Apple's Strategy for Controlling Sound

September 2016 marked the start of Apple's latest battle in what has been a multi-decade war. This newest battle was going to look and sound different. Apple had unveiled new iPhones lacking dedicated headphone jacks. The controversial move was criticized by many as a sign of Apple going too far in flexing its power and killing off legacy technologies for the sake of change. However, Apple's move wasn't about headphone jacks or even iPhones. Apple had made a big bet regarding the future of "sound on the go," and headphone wires were the enemy. We now see Apple unveiling its revised strategy for controlling sound in the home. The best way to analyze products like AirPods and HomePod is to look at them as the latest weapons in Apple's battle for controlling sound in our lives. 

The Strategy

Apple's motivation in controlling sound is based on delivering impactful and memorable user experiences. Accordingly, music has played a fundamental role in Apple's sound strategy for the past two decades. Listening to a particular song can mentally remove someone from his or her surroundings. Music is one of the few things capable of fostering such strong emotional connections and experiences. It's a safe bet to assume music will be around for a very long time while music consumption will remain a key task handled by our computing devices. 

There are two parts to Apple's strategy for controlling sound:

1. Sound on the Go
2. Sound in the Home

Sound on the Go

Apple is no stranger to selling devices designed to deliver sound. However, the iPod marked the beginning of Apple's quest to control sound on the go. Positioned as a "breakthrough digital device," the iPod changed the way we consumed music on the go, offering a much better experience than existing mobile listening options at the time. In what is now difficult to comprehend, the iPod effectively put an end to not being able to have your entire music library in your pocket. 

The first iPod commercial highlighted the device's mobility as the user danced around his house while listening to music via iPod and white earbuds. The kicker was found at the end as he stepped outside the four confined walls of his home and into the outside world without missing a beat. The iPod was about consuming sound not just around the home, but more importantly, outside the home. 

Over the subsequent years, Apple went on to unveil a number of different iPods, some of which turned out to be more popular than others. However, Apple was just getting started when it came to controlling sound on the go. Sensing that the iPod's long-term threat was found with people listening to music on smartphones, Apple began work on a much more ambitious product: iPhone.

As seen in Exhibit 1, the iPhone changed the course of Apple's sound on the go strategy. While the iPod was thought to be Apple's first mass-market product, the iPhone went on to redefine what it meant to be truly mass market. When Apple unveiled iPhone, the company was selling 50M iPods per year. Apple is currently selling 215M iPhones per year. Even though iPhone was much more than a dedicated music player, Apple never let go of its deep interest in music. 

Exhibit 1: Apple "Sound on the Go" Devices Unit Sales (iPod and iPhone) 

AirPods mark the latest step in Apple's sound on the go strategy. The device is born out of the belief that there isn't a place for wires in a wearables world. AirPods were initially criticized for their unusual looks, but those concerns have quickly disappeared. Whereas wireless AirPods may have looked odd to some, having wires hanging out of people's ears will eventually look out of place. 

Based on sales, AirPods have been a resounding success. According to my estimate, Apple sold approximately 11M pairs of AirPods in 2017. This positions the device as the third best-selling Apple product out of the gate, behind iPad and Apple Watch. 

Exhibit 2: AirPods Unit Sales

AirPods sales momentum is poised to continue over the next few years. As Apple Watch achieves greater independency from iPhone, AirPods will play a crucial role in delivering sound to tens of millions of Apple Watch users. Apple will reportedly unveil updated AirPods later this year. The runway for AirPods is long with a list of potential features that could include everything from health tracking to noise cancelling and augmented hearing. The big question found with future AirPods is, which features will get the green light? Apple is also rumored to unveil new noise-cancelling, over-ear headphones in a move suggestive of Apple expanding its line of wireless headphones.

Sound in the Home

It's easy to look at HomePod as Apple's foray into controlling sound in the home. In reality, the company's sound in the home strategy started with a whimper in 2006 with the iPod Hi-Fi speaker. The speaker was tasked with reinventing the home stereo for the iPod age by being positioned as a companion product to iPod. Apple ended up pulling the plug on the device after just 19 months of sales. 

Twelve years later, Apple is giving sound in the home another try with HomePod. There are key differences in strategy this time around. Whereas iPod Hi-Fi was meant to enhance the iPod and iTunes ecosystem, HomePod and its A8 chip are being given a more ambitious goal of reinventing sound in the home by bringing computational audio to the masses. HomePod scans the room it's located in and then tailors sound output to that room. However, Apple isn't using computational audio to underpin its initial HomePod marketing campaign. Instead, Apple is relying on emotion, a page taken directly from the iPod, iPhone, and even AirPods playbooks. The latest HomePod "ad," a 4-minute film directed by Spike Jonze, is striking in theatrics. However, the thing that instantly jumped out to me about the video is how similar it is to the original iPod ad.

