Apple to Enter High-End Headphone Market Bloomberg Reports

And so it begins...

It appears from this Bloomberg report that Apple is considering an entry into the high-end headphone market.

The latest plans call for headphones targeting the high-end of the market, replicating Apple’s approach with the $349 HomePod speaker, released earlier this year. In addition to noise-canceling capabilities, Apple plans to include similar wireless pairing functionality to the AirPods, according to the people familiar with the product’s development.

The article goes on to say that:

  • AirPods have been key for Apple’s Other Products segment. The category generated more than $5 billion in revenue, which represents 36 percent year-over-year growth. Within that category, wearable product sales, which include the Watch, AirPods, and Beats headphones, surged 70 percent last year.
  • The "Other Products" category is Apple's fastest growing division thanks to devices like AirPods.
  • Sales of AirPods and Beats headphones gave Apple 27 percent of the wireless headphone market and almost half the dollars spent on the category.
  • Apple’s cost for each $349 HomePod is $216, resulting in thinner profit margins than typical Apple hardware products. AirPods have been tricky to assemble and use unusual design tricks, likely making them expensive to produce. The Apple headphones will likely use similar audio technology, driving up costs.

I reckon Apple and Bloombergs definition of "High-End" is likely quite different from ours—I seriously doubt we'll be seeing a $1000+ headphone from Apple...at least in the short run. So, let's think about, say, $499-$599 as a potential price point. The Bloomberg article claims Apple is making a boatload of money in the "Other Products" category, and then goes on to say that the margins are seriously weak there. If there's one lesson to be learned by Beats success it's that pricing for headphones seems to be pretty malleable. Apple may see this as a move to make some serious margin in "Other Products."

Of course, Apple already owns Beats, how are they going to position an Apple branded headphone relative to Beats offerings to maximize success? (Notice I didn't say profits.) Well, Apple and Beats are both strong brands with strong followings, but I doubt there's much overlap between the two, so I don't think an Apple headphone will cannibalize Beats sales significantly. Also, Beats then can afford to be a bit platform agnostic and more open to connections and features that work with a wide variety of devices, while a new Apple headphone can be more focused on whiz-bang features developed for the Apple hardware/software eco system.

I've written before about smart headphones and that Apple will likely lead the charge due to their complete control of the hardware/software environment. There's no doubt they're doing just that with their AirPods. Their patent grant from last year calls out numerous biometric sensors for: heart rate; VO2 (oxygen); GSR (galvanic skin response); electrocardiogram (EKG); impedance cardiography (ICG); and temperature. And just this week Apple was granted 41 patents many of which were related to the AirPods including one for improved voice quality for telephone conversations, and a continuation patent to add features to their previously existing AirPod patent. So they're working on it, for sure.

Thing is, the AirPod sensors are primarily to improve its performance as a fitness earphone, which is something not really needed for a full size "high-end" headphone. Why would Apple want a high-end headphone if it's not going to have all the sensors when they have a perfectly good quality headphone maker in Beats? ( I do think their quality went up dramatically in their releases over the last two years.) I think it's a strategic move.

Beats really isn't positioned as a high-end (high audio quality) headphone maker; they're best thought of as a successful fashion brand—and successful they are. No reason to rock that boat. But the Apple brand definitely embraces high performance as a defining characteristic. With the eventual need for all sorts of cool virtual and mixed reality features, Apple almost certainly sees a full line of headphones in its future. It's probably a few years too early for those sorts of features to show up in their headphone, however...

My guess is this: Apple has historically only made earbud type headphones. These products are well known, for sure, but they're not well known for high-fidelity reproduction—quite the opposite actually. If they're going to dive into the headphone business in a serious way, they need to be known for making headphones that sound good. My guess is behind the fortress walls they've been talking a lot about sound quality and how they can make it a compelling feature for their brand of headphones. While the market may not be quite ready for all the whiz-bang virtual headphone technologies, it does seem poised to highlight sound quality in a serious way. I bet we're going to see Apple (and Beats) take advantage of the momentum started by Sean Olive's campaign to nail down what it means to get good sound on headphones.

Consumers say they want headphones with good sound quality, but studies show styling, comfort, and build quality are more often the deciding factor. Given that consumers believe they want sound quality but have no idea what that actually means, I think Apple rightly sees that as an open door for the kind of broad market changing campaign that only they, and a rare few others, might be able to pull off. Just imagine if Apple could "own" in the mind of the consuming public the position as trusted purveyors of high-fidelity on headphones. It just might be able to erase the memory of cheap ear buds and ensure success of further high tech headphone developments...and maybe spill a little of that holy water into the Beats camp to bolster their brand as well.

Why do you think Apple might be building a high-end headphone?

COMMENTS
johnshaun's picture

These jars are close to gossip, and we would already be able to peruse on discussions what they seem like. :- ) The top of the line group is extremely unsurprising. http://www.allpapershelp.com/

swantaoglobel@gmail.com's picture

SO many times I read stupid post but this time I must say i'm impressed! Well done! Cheers!
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