In the five and a half years since I coined the term “Hearables” the market has grown at an amazing rate. At the time I estimated that the market for the things we put in our ears might grow to $7.6 billion in 2018. I think it just nudged over that to reach $7.8 billion. What I hadn’t anticipated was the success of Apple’s Airpods, which are driving adoption even faster, more or less doubling their sales volume every year. With the recent launch of Amazon’s Echo Buds, which could attract a new audience with the promise of a life which is “Always Alexa”, as well as the availability of a growing number of Bluetooth enabled hearing aids, the market looks as if it could reach $22 billion in 2020.
Hearables had a slow start. Although Apple probably started its Airpod design project as far back as 2013, the first thing that the public saw was Bragi’s Kickstarter campaign for their Dash earbuds. In March 2014, the Dash became famous as the most heavily funded Kickstarter project, raising $3.4 million. Another crowdfunded startup – Earin, beat them to market by a few months, but Bragi eventually got the Dash out in February 2016. In that first year of hearables, (or the first fifty-one weeks, as Apple finally started shipping Airpods in the last week of the year), global shipments from all manufacturers were probably not much more than 100,000 units, most of which were the early MFI compliant Bluetooth hearing aids. In that last week of 2016, Apple probably sold more Airpods than the rest of the industry had shipped through the course of the year. Four years on from that humble start, 2019 will probably see 75 million sets of hearables shipped. That makes hearables the fastest growing tech product ever.
What is interesting is how some of the early promise of hearables has been reversed. Much of the initial momentum came from start-ups who promised a lot and found those promises difficult to deliver. They all discovered that hardware is hard, particularly when it’s small and battery powered. It is one of the reasons why hearing aids are expensive. Bragi’s Dash promised a host of biometric sensors and it is to their credit that they delivered a product. Many others have taken that route, not least because the ear is the best place on the body for most sensors, but designing them in and writing the apps to make them useful takes concentration away from audio quality, which is what most people buy hearables for. Apple took the opposite route of ignoring everything other than reaching an audio quality which was as good as a wired earbud. Consumers have very clearly demonstrated which approach they prefer. The sheer ubiquity of gleaming white Airpods is testament to a great design decision by Apple, which has left every other manufacturer struggling to compete.
The general consensus amongst analysts is that Airpods currently have around 60% of the global earbud market, with little sign that anything will change that. Just being a big name in tech doesn’t help, as Google discovered with its disappointing Pixel buds. Jabra has bucked the trend and been successful, but has had to do that by dominating a niche market. Others are finding that the remaining niches have already been taken or are disappointingly small.
That clear field for Apple may have changed this week, after Amazon slipped out its Echo Buds. I can’t say they score highly for style, but that’s not what they’re going to win on. Assuming that the music quality is good enough, they have something that no-one else has, which is Alexa on the go. If users take to that in the same way they have taken to Alexa in their homes, Echo Buds may be the first real threat to Airpods. Although I suspect they will be a new, additional market rather than a real competitor.
It’s interesting that the Echo Buds have Bose technology inside them. Bose already have Alexa integrated into their Noise Cancelling Headphones 700, but they’re expensive and don’t lead with the Alexa experience. The implication is, that by releasing Echo Buds, Amazon is acknowledging the fact that it needs to lead with Alexa, which means a different product with a much lower price point. Having their own product lets them test user reactions and evolve their “Always Alexa” offering before taking it mainstream in other manufacturer’s hearables. It also gives them plenty of levers to make that happen, such as discounting Echo Buds to their Prime subscribers and spinning the physical hardware if they have to.
So let’s look at the numbers. The success of Airpods has been amazing. Although Apple doesn’t release sales numbers, the general consensus is that they will ship just over 50 million pairs this year, rising to over 100 million in 2021. By that time, we should see a third-generation product, which may introduce some interesting new features. In the meantime, Apple is expanding the current user experience with features like audio sharing in iOS13.1, which should help to further increase the rate of adoption.
How will Echo buds compare in terms of numbers? It’s a guess in the dark at the moment, but nobody has a better route to market than Amazon. At $130 a pair, they’re cheaper than Airpods and have noise cancelling. But what will ultimately determine their success is how much users like Alexa on the move. The signs have got to be good; Amazon created the market for voice assistants with the Echo and consumers have taken to it like ducks to water. Back in January, Amazon told us that over 100 million devices with Alexa had been sold. By now that’s probably close to 200 million.
Of course, many of those products containing Alexa are not Amazon’s. They’re made by other companies who are integrating Alexa into their own devices, taking advantage of the growing voice ecosystem that Amazon is developing. Although Amazon’s recent showcase was filled with a host of their own products, it wasn’t as diverse as most commentators have suggested. Most were directly linked to Amazon’s own business. We had more Dots and Speakers; more Shows, which help you to buy more products off Amazon; a Smart Oven, which can scan Whole Food’s meals to cook them automatically (remember Amazon owns Whole Foods), and more Ring products, which help delivery people leave Amazon orders in your home (Ring is also an Amazon company). Despite the quantity of new products being announced, they all had the same purpose – growing the Amazon ecosystem.