In both, we see people enjoying music using Apple devices.  While one is listening to an iPod to get him pumped up to leave the house and experience the outside world, the other is listening to HomePod after coming home following a tough day. In both examples, the people lose themselves in the music experience produced by an Apple device. 

Apple Music and Beats

Instead of being a revenue or profit driver, Apple Music serves as the glue in Apple's quest to control sound. While Apple's Beats acquisition was driven by music streaming and buying into Jimmy Iovine's overall music vision, Apple probably didn't mind getting a popular headphones brand in Beats. It's not as if Apple was unfamiliar with the power found with headphones (not to mention the branding opportunity). 

The fact that Apple kept the Beats brand for headphones speaks to how Beats headphones are likely serving a different target market. In fact, Apple has positioned Beats headphones as a compliment to AirPods. This has likely gone a long way in removing the oxygen from the wireless headphone category market and preventing competitors from establishing any kind of beachhead.

Elephant in the Room

Apple's strategy for controlling sound in the home seems to have met its match in the form of Amazon Echo Dot and Google Home Mini. Whereas iPod, iPhone, AirPods, and Beats are personal devices delivering sound to individual users, cheap stationary smart speakers powered by digital voice assistants are shaping up to be more about communal experiences. In addition, the value found with an Echo or Google Home isn't derived from sound quality but rather from the intelligence of the digital voice assistant that lives in the cloud. This has led the tech community to think Apple misfired by positioning HomePod as a high-quality music speaker. 

I see things differently.

The rise of digital voice assistants like Alexa and Google Assistant have seemingly redefined a stationary speaker's purpose so it's now about delivering intelligence rather than sound. The implication here is that the stationary speaker part of the equation is temporary in nature. If the same intelligence can be delivered to the user via another way, say via smart glasses, a smartwatch, or a pair of wireless headphones, low-end stationary speakers lose value. This idea serves as the basis for why I think the current stationary speaker narrative is off the mark. Apple looks at a stationary speaker as a tool capable of delivering intelligent sound. This use case likely won't change any time soon.

With HomePod, Apple isn't selling a high-quality music speaker. Instead, Apple is selling a new kind of music experience - one that isn't able to be produced with mobile devices, low-end speakers used for digital voice assistants, or even high-end speaker systems that may exceed $1,000. This music experience consists of a music streaming service, a digital voice assistant, and a combination of hardware and software that allows HomePod to map its surroundings and adjust sound output accordingly. 

iPod did not become popular because it offered vastly superior sound quality on the go. Instead, it became a hit because it offered a better all-around music listening experience versus the competition. In addition, fashion began to matter with iPod and the accompanying white earbuds. We see a similar dynamic take place with AirPods. Millions of people aren't buying AirPods because of their superior sound quality. Instead, AirPods just work and offer a great user experience. Similar to iPod, AirPods are also seeing building momentum in fashion. AirPods are becoming the new cool, fashionable item that people want to be seen wearing on the street. 

Juxtaposition

Apple is running away with its controlling sound on the go strategy. The company has no legitimate competition in the wireless headphone market. While this may change, it's not clear where that competition will come from. Meanwhile, Apple's positioning with controlling sound in the home appears to be much more precarious. Many think such a dramatic juxtaposition is due to Alexa and Google Assistant having already established a beachhead in the home. I'm not so sure about that. My suspicion is that HomePod is facing three different issues that make a challenging environment: 

1. Communal experiences. Voice-controlled smart speakers positioned in a common area aren't personal gadgets like iPhones and AirPods. It's not realistic to assume a family of four will have four different smart speakers catering to each member of the family. Apple's approach to this situation with HomePod appears to be to initially assume the device is for one user and then give that user the option to turn the device into more of a family music speaker that anyone can use to consume music. However, there are questions as to whether that can truly provide a superior music listening experience. 
2. Not just about music. While music has underpinned Apple's sound on the go strategy, iPhone and AirPods are used for more than music consumption. It's a stretch to say the same thing applies to the first iteration of HomePod with which music consumption is the primary use case. This may change down the road as Apple brings additional features to HomePod, but it's not clear if anything would replace music consumption as the speaker's primary use case. 
3. Competing against nonconsumption. With HomePod, Apple's most intense competitor ends up being nonconsumption, or the lack of high-quality speakers in the home. Up to now, most people haven't seen the need for or appeal of high-quality sound in the home. The high-end speaker market is niche. Apple is trying to change that and thinks a broader focus on the music listening experience is the answer.

While there are differences between Apple's sound on the go and sound in the home strategies for controlling sound, both share a common trait. Ultimately, each is about delivering experiences. In terms of sound on the go, Apple will likely look to deeply integrate Apple Music into its growing wearables lineup. In addition to delivering music, these wearables products will also serve as a conduit for delivering a digital voice assistant to the user. For sound in the home, Apple believes a use case for a stationary speaker that will likely still be around 5, 10, and even 15 years from now is music consumption. There is a long runway found with HomePod and the ability to reimagine sound to deliver a better music experience. 

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