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Five years ago, nobody was calling headphones "buds" and a lot of the debate surrounding audio devices seemed to revolve around big names such as Beats -- now owned by Apple (AAPL 1.07%) -- Sennheiser, Bose, and more.
Now, the personal music device industry has been taken over by the biggest names in tech: Apple, Amazon (AMZN 1.29%), Alphabet (GOOGL -0.75%) (GOOG -0.63%), and Microsoft (MSFT -0.51%). It is no coincidence that this change from traditional music companies to big tech coincides with the launch of the first AirPods back in 2016. Apple singlehandedly paved the way for big tech to take over the music scene.
Since this time, the usual suspects have arrived with their own "buds" and are vying for the top spot in a market worth roughly $11 billion, with huge potential to grow. Consumer preference for an enhanced audio experience, a rapidly growing music industry, rising internet penetration, and advancement in mobile technology are the primary factors driving the market.
Below is a brief outline of the biggest names in this emerging market, and the potential for each.
In December 2016, Apple launched its AirPods, selling 16 million in the first year. This rose to 35 million in 2018, and is estimated to land between 50 million and 60 million in 2019. Analysts predict over 100 million will be sold by 2021.
With an average price of $200 (when factoring in the latest AirPod Pros), selling 100 million AirPods in 2020 would generate $20 billion in revenue alone. The market is currently worth just $11 billion a year. That would be nearly 8% of Apple's total 2018 revenue from 2018, and the company already has a 60% market share of the earphone space. For a product that is less than 3 years old, this is an enormous figure. AirPods are way ahead of the competition.
Not only are they a source of revenue for the tech giant, but AirPods also slide into the existing Apple ecosystem that connects all of its products. Customers can now integrate their iPhone with AirPods, Apple Music, Apple TV+, Apple Watch, and more to create a symbiotic system to drive Apple's expanding service stream, as the company looks to beef up its subscription empire.
Released at the end of October this year, Amazon's answer to AirPods looks to be taking a slightly different tack in its approach. Take away any arguments of which has better sound quality or noise cancellation, the Echo Buds have a fitness feature that the AirPods do not.
A hidden feature inside the Alexa software shows Amazon has at least considered enabling the Echo Buds earbuds to track workouts. This backs up a CNBC report that Amazon was planning to add fitness tracking features to the Echo Buds as part of an update codenamed "Puget."
Though it's too soon to predict what kind of success the Echo Buds will have, Amazon's move into the fitness space could open up a range of previously untapped applications for earbuds. This would mark Amazon's first foray into the fitness space via hardware, and could make its Echo Buds direct competitors to the Apple Watch.
The quickest off the mark to compete with Apple, Google released the second generation of its Pixel Buds in October as well.
Google's second-generation wireless earbuds are arguably the closest competitor to the AirPods in terms of design, but will not be available until the spring. The Pixel Buds 1 were met with largely negative reviews, with the translation feature seemingly quite glitchy, and the case design received much criticism.
Google hasn't released sales figures on the Pixel Buds, but the company doesn't have a stellar history of successful hardware sales. It will be interesting to see if its recent purchase of Fitbit will turn this trend around for the company.
Like the rest of the competition, it's a bit early to tell how the Pixel Buds will fare in this market, having only been revealed in early October. Microsoft's competitor has been met with largely positive reviews for sound quality and a range of additional features.
Although the Buds have elicited some derision due to their robust design -- many have compared them to dinner plates -- the main reason this product could threaten the bigger names is the fact that it is completely brand-agnostic.
The application potential of these buds, however, seems to lie away from music, as the caps of the devices are touch surfaces that allow for very streamlined media control. And though still only the first version, the Surface Earbuds have translation capabilities -- producing subtitles on a PowerPoint when microphones in the device pick up speech. This could be a potential goldmine for Microsoft in an ever-expanding corporate world full of multinationals.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Alphabet, Amazon, Apple, and Microsoft. Read the full disclosure policy here.