Apple strategy in ‘smart home’ race threatened by Amazon

Stephen Nellis, comparing Apple and Amazon’s approaches to the smart home market:

In less than a year, Amazon’s combination of the Echo speaker system and the Alexa voice-controlled digital assistant has come close to delivering on the elusive promise of easy-to-use technology that can control gadgets in the home with a few spoken words.

Yet Amazon.com Inc’s (AMZN.O) surprise success sets up a long-term battle with Apple Inc. (AAPL.O) and Alphabet Inc’s Google (GOOGL.O) for primacy in the connected household. And the contours of that competition are following a classic tech industry dynamic.

Amazon is pursuing an open-systems approach that allows quick development of many features, while Apple is taking a slower route, asserting more control over the technology in order to assure security and ease-of-use.

The strategic importance of the “connected home” niche looms large: Amazon wants a way to own its customer interactions -mainly shopping online – without an Apple phone or a Google Web browser as an intermediary.

Apple needs to keep the iPhone at the center of customers’ lives, and has built a whole home automation architecture, called Homekit, into its smartphone.

Google, for its part, is investing heavily in both intelligent assistant software and home-automation devices like the Nest thermostats and, more recently, the Google Home speaker. But Google is behind in the race, with its speaker only hitting the market in November and compatible with a handful of gadgets beyond Nest and Dropcam, which the company also owns.

“When the iPhone rolled out in 2007, everyone developed [software] for that. Right now, everyone is developing for the voice-activated Internet,” said Mark Mahaney, an analyst and managing director with RBC Capital Markets.

Mahaney estimates Amazon sold as many as 10 million Alexa-enabled devices over the holiday season. Google hasn’t disclosed sales for its Home speaker. Apple has declined to comment on reports that it has a voice-activated speaker in the works.

Apple spokeswoman Trudy Muller said the company is leading the industry by being the first to integrate home automation into a major platform with iOS 10. “The number of HomeKit-compatible accessories continues to grow rapidly with many exciting solutions announced just this month,” she said.

For the smart home, the key developer partners are the makers of household devices ranging from lighting systems to refrigerators. There are currently about 250 devices that are certified to work with Alexa, and Amazon has encouraged rapid development of third-party applications with its open-systems approach and even financial incentives for some partners.

Apple’s Homekit, by contrast, has about 100 certified devices. And the reasons behind that gap show both the risks and the potential rewards of Apple’s approach.

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To be Homekit-certified, gadget makers must include special chips to work with Apple’s system. Developers that order small volumes of the chips say they can cost an 50 cents to $2, though prices are lower for larger buyers. Apple also requires developers to buy specific WiFi and Bluetooth networking chips that cost more than competitors.

The devices have to be made in special factories that are certified by Apple. A confidential Apple document obtained by Reuters lists more than 800 of these factories, but only a few specialize in home automation products.

Apple’s approach is slower, but gives us more robust and secure devices. When you look at things like the Mirai botnet attack last year, then that’s a good thing, as we want devices that can’t be hacked that easily.

But at the same time, this approach could lead to less people buying into the HomeKit ecosystem – especially if devices end up costing more.

I’ve mostly use HomeKit so far, and I love it, but that’s mostly because Amazon Echo isn’t really available in Canada easily. But I can see the appeal for Echo and it’s cheaper devices.

Roger Stringer spends most of his time solving problems for people, and otherwise occupying himself with being a dad, cooking, speaking, learning, writing, reading, and the overall pursuit of life. He lives in Penticton, BC