Apple (NASDAQ:AAPL) and Sonos (NASDAQ:SONO) — the wireless multi-room audio pioneer — have been battling over the market for premium smart speakers. Now the two companies are preparing to go head-to-head on another front. Both companies are reported to be releasing premium wireless headphones, targeting the $300+ range. Unlike the smart speaker battle, AAPL could be the first to get an edge over the market with the Apple headphones expected to arrive in the second half of 2019, while Sonos is reportedly targeting 2020.
We have been reasonably certain that AAPL is planning to release Apple headphones for some time now. The company owns Beats, one of the most popular high-end headphone brands, so it has a lot of IP available to help with the design. And over the past several years, Apple has seen its own AirPods wireless earbuds turn into a smash hit.
So it’s really not surprising that the company would be planning to put its logo on Apple headphones. A report last June suggested they would be positioned above Beats, as true premium headphones taking on leaders in that segment like Bose and Sennheiser. As with the AirPods, expect these to be locked into Apple Music and Siri.
A new report from Bloomberg puts a more definite release date on the Apple headphones: the second half of 2019. And it throws a new competitor in the mix, one that has the potential to make things a little tougher for Apple. According to Bloomberg, Sonos is planning to expand beyond the wireless speaker market into wireless headphones. Targeting that $300+ premium market, Sonos is aiming at high-end audio that supports multiple streaming music services, and multiple digital assistants. It’s expected that Sonos will have its headphones ready for launch in 2020, setting up a battle with Apple as they both leverage their brands and tech know-how to break into a lucrative market currently dominated by established audio companies.
What’s At Stake
Bloomberg noted a letter to shareholders from Sonos, in which the company said half of all music listening takes place outside the home — taking wireless speakers out of the equation. The company wrote: “We plan to push our boundaries by investing resources to make the experience of Sonos outside the home a reality.”
Apple’s HomePod smart speaker hasn’t been a big hit, but it has been dominating the market for $200+ smart speakers, the market that Sonos used to own. With serious competition for its wireless speakers and Sonos stock down nearly 50% from the highs it hit just after its long-awaited IPO in August, the company needs a shot in the arm. Headphones could be it.
For Apple, there are multiple reasons to expand into the premium wireless headphones market. Apple headphones would be another way to get Siri in use. They would support the growth of Apple Music. And while they could be used to promote the sale of iPhones, they would be another source of revenue that’s not dependent on the sale of new iPhones (since they would work with existing models and most likely with rival smartphones as well). That’s important when iPhone sales are on the decline and the company is looking for ways to bolster revenue from other sources.
What will Apple and Sonos be fighting over? The global market for headphones and earphones is expected to hit $20 billion by 2023. That’s considerable revenue. Enough that even Microsoft (NASDAQ:MSFT) recently got into the premium headphones market. That’s not a big deal for Apple maybe, although every bit helps, especially when it’s not an iPhone, but Sonos’ annual revenue for 2018 was in the $1.1 billion range. Getting a cut of that $20 billion headphone market would be a huge win for this company.
But Sonos will have to battle not only the existing headphone manufacturers, but also Apple if it’s going to break into that market in a meaningful way. Apple has IP, the experience of its AirPods launch and formidable marketing on its side. If the company hits that expected 2019 launch, it will also have an entire holiday shopping season to build a lead against Sonos, reversing the position AAPL found itself in trying to sell the HomePod premium smart speaker with Sonos already entrenched in the home.
The biggest advantage Sonos will have over the Apple headphones will be support for multiple music services and multiple digital assistants. Will that be enough? With so much at stake, Sonos investors, in particular, are going to be watching this battle closely.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.