Apple’s new smart home hardware play could risk alienating its ecosystem partners

Apple is looking to bolster its smart home ecosystem by expanding its hardware lineup and making the HomeKit platform more attractive to third-party developers, according to Bloomberg.

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Per the report, Apple has explored developing its own line of smart home accessories such as door locks, security cameras, and lights. The company may also retool HomeKit, building on efforts to make the smart home platform more developer-friendly.

These efforts would build on what have become two core aspects of Apple's strategy for generating new revenue streams:

  • Expanding services offerings. As the high-end smartphone market has become increasingly saturated, Apple has relied on services to drive revenue growth. In Q3 2019, the company generated a record profit of $11.5 billion from its Services segment, up 13% year-over-year. It facilitated this growth by adding Apple Music, Apple Pay, and Apple News, and it plans to launch Apple TV+ on November 1. Apple could monetize a strengthened smart home ecosystem with new subscription services, such as a premium home security offering — Google's Nest and Amazon's Ring both offer premium home security subscription services. New smart home hardware could also generate demand for proprietary services — for instance, a security camera could stimulate demand for the forthcoming HomeKit Secure Recording feature that stores data on iCloud, which requires a paid subscription for storage beyond 5 GB, according to 9to5Mac.
  • Selling in-house products as an alternative to those offered by third parties on Apple's platform. Many of the products launched by Apple in the last few years have directly competed with those from partners in the company's ecosystem: For instance, Apple crowded out partners in the iPhone accessory space by launching its own cases and headphones, and challenged service providers selling on the App Store with the launch of Apple Music and Apple News. In launching its own smart home hardware, Apple would once again directly challenge the third-party partners selling devices on the HomeKit platform, for which they pay Apple a licensing fee to access.

Though Apple could grow new services and hardware revenue streams by expanding its smart home ecosystem, it also risks alienating third-party developers by simultaneously courting them and developing competing products. Third-party smart device-makers could be forced to stomach Apple charging a licensing fee, taking 30% of any purchases accrued through the App Store, and simultaneously developing a competing product — something they may not be willing to do.

But Apple likely hopes that by growing its base of smart home users, third-party developers will be compelled to remain on the HomeKit platform. Amazon has also grappled with striking this balance, as it succeeded in attracting third-party device-makers on the Alexa platform while also expanding its in-house smart home product lineup. Apple will likely also succeed, as it can parlay the strength of its iPhone ecosystem to draw users to its smart home ecosystem.

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