Apple Music’s Missing Link: How Beats Electronics Fumbled Its Sonos Killer (EXCLUSIVE)

Apple Music's Missing Link: How Beats
Justin Sullivan/Getty Images

Pop stars, live music, superlatives: The launch of Apple’s music subscription service at the company’s Worldwide Developers Conference in San Francisco earlier this week had it all. However, one thing suspiciously missing from the announcement was any mention of how you’re going to listen to Apple Music in the comfort of your own home. That’s because Apple’s home-audio strategy is in limbo.

Case in point: Beats Electronics, which Apple acquired for $3 billion last year, was working on a Wifi-connected loudspeaker that could be used to play subscription music services straight from the Internet, according to multiple sources familiar with the project. That would have put Beats in direct competition with Sonos, a Santa Barbara, Calif.-based speaker manufacturer succeeding with a very Apple-like product lineup.

The product was supposed to be introduced in time for the holidays last year, but was effectively killed post acquisition. Some of the engineers working on the project have since left the company, while others have been shuffled to other projects, according to sources as well as information available on Linkedin and elsewhere.

Beats Electronics is best known for its headphones, but the company has also been selling Bluetooth loudspeakers since 2012. Bluetooth speakers have been a profitable market, and a kind of gateway product for consumers looking to listen to the music stored on their phones, or streamed from services like Spotify.

But Bluetooth also has a number of shortcomings. Consumers struggle with limited range and with phone alerts and calls invading their music listening; companies face increased competition from no-name brands undercutting their products with cheaper alternatives.

That’s why Beats was looking to build a premium product that would mimic and compete with wireless speakers produced by Sonos. Like Sonos, Beats wanted to give consumers the option to place speakers in multiple rooms of their house, and then have them all play the same music synchronously. And like Sonos, Beats was looking to introduce a bigger, more powerful speaker for the living room first, and then follow up with a smaller, more affordable product for the kitchen and bedroom.

However, Beats wasn’t just looking to copy Sonos. The company was also working on combining Bluetooth with Wifi and NFC to allow for seamless handovers, effectively making it possible to launch music playback as soon as you’d enter the room, said a source familiar with technical details of the project. And thanks to its premium brand, Beats wasn’t looking to undercut Sonos — quite the contrary: Word has it the company was looking to sell its bigger Wifi speaker for as much as $750.

Beats wasn’t the only company looking to compete with Sonos. Chipset maker Qualcomm is trying to build an entire ecosystem around its Allplay platform, licensing technology to consumer electronics companies that quickly allows them to build their own Wifi speakers. DTS, better known in Hollywood for its theater speaker systems, is trying to do the same thing, and Google has struck alliances with companies like Denon and LG to bring its Google Cast technology to Wifi speakers.

Beats, however, wasn’t looking to partner with any of these companies, and instead wanted to build its own solution from scratch — which can be hard. Insiders say that the company ran into numerous problems, switching chipset vendors along the line, and postponing the project’s launch date more than once. Given these issues, Apple made the call to scrap the project, according to some sources, while another source close to Apple said it was put on hiatus due to a joint decision of executives at both Beats and Apple.

Still, some insiders also see it as just one more sign that Apple isn’t committed to Beats’ hardware business. The workforce at Beats is significantly smaller these days than it was when Apple acquired the company; one source estimated that around 50 percent of Beats employees have left or lost their job since the acquisition. Apple confirmed last year that it was reducing overhead as part of the acquisition, but refuted claims that it was letting go of 200 of Beats’ 700 employees. A source close to the company said that around 70 percent of Beats employees received permanent job offers at Apple since the acquisition.

However, a Linkedin search reveals that some key employees, including Beats chief product officer TJ Grewal and head of loudspeaker engineering David Titzler, have left in the last few months.

Also telling: When Apple announced a voluntary recall of some 233,000 Beats Pill XL speakers because of a risk of overheating batteries, it didn’t offer to replace those batteries or otherwise service the speakers. Instead, the company is simply going to reimburse consumers for their purchase. The Beats Pill XL speaker has since disappeared from the Apple Store website, with no hints of any plans to reintroduce the device.

Remember the iPod Hi-Fi?

Apple isn’t entirely new to the connected loudspeaker space: The company introduced a portable speaker called the iPod Hi-Fi in 2006, only to quietly discontinue the product 18 months later following largely negative reviews. And Apple has long used its AirPlay platform for wirelessly beaming music from iPhones and other Apple devices to its Airport Express router. Apple has also licensed AirPlay to manufacturers of wireless loudspeakers, but these third-party products have been plagued with technical limitations, like the inability to stream music from a phone to multiple speakers at the same time.

Sonos, on the other hand, has emerged as a market leader, expected to generate more than $1 billion in revenue this fiscal year.

The success of Sonos can in large part be attributed to its embrace of streaming music services. Spotify and Pandora have been the fuel to Sonos’ growth — but the opposite is true as well: Connected loudspeakers are helping music services succeed, much in the same way Netflix’s growth exploded once it became widely available on people’s TVs.

“Only those music services that provide a true home solution will be successful in the long term,” wrote Sonos CEO John MacFarlane last week, pointing to data that shows that 50 percent of all music listening is happening in the home.

