Apple’s AirPod dilemma

What do you do if you’ve just designed a great product, but then realised that it’s missing a key feature that everyone is about to start asking for?  That’s the dilemma Apple had with its latest AirPods Max 2 headset, which is missing a new Bluetooth capability called Auracast.  Auracast is rapidly approaching critical mass – appearing in other consumer products a lot faster than Apple had anticipated.

Ever since phones started supporting audio, there’s been a challenge for phone manufacturers about who would be responsible for the overall audio experience.  At the start, phones would ship with relatively cheap wired earbuds – a model that Sony invented with the Walkman, but consumers quickly became dissatisfied with the quality of these buds.  As phones almost all had 3.5mm audio jacks (and the few who didn’t quickly changed to include them), users could buy any brand of headset to use with their phone.  It was a boon for existing headphone manufacturers like Bose, Sony and AKG, as well as an opportunity for new entrants like Beats, who built brands on the lifestyle opportunity that arrived a few years later with music streaming.

Phone manufacturers, aware that they were losing a market opportunity to headset companies, responded by developing or acquiring their own offerings.  Samsung bought Harman (AKG), Apple bought Beats, whilst LG licensed technology from Bang & Olufsen

The next step in audio development came with Apple’s removal of the 3.5mm audio jack.  That wasn’t driven by any audio consideration, but by mechanical and economic ones.  The jack socket took up a relatively large amount of space inside a very crowded phone.  It was difficult to make it waterproof and it cost money, albeit only a few cents.  But saving a few cents on each phone is significant when you’re making hundreds of millions of them.   However, before they could remove the jack, Apple needed earbuds which would work using their existing Bluetooth chip,  They met that challenge brilliantly with the introduction of their AirPods, which became the most successful consumer electronic product ever, achieving sales of over 100 million units in just three years.  Counterpoint Research have calculated that since their launch, AirPods have contributed a cumulative revenue of $100 billion for Apple, making them Apple’s third most important product line behind iPhones and Macs.

Cumulative revenue from AirPod sales – Counterpoint Research

Apple’s AirPods weren’t the first Bluetooth wireless earbuds, but they set the standard for engineering and audio quality.  Apple designed them to integrate seamlessly with the IoS software in the phone, providing a compelling user experience.  More recently, they’ve extended the AirPod brand to over-the-ear headphones, competing with Beats, which they acquired in 2014. 

To Apple’s surprise, AirPods were a hit with owners of Android phones.  (The only other time Apple had done that was when they released iTunes for Windows which, according to the excellent book “Apple in China”, went against Steve Jobs’ intentions).  The user experience of AirPods on Android wasn’t quite as slick as it was for iPhone owners, but it was still more impressive than the earbuds made by other manufacturers. In a stroke, Apple had defined how audio should be done, and become the market leader.

AirPods provided a textbook example of how to build an experience that delights by owning the whole ecosystem.  But the inherent interoperability built into the Bluetooth specifications meant that others could benefit as well.

While competitors concentrated on catching up with AirPods, something else was happening behind the scenes.  Engineers from across the industry (including Apple) were working on a new Bluetooth standard that included a feature called Auracast.  Auracast allows users to share audio.  It means that you can share the music stream on your phone with your friends.  If you have Auracast in your TV, you can all listen to it silently without waking the kids or annoying the neighbours.  Auracast users can each change their volume individually, so there’s no longer a fight for the volume control, and it can be picked up by hearing aids, letting people with and without hearing loss get the optimum listening experience. 

As with all new technical innovations, it takes some time to get critical mass in the market.  The first Auracast products were hearing aids, followed by small transmitters which could be fitted to TVs, mainly aimed at people with hearing loss.  These have been enthusiastically taken up by theatres, community centres and places of worship, who see them as a low cost way of helping their audiences.  As the number of these Auracast broadcast transmitters have increased, Auracast has also started appearing in consumer earbuds, with models available from Sony, Samsung, Bose and Sennheiser.  There are also some very impressive ones from new entrants who think they can take sales away from Apple.  A good example is Earfun’s 4+, which retail at around $60.

Designing an Auracast earbud or headset is relatively easy.  An Auracast earbud will receive all of the same Bluetooth audio streams that every other earbud does, and add the capability to find and render an Auracast broadcast stream.  It only needs to receive and render one audio stream at a time, so it’s a fairly simple design evolution.

