How Apple Will Enter the Internet of Things Market

Apple  plans to take over your house.

The company plans to announce major software that will allow people to use their iPhones to remotely control their homes, according to a report in the Financial Times. The website for the financial newspaper reports that Apple will announce its move into smart home technology at its Worldwide Developer Conference on June 2 in San Francisco.

The company's move into home automation comes shortly after Microsoft  disclosed plans to integrate home automation into Windows 8.1 by announcing a partnership with Insteon. Google has also made an effort to break into this possibly emerging field, buying Nest for $3.2 billion in January. Samsung  wants in too and the company showed off its Smart Home technology at CES this year.

Nobody quite knows whether the vast majority of people actually want to be able to tell their slow cooker to turn on or dim their living room lights from a smart phone, but all the major players seem convinced. 

What is home automation and the Internet of Things?

While Apple's move feels like a bit of a "me too" maneuver -- from a company that usually sets trends rather than follows them -- the reality is that what home automation will look like remains very much in question. Smart phones existed before the iPhone but it was Apple's product that created the category as we know it now.

Currently home automation barely exists as a mass consumer product. The players that are already out to market do things that are cool but not life-changing. It's neat to be able to remotely turn off lights, change security settings, and turn on/off the heat, but those functions feel like gimmicks, not ideas that make home automation something everyone aspires to have.  

But the possibilities are essentially endless. Apple can take home automation from an active activity to a passive one. Like setting a DVR, people will be able to program their homes to react without needing to repeat the same steps over and over. I know when I get home from work, after greeting my wife and son, I head to the bedroom to change into shorts and T-shirt. If the TV was already on and tuned to ESPN (or Food Network) when I got there that would be all the better.

Apple is pursuing this type of home automation. The company even filed a patent in November 2013 that detailed this type of individualized functionality.

Home automation as it exists now is not that different from how it has existed for the last decade. Currently the mass-produced home control products are toys for geeks with little real value beyond the wow factor of being able to show people that you can lock a door or turn off lights remotely. Apple could be the company to advance the technology beyond being a remote take on The Clapper aimed at early adopters instead of people too lazy to get up to turn the lights off.

How big is the home automation market?

The correct answer is nobody knows because it has not been proven that the public wants this technology. That has not stopped research companies from forecasting the potential size of the market.

GigaOm examined the smart home market in 2013 finding that the overall dollars spent in home automation were relatively small, with much of the money being in high-end custom systems. "Currently the largest segment -- custom-designed smart home systems -- will grow at only a 7% rate, compounded annually, to $2.2 billion in 2017. DIY kits will grow much faster but still only reach $200 million in annual sales by then. In contrast, connected home systems will explode from a $300-million base to $1.5 billion in 2017," according to GigaOm.

Conversely Juniper Research released a report in February that said the smart home market will reach $71 billion by 2018,while a 2012 report from Allied Market Research valued the industry at $4.8 billion total.

The numbers are so vastly different because we don't know if home automation will be as common as flat-screen TVs or a novelty like flat-screens that pop up from a hidden location.

Apple has the power

If any company can make home automation something people want it's Apple. The company not only has a massive base of customers already using iPhones, it also has physical retail stores with a highly trained workforce that can teach people how any potential home automation system might benefit them. Apple also has a core of devoted customers who are likely to become early adopters for any new Apple products. Those fanboys can -- if the home automation is truly useful -- become evangelists for the product helping it grow into mass appeal.

Google and Microsoft have fans (and Microsoft has stores along with locations inside a number of Best Buys) but neither has a fan base as devoted as Apple's. If home automation is going to become something that moves from novelty to mainstream then Apple has the best chance to create the category. Ultimately that could be good for all the other players as they may end up with a smaller share of a much bigger market.

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Daniel Kline is long Microsoft. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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