Here's how Apple's smart speaker will impact the market (AAPL)

Apple has begun manufacturing its long-anticipated smart home speaker, which it could unveil at its Worldwide Developers Conference (WWDC) on Monday, Bloomberg reports.

The device, which will be powered by Siri and include Beats Audio technologies, will be able to stream music, control HomeKit-linked smart home devices, and answer basic questions. Apple also plans to allow third-party developers to create their own apps for the device, similar to what Amazon and Google have done for their smart speakers.

BI Intelligence expects Apple to release a media-focused device. It's likely the product will focus on music streaming and other voice-based apps. That's in line with Apple's strengths today, but also makes sense for the future by providing it with another outlet to extend its burgeoning services business. In Q1 2017, the company's services business earned about $7 billion, up 18% year-over-year, driven by the App Store, but also including things like Apple Music and iCloud. The device could grow engagement with these services by providing users with more, and simpler, interaction opportunities, which in turn could increase revenue. And it could also boost Apple's hardware segment at the same time, by giving the firm another device to sell and encouraging more users to buy HomeKit offerings, which Apple gets a cut of.

The device could grow the smart speaker market — but is also likely to bring fragmentation. Amazon and Google currently dominate the space — the Echo products are in about 9 million US households, and about 2% of global consumers own a Google Home. Apple likely won't convert these users to its product. But the smart speaker market is growing, which means that Apple could have an opportunity to grab new entrants, especially those already loyal to the platform through phones or computers.

Apple, Google, and Amazon's devices have different uses — Apple's (likely) media-centric device isn't the same as Google's search-focused or Amazon's commerce-oriented product — which means users will be most likely to choose what product best meets their needs. But Apple's ecosystem is large enough that it could begin to eat into Amazon and Google's dominant market share by grabbing potential new customers those firms would've otherwise taken, leading to increased fragmentation.

The US smart home market has still yet to meet the expectations many observers had in the early part of this decade.

The same issues BI Intelligence first identified back in 2015 still plague the space — persistently high prices, technological fragmentation, and consumers' lack of a perceived benefit from the devices.

But the newfound popularity of smart home voice control has revolutionized smart home ecosystems across the country, and convinces more consumers to equip their homes with smart devices on a daily basis. The Amazon Echo, released in 2014, has become immensely popular and capable, awakening users to the utility of both voice control and smart home devices. This has prompted companies to rush to release competing devices and integrate voice control into their smart home ecosystems.

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Here's how Apple's smart speaker will impact the market (AAPL)

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