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The Trojan Speaker

Apple announced the HomePod at its June 2017 Worldwide Developers Conference (WWDC) in San Jose this past week. Apple’s alternative to Google Home and the Amazon Echo, the new smart speaker (with Siri ‘inside’) will ship in December at a starting price of $349. As is their wont, Apple was not the first mover in this category, but seems pretty serious about it now.

Do these products matter, and what does it mean for the future of TV? Two thoughts.

1. Resource Investments And Willingness To Compete Head-To-Head Are The Best Measures Of Strategic Intent
The business strategies of the Big-5 (Alphabet/Google, Amazon, Apple, Facebook, and Microsoft) are getting harder and harder to figure out. Each of these companies seems to be everywhere (and nowhere) from one day to the next. Amazon is out leasing a fleet of airplanes! Alphabet’s launching satellites! Is any of this real? Who knows. We seem to be living in the age of the corporate head fake.

Two things that can’t be faked, however, are the investment of resources and the willingness to compete head-to-head.

Tesla’s Gigafactory is the nonpareil example of resource commitment, demonstrating an absolutely massive bet on the future of battery production on the part of Elon Musk and the gang. (Makes it kind of hard to argue that Tesla doesn’t really care about batteries.) By contrast, the first couple of generations of the Apple TV set-top box were really kind of simple, cheap, and (to be frank) crappy products. Steve Jobs called it a hobby, and it showed. Clearly, the iSTB category just wasn’t that important to Apple in 2010.

The willingness to compete is even clearer, and equally important. The Chevy Bolt demonstrates General Motors’ willingness to compete head-to-head with Tesla for mass-market electric vehicles. GM doesn’t have to do this – it could have retreated into selling pickup trucks and hoped for the best. The fact that it didn’t demonstrates that GM believes electric vehicles are pretty darn important going forward.

Let’s apply these tests to the Apple HomePod. In terms of positioning, the HomePod was announced as basically a smart speaker for playing music. Cool, but not terribly important. Maybe Tim Cook just needed his own hobby. Based on what I’ve seen so far, however, I think the HomePod is a lot more important than Apple’s “hey, it’s a music player” marketing head fake may lead folks to believe.

Let’s look at resource commitment first. For a simple little voice-enabled speaker, the level of innovation in the HomePod is off the charts. The presence of an A8 chip alone (the same chip inside the iPhone 6, with over two billion transistors) should tell anyone that this product is not ‘just’ a speaker. Does a simple speaker need an internal six microphone array that can sense the shape of the room it’s in, as well as recognize and understand your voice across the room even when music is playing? Hardly. The outlandish amount of technology Tim Cook and company have packed into this little seven-inch tall orb tells me something much bigger than music is afoot here.

The second test is equally clear. Why are Alphabet, Amazon, and Apple so willing to battle it out head-to-head in the market for these cheap little speakers? Does anyone think Apple would suddenly be so enamored with two-inch tweeters if Alphabet and Amazon hadn’t already established a beachhead? This is about more than music, which brings us to our second point.

2. Virtual Assistants Turn The TV Set Into A Peripheral
Music has long been the TV industry’s canary in the coalmine. As any compression guy will tell you, audio is just easier to deal with than video. The same has been true for business model innovation. The first streaming services were music, not video. The first digital media stores were for music, not video. And so on and so on right down through the Amazon Echo, Google Home, and Apple HomePod. All of these products have started with music. What is truly interesting, however, is the way they are all choosing to deal with music. In every case, the actual delivery of music is treated as a backend utility.

Consider the modest request, “Play me some 1950’s jazz.” This simple use case has massive implications. First, the company that controls the virtual assistant (Alexa, Google, Siri) by definition controls all requests to that virtual assistant. (This is the same as saying that Google controls the contents of whatever I type into its search box.) More importantly, the company that controls the requests also controls the fulfillment of those requests.

In the case of music, is it any surprise that in each case the request for music is automatically fulfilled by the provider’s own house brand streaming service? On an Amazon Echo device, such a request gets sent to Amazon Prime Music. On a Google Home device, the song is delivered by Google Play Music. On an Apple HomePod, the music will come from the Apple Music streaming service. In every case, however, this distinction is invisible to the end user. There’s no interface, no log-on, no welcome message, no choice presented, no nothing. Just a conversation with an AI and then Frank Sinatra playing in the living room. Any notion of a branded provider of music is just gone.

The implications for TV providers are both apparent and disturbing. “Hey Siri (or Alexa or Google), I want to watch The Force Awakens.” It won’t be long, I assure you, before that request results in Star Wars Episode 7 immediately being streamed to the nearest TV. I can also assure you that this request will be fulfilled automatically by Apple, Amazon, or Google (with payment making its way to Disney). Any notion of a branded video store will simply vanish.

Now obviously this scenario involves a movie. For an HBO series (“Hey Siri, play the new episode of Game of Thrones”), I’ll still need a subscription to HBO. This doesn’t mean I need an MVPD, however. The actual service might be a HBO Now subscription managed via my Apple iTunes, Amazon, or Google Play account. Just as importantly, I don’t need to interact any TV interface at all, whether from an MVPD or even from HBO itself. I just ask for the show and my virtual assistant handles the rest.

The bottom line: This is a huge change, and the TV industry is not even close to ready to deal with it.

Apple’s HomePod is fighting to make Siri the default virtual assistant for your home and mine. The winners of this battle will control not just music, but the gateway to TV content as well.

Stick with TDG and stay ahead of the curve.

Joel Espelien is Senior Advisor for TDG and VP of Client Services for the Corum Group doing sell-side technology acquisitions. He lives near Seattle, WA.