There is a battle taking place for that ecosystem. Although Amazon introduced voice assistants into the home, Google has been making inroads with its low-priced Home devices. Google already controls a lot of the mobile world with Android and mobile is something that Amazon has struggled with. The Echo Buds stand out as a way for Amazon to step outside the home and start to challenge Google in the mobile market.
There is an important difference between the way we use voice assistants in the home and on our phones. In the home, there is no inclination to touch a device – you simply say what you want to happen. The Echo has generated a new mode of behaviour where you no longer touch a device or even look at where it is – you just talk to it. In contrast, mobile usage for most users still involves holding or touching the phone, even when you just need to say the wake word. That’s not surprising, because Google Assistant and Siri both come from phone manufacturers. I suspect that Amazon is betting on the Echo usage model moving to the phone. This is very different to the message that most headset manufacturers will be pushing. Whereas everyone else is having to match the Airpod experience, Amazon are bringing something new to the table. The cynical would point out that making hardware, or even selling products is not Amazon’s main business – its business is all about making its customers become the product. In that vein, Echo Buds are simply a platform to let Amazon own more of your life.
As long as Echo Buds do what they say on the tin, Amazon should have no difficulty in shipping a million of them a month throughout next year, which should prove the point as to whether users want that “Always Alexa” experience or not. Amazon has over 100 million Prime customers in the US. That’s over a third of the US population, who spend an average of $1,400 a year with Amazon, which is a good starting point. However, Amazon is more constrained than Apple. Airpods are global – wherever you go you see ears adorned with Apple’s shiny white iconography. In contrast, Echo Buds will initially be limited to a few countries, starting with the US and UK. They will probably never reach China.
A million a month gives us sales of 12 million for 2020. I suspect that there is already a version 2 in development, which could arrive in time for Christmas next year. If the price drops down to $99, and availability expands to all of Amazon’s international territories, they’re an attractive choice for anyone who has an Echo at home and has got used to asking it to play them something. That makes me feel bullish, with growth heading to upwards of 40 million devices in 2021, as the rest of the world comes online. Either that, or they’ll disappear. The fundamental truth behind this is that Amazon needs to gain ground in the mobile space and Echo Buds looks as if it will be their best opportunity. Which means they will be pushing them very hard.
What of the other hearable manufacturers? It will be difficult to assail Apple’s lead, at least in the medium term, which leaves them between a rock and a hard place. The new Bluetooth audio standard is not far away, which will bring a new range of features to wireless audio. That will certainly spur innovation, which may allow other companies to chip away at the Airpods’ market share. Over time I think we will also see a move to reintroduce biometric sensors, but the challenge there will be to find a compelling reason for consumers to buy them. The wearables market knows that problem well – for most people, wristbands just aren’t interesting enough and get consigned to the back of a drawer after a few months. The current concerns about Fitbit being sold tell us all we need to know about the perils of wearables. The industry needs to keep on reminding itself why Airpods are so successful – it’s because Apple concentrated on the primary consumer requirement – getting the audio right and ignoring everything else. So, I’m not convinced that we will see the rest of the market move above the 40% mark. Having said which, I repeat the fact that the Echo Buds, if successful are likely to be a new, incremental category, rather than an Airpod competitor.
Finally, we must not forget hearing aids. A growing percentage now include Bluetooth, and that will rise as the new Bluetooth standard appears. Over the next few years they’re also likely to benefit from the explosion of hearables, which will gradually reduce the stigma of wearing a hearing aid. That’s currently one of the biggest constraints for hearing aid manufacturers, with only around 10% of people with hearing loss wearing a hearing aid. Even small incremental gains in sales will be significant, as hearing aids carry a higher price tag.
Putting these together, we should see shipments of almost 250 million units in 2021. These will still be dominated by Apple, who will account for just under 50% of sales
In terms of global revenue, that translates to a market of around $35 billion dollars. Again, Apple dominates with almost $20 billion of Airpod sales. The higher price of Bluetooth enabled hearing aids pushes up their revenue to $7.0 billion, leaving the others hearable manufacturers with less than a quarter of the global revenue between them.
There is no doubt that Echo Buds are a gamble, but a necessary one for Amazon, who have previously struggled to extend their presence in the mobile domain. They need to make the experience slick, so that it is both integrated and complements the home experience. There’s lots of potential there, such as reminding you of the ingredients lists to buy for your recipe when you’re out shopping, or resuming the album or video you’d been watching at home while you’re commuting. If they manage that, it is likely that Echo Buds will be successful. In the long term, I’d imagine what Amazon hopes for is not necessarily to eat into the Airpod sales, but rather to persuade Apple to integrate Alexa into its Airpods.