A few months after Apple (NASDAQ:AAPL) released its iPhone 7-series smartphones -- devices that, for the first time in the history of the iPhone, didn't include headphone jacks -- Apple released a pair of wireless earbuds, known as AirPods.
Apple's AirPods have been a significant success. KGI Securities analyst Ming-Chi Kuo estimates that Apple shipped between 13 million and 14 million AirPods in 2017. At $159 per pair, Apple's revenue from AirPods in 2017 may have been north of $2 billion. Additionally, Kuo thinks that AirPods shipments will roughly double in 2018.
Given how successful the first-generation AirPods have been, it shouldn't be surprising to learn that Apple is hard at work on updated versions of the product. A new report from Bloomberg offered some insight into what Apple has in store for the next two iterations of the product line.
AirPods get smarter in 2018, stronger in 2019
Bloomberg says that the next iteration of the AirPods, which could launch "as soon as this year," will have an upgraded wireless chip and "let people summon Apple's Siri digital assistant without physically tapping the headphones by saying 'Hey Siri.'"
Then, in the following year, Apple is expected to release another update to the AirPods to make them water-resistant. Here's what Bloomberg has to say on these devices:
The idea for the water-resistant model is for the headphones to survive splashes of water and rain, the people said. They likely won't be designed to be submerged in water.
It's doubtful that the only upgrade Apple will bring to the 2019 AirPods will be water resistance. I'd expect another upgrade to the wireless chip inside the headphones and possibly some audio quality enhancement as well.
What this means for Apple's business
Although Apple's current AirPods seem to be doing quite well, even after a year on the market, Apple is smart to continue to invest aggressively in improving the features, quality, and durability of AirPods. There's a large installed base of iPhone users who have yet to buy the earbuds.
Steady improvements to the product should serve a dual purpose. First, improvements could make it more likely that people who haven't yet bought into AirPods will do so. Perhaps, more importantly, is that upgraded versions of the product could push current AirPods owners to upgrade reasonably frequently, boosting Apple's revenue from the product category.
Another benefit to driving an accelerated AirPods refresh cycle is that the older AirPods could be handed down to friends and family. Since the AirPods work best with Apple's devices, recipients of hand-me-down AirPods may be more inclined to stick with the Apple device ecosystem -- at least if their experience with the earbuds is positive.
Ultimately, the AirPods serve as both a significant new source of revenue for Apple with the secondary benefit of strengthening Apple's customer retention rate. Apple is wise to continue to invest heavily in AirPods.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.