Back in 2014, when I reviewed the emerging wearables market, I suggested that the sector with the greatest potential would be hearables. Over the intervening two years it has seen intense activity. Over $45 million has been pledged in crowdfunding campaigns for earbuds and stereo headphones from almost a quarter a million backers. The value of sales of wireless headsets has overtaken that of wired headsets and now Apple has added momentum by removing the 3.5mm jack on the iPhone 7, as well as launching their own earbud – the Airpod.
One of the key reasons hearables are doing so well compared to other wearable sectors is because they don’t need to work out what to do with the data they generate. Every other wearable is a slave to the treadmill of quantitative feedback, where it needs to make the data it produces compelling, or else risk being consigned to the drawer of doom. Hearables are bought for consuming existing content in the form of music or videos, giving apps developers much more time and freedom to play with the accompanying data. That is a massive advantage over anything that you wear on your wrist.
I’ve just published a report on the hearables market which takes these new developments into account. It shows a growing opportunity, even greater than I’d suggested two years ago, which could rise to sales of almost $45 billion in 2020. You can download the report – The Market for Hearable Devices 2016-2020 here.
If we look at smartphone usage, it’s clear that voice calling is becoming a secondary function. A number of surveys show voice calls, whether network or VoIP, average between 6 and 20 minutes each day. In contrast, Parks Associates report that the average user streams music for 45 minutes a day. That’s a long time to hold your phone to your ear. They also report people spending an average of a further 47 minutes a day watching videos on their smartphones, which is why headsets are becoming ubiquitous.
It’s clear that music is driving the take-up of wireless headphones. Last year, the value of wireless headphone sales in the US overtook that for wired ones – something that caught most of the industry off guard. Manufacturers have now reacted with an ever growing range of wireless stereo headsets and Apple’s removal of the audio jack from the iPhone 7 should further increase the momentum. L&F Capital Management have predicted in the next twelve months, this could represent a $5 million opportunity for Beats by themselves, with a similar uplift to the rest of the industry.
Observing this change, Jabra’s new CEO, Rene Tune-Svendsen has been widely reported as describing the market as “adding wearable technology to music”. I think that misses the point. If we look at the crowdfunding campaigns for hearables, what is amazing is the sheer range of what innovators believe is possible with them. We have devices that augment what we hear by using complex algorithms to modify background noise, taking us beyond what we currently expect from noise cancellation. Multiple sensors are being incorporated to measure heart rate, temperature, movement, EEG and many other physiological parameters (although it’s generally not clear what to do with the data they produce). The level of sound exposure is being measured within the ear. We’re even seeing devices that can perform real-time translation and use the resonance of our ear cavities to act as a biometric password.
The markets for these are far greater than just headphones with a few sensors. The graphic below breaks them down, based on the assumption that music playback will be taken for granted in most. In the short term, these other features may help differentiate what a customer buys, but in a few years’ time, music will just be a tick-box, with purchasing choices being made based on the device’s other capabilities.
The future is no longer just about consuming music. One of the most interesting developments is the use of voice to interact with the internet, whether that’s buying stuff, asking questions, or running your smart home. Google have already announced that 20% of web queries from mobile devices are now voice queries, claiming that “we’ve started becoming truly conversational because of our (Google’s) strengths in language processing”. Despite that claim, it is Amazon that is currently making the running in Internet of Voice with their Alexa, but Google is keen to claim their place and grow their presence.
Both Amazon’s Alexa and Google’s Home use directional microphones to cover a room. As people wear hearables for more of the day, local keyword detection and wireless connections in the hearables will extend that capability around the home. The world of the film “Her” may be closer than we think.
There will be interesting areas of disruption as the hearables market evolves. One of the least commented aspects of Apple’s recent announcements is that Airpods remain with Apple, which means that they are competing with their own Beats brand. Ownership of the earbud format, and by extension, the continuing iconography of the ear, is something that Apple is currently not prepared to give up. It will be fascinating to see how that develops.
There is the oft-repeated question of disruption of the hearing aid market. As earbuds become more capable, many expect them to disrupt it. I suspect that won’t happen. Hearing aids are sold as medical devices and most are bought by large health organisations. In the UK, the NHS purchase 80% of all hearing aids. In the US, the VHA buys over 25%. That type of market, dominated by established supply chains and major customers doesn’t change quickly. What is more likely is that the industry extends to scope to include consumer products, either directly or through partnerships and acquisitions.
Instead, the level of innovation from new start-ups is more likely to generate completely new markets. Industrial hearing protection is an attractive area, as is consumer hearing protection. How many of these new start-ups will survive is questionable. One thing we have observed from the flurry of crowdfunded campaigns is that hearables are very difficult to design and manufacture. Currently the average delay in shipping an earbud is around 13 months after the predicted delivery date. Several ventures have already failed, losing $2-3 million of supporters’ money and another $5 – 6 million looks as if it may be at risk. Despite the challenges, others companies have managed to get products to market and raised further investment. Whether they have a long-term future, or will be acquired is open to speculation. Whatever their fate, they have certainly widened the vision of the market as a whole.
Perhaps the most important driver in growth is the demographics. Hearing loss is starting to affect a larger and larger portion of the population, no longer caused by natural ageing or industrial noise, but by self-inflicted habits. The WHO fear that up to 1.1 billion youngsters are already at risk of hearing loss as a result of their lifestyle. Whilst a tragedy for the individuals and an issue for society, it provides an opportunity for the hearables industry.
Hearables open up the potential to own the spectrum of hearing throughout our lives, reducing (but not removing) the damage from constant listening or loud music, changing the way we use sound and voice to interact with the world around us and ending up assisting with hearing loss. They provide the opportunity of owning one of our senses. Owning the ear for life is a particularly enticing goal, which is currently up for grabs.
There are five groups of players chasing that opportunity:
- Hearing aid manufacturers who already have the skills to produce highly optimised, miniature hearables and who are also driving the next generation of Bluetooth audio standards which will further increase the scale of the market,
- Start-ups, both crowd-funded and with VC backing that are applying innovation to get new products to market and develop entirely new product categories.
- Headphone manufacturers with a background in consumer audio. Along with hearing aid manufacturers they also own a lot of valuable patents in the hearable space,
- Phone manufacturers, who see hearables as a high-margin accessory which can differentiate the user experience with their smartphone, and
- Internet of Voice companies. Today, that’s predominantly Amazon and Google, who can leverage their server and machine learning expertise to improve natural language processing that will make talking to the Internet an everyday experience.
Over the next few years we will see which companies have the capacity to win that opportunity. It could be one of the most interesting tech battles we’ve seen for some time. Download the report to find out more.