Apple (NASDAQ: AAPL) launched its first smart speaker back in early 2018. The device received mixed reviews – it was praised for its excellent sound quality but it arguably didn't deliver on the " smart "part of" smart speaker. " On top of that, this wasn't an offer intended to compete on price – it was priced at a premium to other popular smart-speaker offerings.
Apple's brand strength allowed it to sell as many of these devices as it did. A while back, analysts with Strategy Analytics reported that HomePod captured a significant amount of overall industry revenue share (1
Apple tried to stimulate demand for the HomePod by giving Apple Music users $ 50 discount on the device in the UK On April 4, 2019, Apple formally (and quietly) cut pricing of the HomePod at $ 50. Here's what this means.
Maximizing revenue, profits
Setting product pricing is a tricky balancing act. If the company sells a product too low, it might increase the number of units it sells, but that might not increase either revenue or gross profit. If the company was a product too high, then per-device revenue and gross margin could be quite high, but the company might be leaving a significant number of unit shipments on the table yet again to maximize revenue and gross profit.
At the original $ 349 price point, HomePod was one expensive smart speaker. That, coupled with the fact that it wasn't exactly home terms in terms of features and functionality, probably limited its appeal.
As mentioned above, Apple sold a fair number of HomePod devices and it wouldn't be surprising if we were to learn that the bulk of the buyers of the device over the last year were hardcore Apple product enthusiasts. More than a year after the original launch, however, there are a number of factors to consider:
- The number of hardcore Apple enthusiasts who might be interested in HomePod but haven't bought one has likely decreased significantly.
- Apple's HomePod production costs are likely to come down as it has gained experience assembling the devices. In other words, the manufacturing yield rate has probably improved, and the manufacturing costs of the components inside have further improved their own cost curves.
- Apple hasn't updated the product in over a year.
first and third factors have probably led to a significant reduction in HomePod sales at the initial launch price, while the second factor should give Apple some flexibility to pricing while enjoying the kind of per-device gross margin that it saw with the initial device sales .
With all of this in mind, it's little wonder that the company just cut HomePod prices. The lower price point should make the device more attractive to customers and the incremental unit volume, hopefully, lead to greater overall revenue and gross profit than the company continued selling the device at the $ 349 price point.
Apple is undoubtedly hard at work on future generations of HomePod. I expect Apple to do what it learned from the successes and failures of the first-generation HomePod into those upcoming products.
Perhaps once Apple introduces a new generation of HomePod, it will be able to start selling those devices at higher prices. And as long as those devices are compelling enough, Apple might be able to sell such devices at the higher price points than it was able to with the first-generation HomePod.