• WBD101

Being Smart on Hearables

更新日期:2019年12月29日


Authors: Kow Ping and Skip Orvis


Hearables – Market Forces are Driving an Inevitable Technology Shift

When a product becomes successful, competitors enter the market, rewarding those who innovate with victory while others fade away. Today’s earbuds look and sound quite similar to those of a decade ago; given the ubiquitous nature of earbuds use, the constraints of the shape of ears and the laws of physics surrounding acoustics it is no wonder that with thousands of companies vying for a piece of a very lucrative pie there is very little to differentiate amongst them.


Competition and Adaptation in the Consumer Electronics Market

Like phones, computers and TVs, earbuds are a consumer electronics product facing increasing competition making them ripe for a significant business model change.

Phone companies led the pack when it came to being creative with their sales model. They introduced the service + hardware bundled subscription, however, as new phone models rapidly emerged, and subscription price competition increased, this sales model became less compelling. The hardware costs of the latest phones kept rising and became un-recoverable unless subscription costs increased.

PC companies cannot control the “content” or activities performed on their devices, with an exception for Apple’s and Google’s products. While software companies like Microsoft have been successful in creating a recurring revenue model, a study by Bitglass confirms that PC hardware has not. This is likely due to a lack of innovation and downward price pressure from tablets and smartphones.

Worldwide TV unit sales are basically flat, with existing players scrambling to add new features or larger screen sizes just to maintain current sales volumes. One can get a 65 inch model this year for the same price of a 55 inch version bought last year. Even though the 55 inch models are retailing at lower price points, consumers already have an acceptable budget in mind and are likely to “buy up” to the 65 inch model. TV manufacturers are therefore challenged to provide enough new features to fill the same retail price, regardless how beneficial that 10 inches are to the consumers, or whether the consumers can tell the difference between 4K and 8K. One successful example of an alternative model was the giveaway of a free TV with content subscription from LeTV, until they overstretched their resources, and resulted in an overall service stoppage.


Competition is changing in the Earbuds market

The earbuds market has continued to grow, per a study by ReportLinker. The earbuds and headphone space is projected to continue to grow at a rate of ~13%, reaching values of $US36B by 2024, especially with the increased ownership and usage of earbuds. However a weakness has surfaced within the established brands in the mid-priced segment, these players are feeling intense pressure from direct to market Asian manufacturers as they are simply leveraging their brands or standard features such as industrial design and acoustics. The successful ones will have to turn to new business models, new features or new market segments to look for growth, and according to the same ReportLinker study, fitness and sports are the fastest growing end-use segment in the global market, at a CAGR of more than 15%, is one such growth market.

With higher levels of component integration, reduced Bluetooth chipset costs, simplified packaging pioneered by Apple and the direct to market approach, manufacturers are finding it increasing easier to add additional features while maintaining the market accepted retail prices due to reduction in the original cost of goods sold (COGS).


The Purchasing Considerations for Earbuds

For earbuds retailing at more than US$100, consumers buy from leading brands, tending to consider style, available technology and the user scenario paired with the prestige of brand. However only 3 of the 13 best earbuds on Amazon, according to customer reviews, are priced above US$100.

The under US$100 price points consists of the following market accepted retail prices points: $99, $79, $49 and $29. These consumers, maybe buying a second pair for their commute or work use, are not as brand loyal and are purchasing based on value. Therefore products from the direct to market Asian manufacturers appeal to them as those manufacturers integrate as many features as they can for each retail price point as compensation for the lack of brand. These Asian manufacturers have had years of product creation and production efficiencies sharpened by producing for established brands. This has led to significant improvements in many areas including acoustics performance, radio frequency (RF) connectivity, power management circuitry, battery life and waterproofing. They also bring in a wealth of direct to market experience honed by online sales to Chinese consumers – they combine value for money with a great consumer purchasing experience, capturing increasing slots on the Amazon’s best sellers’ lists.


The Market Ahead for Consumer Earbuds – Feature Rich, Same Retail Price

Like TV, PC and Smartphones companies, earbuds manufacturers don’t own the audio content, therefore they keep adding new features to compete. From wired to True Wireless Stereo (TWS), from water resistance to waterproof, from one speaker to adding a balanced armature, many have been able to do it while maintaining the same or with slight increment to the COGS due to the aforementioned savings.