For phone and PC manufacturers it becomes a lot more complicated.  Although users rarely think about it, your phone or PC may be connected to many different Bluetooth devices at the same time.  While you’re listening to your music on your earbuds, you may be using your watch to change the volume or select the next track you want to play.  Your phone may also be talking to a fitness ring, or taking data from a glucose monitor.  An app may be using Bluetooth to open your door, or setting up your pet feeder.  Managing all of these concurrent Bluetooth operations at the same time is a very complex task.  For a phone manufacturer, or more specifically, a company developing the underlying phone operating system, which means Apple with their IoS, or Google with Android, they also need to work out how to support the functionality of the Auracast broadcasts, as the same time as managing all of the other Bluetooth connections.  Because Auracast has a very low delay between sound coming in and being rendered in your ear, there are some very complex priorities and scheduling to ensure everything works together and to prevent any glitches in the audio.  That’s really hard.

When Auracast was announced, most of the industry thought that mobile phones would determine when it would reach critical mass.  Throughout Bluetooth’s history, phone support was the gate for each new feature to take off.  But this time it would be different, as some of the people working on Auracast realised that there was a parallel opportunity in TVs.  Adding broadcast to a TV allows everyone to watch at the volume they want, which is especially important if some of the audience  are wearing hearing aids.  In the future, Auracast will also enable advanced features like multiple language streams for the same programme.  They also see it as a key competitive edge for a year when they expect bumper sales, as people buy new TVs to watch the world cup. 

For a TV manufacturers, adding Auracast to their TV is a lot simpler than it is for a phone manufacturer to add Auracast to a phone.  TVs don’t have the complexity of connections that a phone has – adding Auracast just needs then to slot in a new Bluetooth audio stream.  Which is exactly what they’re doing.  Samsung, LG, Panasonic and Philips have all announced that their latest TVs include Auracast, which means that by the end of 2026, almost 150 million people will have access to Auracast in their homes and will want earbuds and headphone which support it.  That’s a great opportunity for any headset or earbud manufacturer who supports Auracast, which is almost all of them except Apple.

If Auracast adoption had been left to the phone operating system manufacturers, they would be in charge of the point where it reached critical mass.  Google is currently ahead, with support first appearing in their Version 14 stack, which runs in the Pixel 9 and above, but they don’t yet have many compelling Auracast apps.  Samsung are also supporting Auracast in their new handsets.  Apple have announced that they are “very excited” about Auracast, but there’s no mention of a timescale for products.  What neither appear to have expected is the enthusiasm for Auracast shown by the TV industry, 

Tat’s why Apple has a dilemma.  Current AirPods with their H2 chip are almost certainly capable of supporting Auracast, but Apple won’t realistically turn the functionality on until their iPhone software supports it, because that would mean that AirPods would work “better” with Android phones than they would with iPhones.  However, as more and more consumers are exposed to Auracast from their new TV, they’re going to stop buying AirPods and start buying competing products.  They can choose from a growing range from low cost, but very competent units like Earfun to top end models from Sennheiser and Bose. 

I have immense admiration for Apple’s AirPods.  Designing that small a product with that level of performance is an engineering miracle.  It is quite deservedly the fastest selling consumer electronics product ever and has almost certainly been an amazing cash cow for Apple.  But the longer it takes for Apple to enable the Auracast capabilities in their AirPods, the more they will lose market share.  By the end of the year, the overall brand share could look like this:

Once you lose customers, it’s difficult to get them back, so you don’t want to discourage them.  I suspect that’s the reason the AirPod Max 2s had such a low key launch.  Apple knows that the lack of Auracast is the elephant in the room and would like to put off that conversation for as long as possible.

Whether to turn on Auracast support in the AirPod range is almost certainly not at the top of the list of things for John Ternus to do when he takes over from Tim Cook in September, but it’s an important decision.  If Apple turns on Auracast support in AirPods, it’s an acknowledgment that control of their ecosystem does not ultimately trump market leadership.  If they wait for iPhone support, then it may be a sign that Apple is heading back to the more traditional view of a company that demands customer loyalty and is closing up its ecosystem.  The dilemma is that the longer it takes Apple to turn Auracast support on in its products, the more likely it is that they’ll have to explain a sales chart that looks like this:

That’s not a good prospect for what has just been identified as your third most important product line.

Whatever John Ternus’ decision, this is going to be a fascinating year for audio, as TV manufacturers take the initiative and potentially push Apple out of their dominant position in earbuds.  I’m looking forward to seeing how it pans out and how Apple decides it wants to play its hand.