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

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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