Established brands have diminishing advantages to new features as providers increasingly go direct to the manufacturers. The providers benefit from shorter time to market and more money off of each integration when working directly with manufacturers. New features such active noise cancellation (ANC), heart rate sensing and sleep support are available at the manufacturer level, for anyone whether they have a brand or not. Less people in the supply chain – i.e. technology partner + manufacturer direct to market means better customer value.

While ANC is getting common, a new set of sensing technology that emerged has the potential to provide key differentiating factors, and a recurring revenue model. Sports and health sensing have the ability to turn a basic earbuds into a “hearable,” adding significant value for users via insights into their body’s health and well-being.


Surprise – It’s Not Actually about the Technology

In the end, consumers feel better knowing they have received the best possible value for the money. This year’s products must have more features/benefits but at the same price points of last years’. So, while established brands asked “Why would consumers want heart rate in the earbuds since they already have it in their smart watch”, Asian manufacturers are saying “Let us add all of the features we can without raising the price, this provides more value for money at each retail price point and will make up for our lack of brand”. This fits in perfectly with the fact that millennials, who represent the majority of e-commerce purchases, don’t care and probably don’t know the brands that their elders are familiar with!

Product development now involves targeting a retail price, determining a maximum acceptable COGS to hit that retail price, and then identifying what maximum feature set can be included within. The result is therefore not about explaining new features such as heart rate sensing, rather it is about how to create a more feature-rich product at the same retail price by taking advantage of cost efficiencies gained. The more cost that can be saved in the implementation of basic features, the more additional features can be added while maintaining the same retail price.


A Silver Lining – From Earbuds to Smart Earbuds (Hearables)

With people replacing their smartphones less frequently, the market opportunity to capitalize on the freeing up of disposable income is shifting to the second most popular electronics product consumers carry. According to a survey of more than 600 people conducted by Well Being Digital (WBD101), two thirds of those surveyed don’t leave home without their earbuds. This number climbs to nearly 80% for respondents 25 years of age or younger.

Perhaps it is not unrealistic to apply the recurring revenue model to hearables since the use of hearables during commute, workout and even for sleep is increasing (according to the same survey conducted by WBD101), meaning that consumers are becoming more and more attached to their earbuds which provides an opportunity for a health sensing revenue stream to be created, à la smart wristbands.

This means that earbud brands can try to monetize the health content that passes through these hearables. Whether it is the relaxation data that comes during a commute, the cardiovascular data that comes from a workout or the sleep pattern that comes from a sleep analysis, data trends can be captured by an app for the consumers. Therefore with such health data applications already getting prevalent on wearables, there should be no reasons why hearables couldn’t, not to mention that with hearables, the consumers can hear audio coaching and advice which is not possible on wearables!


The Smart Takeaway

Markets behave like children learning how to play soccer, each player in the market chases after the same moving ball, often in a herd. In earbuds’ case, successful companies will have to change the way they do business, learning from other consumer electronics markets and quickly separate from the herd.

The success in the earphone market is about being Smart. Smart in terms of recognizing that consumers expect value/upgrades at the current market accepted price every year, that the pace of such upgrades will get faster as innovation on smartphones passes down; smart in terms of adding sensing features that will transition the earbuds to become a hearable; and smart in terms of being able to take advantage of this sensing systems to develop a recurring business model. Companies who ignore the transition to smart and just continue to rely on their past experiences and their brand image will quickly lose relevance as smaller, hungrier companies take over the market. Well Being Digital Ltd will be at CES2020 Las Vegas.

Our booth is located at:

Tech West, Sands Expo Level 2, Halls A-D Venetian, Booth #44534


Special thanks to our friends who helped us proof-read (in alphabetic order)

Brian Knauss https://www.linkedin.com/in/brianknauss

Stefan Wessels https://www.linkedin.com/in/stefanwessels/

Patrick Wu https://www.linkedin.com/in/patrick-wu-0566027/


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