Light Reading

Apple Joins Home Automation Wars

Mari Silbey
6/3/2014
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Apple is ready to join the home automation wars. It's staking out a claim that falls somewhere between the cable and telecom companies, which want to sell home automation as a managed service, and the retail brands, which would prefer that consumers take a more do-it-yourself approach to smart home living. (See Betting on Smart Homes.)

At Apple Inc. (Nasdaq: AAPL)'s Worldwide Developers Conference this week, the company introduced HomeKit, a platform for connecting and controlling smart home devices through an iPhone or iPad. Apple is in the process of certifying hardware partners such as Koninklijke Philips Electronics N.V. and Honeywell International Inc. (NYSE: HON), and it plans to position itself as the glue that makes devices like smart light bulbs and connected door locks work together. (See Apple Launches Biggest Changes Since iPhone.)

If the strategy sounds familiar, that's because there are already many other companies working toward the same goal. On the service provider side, cable and telecom operators alike are selling home security and automation bundles in the hopes of generating new revenue from their existing broadband infrastructure.

So far, Icontrol Networks Inc. is the primary platform of choice used by cable companies. On the telco end, AT&T Inc. (NYSE: T) has built its Digital Life service on Cisco technology, and Verizon Communications Inc. (NYSE: VZ) is reportedly ready to jump back into the fray with a new platform provided by GreenWave. (See Cox Bets on Smart Homes in Vegas and GreenWave Crashes Smart Homes.)

On the retail side, the home automation market is coming together in two different ways. Big retail chains are teaming up with platform partners -- like Staples has done with Zonoff for Staples Connect, and Lowes has done with AlertMe for its Iris solution -- while other companies like SmartThings and Revolv are offering their own technology as independent platform providers.

Apple falls somewhere in the middle. On the one hand it looks very similar to other over-the-top retail providers. On the other hand, it has a huge ecosystem in place to enable subscription home automation services in the future if it chooses to do so.

Apple arguably made a strategic mistake when it bet on music downloads rather than subscription streaming services. However, the recent acquisition of the Beats Music streaming radio service looks like an effort to change direction. Why wouldn't Apple consider a similar move in home automation? (See Apple Confirms Beats Buy for $3B.)

Without a doubt, Apple has two major advantages that its smart home rivals can't match: the iOS operating system and hundreds of millions of mobile devices sold worldwide.

— Mari Silbey, special to Light Reading

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Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
6/8/2014 | 10:50:10 PM
Re: Great analysis, but
mhhf1ve - Beats has a profitable business, experience making deals with the entertainment industry, and executive leadership Apple wants to bring on board. All of these are good reasons for the acquisition.
mhhf1ve
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mhhf1ve,
User Rank: Light Sabre
6/5/2014 | 4:37:14 PM
Re: Great analysis, but
Ok. That makes the Beats acquisition even more puzzling because it's not like Apple needs the Beats music app UI and its small number of users. Maybe Beats has some magic that I'm not aware of? Fashionable design cred? Is that worth multiple billions of dollars?
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
6/5/2014 | 3:44:47 PM
Re: Great analysis, but
mhhf1ve - "Hmm. Not so sure that streaming services are actually doing so well -- the royalties that need to be paid to the labels could ultimately kill off these streaming services, unless Netflix-like deals can be hammered out with copyright owners."

Good point. OK, let me rephrase my earlier statement: Apple goes into markets where the idea is good, but the user experience is broken. And the user experience for Spotify andother streaming radio is just fine.
mhhf1ve
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mhhf1ve,
User Rank: Light Sabre
6/4/2014 | 5:55:38 PM
Overall, though, where is the killer app in home automation?
Home automation isn't exactly a new thing, but it seems to be getting revived. However, I'm not sure where the extra value is coming from? Energy savings from "smart thermostats" is one thing, but... do people really need to be able to turn on lights and close garage doors remotely over the Internet? 
mhhf1ve
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mhhf1ve,
User Rank: Light Sabre
6/4/2014 | 5:53:26 PM
Don't discount Google and Nest?
There are more Android devices out there than Apple iOS devices, so if Google can translate Nest products into more general home automation, Google also has a pretty huge ecosystem of connected devices to leverage.

The difference is that Google doesn't make that much money off selling hardware (yet?), and it only dominates in controlling the Android OS. But Microsoft made a lot of money just doing an OS, so Google might pull the same trick, but with embedded/mobile devices and Android.
mhhf1ve
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mhhf1ve,
User Rank: Light Sabre
6/4/2014 | 5:50:20 PM
Re: Great analysis, but

Apple specializes in remaking markets that are broken. Spotify and other streaming companies are doing fine. 

Hmm. Not so sure that streaming services are actually doing so well -- the royalties that need to be paid to the labels could ultimately kill off these streaming services, unless Netflix-like deals can be hammered out with copyright owners.

 

Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
6/3/2014 | 5:39:06 PM
Re: Great analysis, but
Question is whether it's too late for Apple to regain the lead. 

Apple specializes in remaking markets that are broken. Spotify and other streaming companies are doing fine. 
msilbey
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msilbey,
User Rank: Blogger
6/3/2014 | 2:15:44 PM
Re: Great analysis, but
Fair enough given that Apple did build the digital music business. You're right that they just held on to the model for too long. 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
6/3/2014 | 2:02:22 PM
Great analysis, but
Great analysis, Mari! But I have to strongly disagree with this: 

Apple arguably made a strategic mistake when it bet on music downloads rather than subscription streaming services.

iTunes was hugely successful for Apple. It destroyed and rebuilt the music industry in Apple's favor. It's one of the greatest business success stories ever.

Apple's mistake was hanging on to downloads too long. It failed to see that the industry has moved on to streaming now. It's not too late to catch up.  

However, the recent acquisition of the Beats Music streaming radio service looks like an effort to change direction. 

I believe that's exactly what Apple is doing here. I believe Tim Cook was being perfectly straightforward when he laid out the reasons for the acquisition: Acquire a strong, but growing music streaming business; get its smart, successful leadership on the team; and because it's a tactical win -- Beats is already profitable, and that's money that will now go into Apple's pocket. 

It'll be interesting to see whether Apple operates Beats as a separate brand. I think Apple will do that, and that'll be a first for them. The only other time Apple operated a separate brand was Filemaker, and that was another world. 
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