premium speaker makers like Sonos, which is planning on going public soon, will need to navigate the market's ongoing transition to smart speakers.

Apple (NASDAQ: AAPL) was tardy to the smart speaker party, with its HomePod launching just a few months ago to lackluster reviews. As a result, the Mac maker may miss out on one of the most promising growth opportunities in consumer electronics in years.

HomePod on a shelf

Image source: Apple.

The smart speaker market is expected to hit a major milestone this year

Earlier this week, Canalys released some fresh estimates on the smart speaker market for 2018. The market researcher now expects the smart speaker installed base to approach 100 million by year's end, a huge milestone for a product category that was jump-started by Amazon.com (NASDAQ: AMZN) in 2014 with the original Echo. If that prediction proves accurate, that would mean the installed base grew by 2.5 times compared to the end of 2017, according to Canalys' estimates.

By 2020, the smart speaker installed base could be an incredible 225 million. By 2022, it could reach over 300 million, with Apple comprising just 10% of the installed base that year. Amazon and Google could each grab 34% of the 2022 installed base, in Canalys' view.

Unsurprisingly, Amazon is expected to retain its top dog status in 2018, representing over half of the installed base. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) subsidiary Google is expected to grab roughly 30% of the installed base with its growing portfolio of Home devices. What about Apple? The Mac maker might only garner a measly 4%. While Apple has been able to successfully tap many markets despite being late relative to rivals, it seems unlikely that will be the case in smart speakers. The company often says it would rather be best than first, but HomePod is clearly not the best smart speaker on the market overall.

While HomePod does offer high-fidelity audio, its price tag is still too high for what you get. Only Apple Music is supported, and Siri continues to lag competing virtual assistants.

It's not too late

Like all long-term forecasts, a lot can change in the years ahead. Canalys Research analyst Vincent Thielke notes, "Amazon and Google know the power of an ecosystem lock-in and have been engaged in a fierce price war to try and build the largest installed base."

The challenge is that "fierce price war" is not in Apple's strategic vocabulary. Apple never competes that aggressively on price, and even its more affordable products tend to be priced at a premium relative to comparable products. That being said, it's clear that Apple needs to hurry up with the "HomePod Mini" that is reportedly in the pipeline, which is expected to cost $150 to $200. In that rumored price range, it would still cost more than the flagship Echo and Home speakers (not to mention the most affordable $50 versions).

The HomePod can't carry Apple's smart speaker strategy all by itself.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.