Days later, it became clear that Apple Music wasn’t going to support Sonos speakers or any other connected speaker system with the exception of AirPlay, at least not at launch. “Right now, they’re fully focused on mobile,” said a Sonos spokesperson when asked about Apple Music coming to Sonos.

That statement seems to ring true for Apple’s hardware plans as well — but in turn, the company is risking losing the living room to others.

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  1. vertti says:

    iPod Hi-Fi was a product to show for everyone what they can do with the iPod. When other companies got theirs products out Apple killed the product. Apple gets license fee from all the made for iPhone and iPod products so it will not need to do everything. Apple also don’t want to step on the toes by competing with these guys. Apple wants to see healthy ecosystem.

  2. nottellinyou says:

    I’m sorry but I don’t see the issue. I have a $60 airport express hooked up to a powerful receiver in turn connected to my home speaker system’s 24 speakers and it works GREAT! It’s also a lot less expensive than a comparable Sonos system last time I looked. I gave no doubt that the Sonos may have some features muppets set up does not but for my use case it’s fine!

  3. Cheatkrib says:

    It is pretty evident from Tim Cook’s speech last year that the focus is on the what Apple can derive from Apple regardless of what becomes of the Beats Hardware. Hence the quote – “You’re not buying it for what it is — you’re buying it for what it can be”.

  4. The Editor says:

    Reblogged this on Entertainment Suite.

  5. Steve says:

    I don’t care about Sonos speakers. I look forward to the new streaming service from Apple though.

  6. Used to be ahead of the curve, now behind it … we miss you Steve … X

  7. Dee says:

    I am always interested in the way Apple can be called out for missing an opportunity when every time they present one, it over achieves. Case in point the Watch. Many beat them to market and many claimed that it would fail but ultimately it outsold every other wannabe wearable device combined in one day. When Apple puts out a product it just seems to blow whatever else is out there away. I think they know the competition and they know how to beat them every time by doing what they do when it’s right for them to do it.

    • jhs39 says:

      Apple is selling products based on its brand and the gullibility of its fan-base. The Apple watch is no better than other very similar products that have been on the market for several years but those products didn’t have the Apple brand behind them. Apple TV is a perfect example of what’s wrong with buying into the Apple hype. Apple TV is made to sell stuff from the I-tunes store and won’t allow any native apps that play Ultraviolet because they view the format as direct competition. Apple music files even without DRM do not play on non-Apple devices because they want to force you to buy their hardware products. Similarly Apple video files, even without DRM do not play on non-Apple devices. Most of their products do not have batteries that can be changed, including their $2,000.00 laptops because they want to force consumers to buy new products when the old batteries die. The original I-phone was the last product Apple released that actually lived up to its hype. Every product they have released since then has been playing catch up with identical or superior products that had already been on the market. Apple TV is vastly inferior to Roku in terms of the entertainment content available and the breadth of channels offered and it costs more. iPads have been losing market share steadily since about a year after they came out because they cost significantly more than Android tablets and give you nothing for the extra money but the Apple logo. Every feature Apple has introduced on its iPhones over the last several years was already available on Android phones. Apple is no longer an innovator and their purchase of Beats made no business sense. Beats headphones are the perfect example of selling a brand rather than an actual quality product–they sound horrible compared to any other headphones in their price range and alter the sound of the original music so much there are usually special equalizer settings you are supposed to use with those headphones if you happen to listen to any type of music that includes more than base, beats and vocals. If you listen to rock music it boosts the base and kills the treble and completely changes the texture of the music, which is not what quality headphones are supposed to do. Beats headphones were designed by Skullcandy, which makes good cheap earbuds but no high end products. Apple bought crappy headphones and a music service that was barely on life-support for 3 billion dollars–does anyone think Steve Jobs would have made the same decision? Does anyone understand what Apple was actually buying for all that money?

      • Dee says:

        Beats are terrible headphones made for people who don’t understand nuance. Aptly named they are designed to sell to consumers of fashion which is where most music is targeted today. Audiophile they are not. Apple bought Beats because, regardless of how mediocre the headphones are, Beats is a market leader in the hip headphone business. People who love crisp highs and booming lows. Digital music at it’s worst. I think that Jobs would have bought them as well because Apple took over the music business with iTunes under his watch and adapting a business model to fit the shift to streaming music makes perfect sense especially with their relationships with the music makers and the media giants. What every one else forgot about with wearable tech is that a watch is first and foremost a fashion statement, it is jewelry first and functionality second. Apple has very successfully created a product line through innovation, marketing and design that literally everyone else cannot match. They are a mass marketer of cool tech not nerd tech. Nerds are rogues and they always find better ways to access stuff but Apple is the richest company in the world and they didn’t achieve that by making bad products or by marketing to a small demographic of people who would rather build their own computers. They are the market leader and most companies are playing catchup most of the time. The reality is there are two camps, those who love Apple products and those who hate them and those who love them are okay with the integrated operating system because they get what they want when they want it. Rarely is there any middle ground but the reality is also that people sleep overnight in malls to get the latest Apple products, while no one ever does that for Android phones or the over saturated market of Windows based laptops most of which are poorly designed junk that run on an inferior OS.

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