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Commentary Smart Home

Forget HomePod Mini rumors. Apple just needs a HomePod price cut

Commentary: KGI analyst Ming-Chi Kuo says Apple is "mulling" a smaller, less expensive HomePod amid a reported sales slump. But there's a quicker, easier way to boost buyer interest.

Tyler Lizenby/CNET

Remember the HomePod, Apple's first smart speaker? Back in the middle of the winter, it was the talk of the tech world. Fueled by a jolt of old-fashioned Apple hype, the HomePod was about to hit the retail channel, more than six months after first being announced at Apple's Worldwide Developers Conference in June. But these days, two months after its February debut, the product Apple is billing as "The new sound of home" is hitting more lows than highs.

According to a Bloomberg report, citing data from Slice Intelligence, a market research firm that tracks e-commerce sales, the HomePod's sales have slowed considerably since it launched.

Slice -- as cited by Bloomberg -- says that during its first 10 weeks of sales, the HomePod carved out 10 percent of the smart speaker market. Amazon's Echo devices were at 73 percent and Google Home products accounted for 14 percent during that time frame. By three weeks after its launch, HomePod's market share dipped to about 4 percent on average (albeit with 19 percent of the segment's revenue), Slice says, with Amazon's Echo device currently pulling in about 68 percent of smart speaker revenue.

homepod-echo-google-home-1

Left to right: The Google Home, Apple HopePod and Amazon Echo.

CNET

You can argue over how accurate Slice's data is -- the company estimates HomePod (and other) sales by monitoring e-commerce receipts of up to 5 million consumers, according to its website. (A Slice spokesperson confirmed to CNET that the company's data does not, for instance, include sales at brick-and-mortar stores.) 

But back in March MacRumors reported that HomePod's sales were "underwhelming," according to Barclays' analysts who'd spent a week in Asia meeting with companies within Apple's supply chain. And now, noted analyst Ming-Chi Kuo (also per MacRumors) is stating that HomePod sales will max out at 2 to 2.5 million units -- and that about half of those were already sold in that first month of availability, which aligns with the Slice data.

In other words, HomePods don't appear to be flying off the shelves. (Apple did not immediately respond to a request for comment on HomePod sales. The company's second quarter earnings will be announced on May 1.)

HomePod Mini vs. big price cut

The reasons for HomePod's retail travails are pretty simple. First and foremost, it's too expensive at $349 (£319, AU$499). There's no denying it's one of the best-sounding compact Wi-Fi speakers -- and maybe the best -- but it doesn't sound much better than competing products that cost less and are more fully baked in terms of their feature sets and functionality.

On the functionality front, HomePod has room to improve and it certainly will via free software updates. (iOS 11.4, for instance, looks to be adding multi-room audio and stereo pairing.) And like the Apple Watch, which had its own choppy start, the speaker will benefit from being on store shelves during the holiday buying season, which it missed last year.

Still, I think HomePod's price will have to be lower for it to gain any serious traction. And I don't think it's as simple as bringing out a theoretical "HomePod Mini" that costs less. To that end, while rumors of a smaller, cheaper Apple speaker persist -- that same Kuo report notes that Apple is "mulling" the option -- they're more wishful thinking than anything else right now.

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Indeed, when I met with Apple reps just prior to the speaker's launch, I asked, "Why'd you decide to make the HomePod the size it is?"

The answer I got was that if they went smaller -- and thus cheaper -- they'd have to compromise on sound quality. They didn't want to do that and they probably still don't.

The reality is that the HomePod should cost $279 -- or even less. One of the problems is that apparently it's expensive to build -- around $216, according to a Bloomberg report from February citing TechInsights, a product analysis firm. Profit margins on Apple products vary from product to product, but the estimated 38 percent profit margin on the HomePod seems to be toward the low end of the Apple profit spectrum.

I haven't seen a breakdown of what Apple's AirPods cost to build, but I've heard from other manufacturers of totally wireless headphones that Apple was very aggressive in pricing them at $159 (£159 or AU$229) out of the gate. That may seem expensive on the surface, but at $159, the AirPods are still one of the better priced premium totally wireless earphones (Bose's SoundSport Free costs $200 -- just down from $250 -- and Jabra's Elite 65t cost $170, for example).

The AirPods are killing it not only because they're a top product in the fast-growing headphone category; they're selling like hotcakes because they're priced slightly lower than their closest competitors. Simple as that.

We've come to accept that people are willing to pay a premium for Apple products. But not every Apple product is a raging success. Some even fail. And home audio is tricky -- particularly when you're not ostensibly a home audio company -- something Apple found out the first time it took a crack at making a speaker, the Apple Hi-Fi, several years ago.

For now, the HomePod is small potatoes for Apple, a teeny tiny part of its business, just another accessory in its line of accessories. Even if sales bellyflop, the impact to Apple's iPhone-swollen bottom line would be negligible. On this one it just has to get the value proposition right. It's missed the mark for now, but it's not that far off. It could be the AirPods of wireless speakers if it was just priced more like the AirPods are in relation to their competition.

Editors note: Originally published 4:45 a.m. PT. Updated 9:09 a.m. PT with clarification on Slice Analytics' data, and to incorporate new Ming-Chi Kuo analyst note.