Summer has been kind so far to Sonos: The Santa Barbara, Calif.-based smart-speaker maker introduced a major new product, the Beam soundbar, earlier this month. Also in June, Ikea showed off first designs of products it is developing jointly with Sonos. But the company will be put to the test in the coming weeks when it is widely expected to file for IPO in hopes of turning what was once a scrappy start-up into a multibillion-dollar publicly traded company.
Sonos isn’t commenting on the subject, but CEO Patrick Spence is vocal about 2018 being a defining year for the company, which has been on the defensive against tech giants like Amazon, Apple and Google: “Looking back 10 years from now, this will be the point where we made the leap into the next phase of Sonos,” he says.
Ringing in that new phase is the Beam, which will begin selling next month for $399. The stylish, compact soundbar features Amazon’s Alexa smart assistant, allowing consumers to request songs, turn on their TV and even control their smart home with voice commands. Sonos is also adding support for Apple’s Airplay 2 technology, making it possible to play audio from any iPhone app on the device. And later this year, the Beam will receive access to Google’s smart assistant with a software update.
Like all Sonos speakers, Beam is powered by the company’s own software platform, which lets consumers stream Spotify and other music services directly from the internet. Sonos speakers can be grouped to synchronously play the same music throughout the home, and the company’s app can be used to browse millions of songs across a variety of services.
“It’s the world’s most versatile smart speaker,” says Spence as we meet up in the company’s Santa Barbara office a few days before the official unveiling of the Beam. Spence is in his usual California cool dad outfit — fitted jeans and a dark polo shirt — as he praises the product: “It’s really three in one: great music that you would expect from Sonos, great sound for your TV and voice control.”
The Beam was developed in the company’s offices in Santa Barbara as well as Boston and Shanghai over the course of a little more than two years. Sonos employees cooperate across these three offices through near-constant video chats, which allows the company to keep up 24-hour development cycles.
But when the Beam was first designed, Sonos flew key staffers from Shanghai and Boston to the company’s lab in Santa Barbara for long sessions in its war room, where over 30 of them crowded around a long white table to settle on shapes and sizes. An in-house woodshop, multiple 3D printers and other tools helped to crank out dozens of prototypes, until the company ultimately settled on the 25-inch wide round shape of the Beam.
Sonos is equally obsessive about other parts of its products. The company custom-designed the tweeter and other components of the speaker, and even tried out numerous variations of the Beam’s packaging, thanks to a machine that can simulate the impact a long ride in the back of a Fedex truck can have on any given cardboard box. “We design every part of our product, says Sonos VP of product management Chris Kallai.
When Sonos was founded in 2002, record companies were battling Napster and its successors in court, trying to preserve their physical disk business. Apple Music wouldn’t launch for another 12 years, and traditional audio companies kept building big, expensive speakers and complicated home theater receivers.
“They just totally missed it,” remembers Mieko Kusano, who joined Sonos as employee No. 12 in early 2003 and now serves as senior director, product management. Sonos director of user experience Rob Lambourne, who joined as employee No. 14, agrees. “Established audio companies had a way of doing things,” he says. “We were a start-up. We didn’t have a history to maintain.”
Sonos started shipping adapters to connect traditional speakers to the internet in 2005, and began selling its first speaker in 2009, the year Spotify was founded. After that, the company slowly and methodically added new models to its lineup, and eventually became synonymous with multi-room audio. By 2014, it was generating hundreds of millions of dollars in annual revenue, and even shelled out big money for a Super Bowl ad.
But while Sonos was handily beating traditional audio brands, it wasn’t without competition. The growth of mobile also spurred a big boom of Bluetooth speakers. Sonos dismissed those cheap speakers as inferior, and instead doubled down on high-end aesthetic. The grille of the company’s first TV soundbar, introduced in 2013, featured 43,000 hand-drilled holes, and promised unrivaled audio quality for a hefty $700 price tag. “We got a little over-focused on sound quality and a little over-focused on building the perfect product,” admits Spence.
Cheap Bluetooth speakers weren’t the only competition for Sonos. In September of 2014, Amazon released its first Echo speaker, setting a stage for the boom of voice assistants. Kusano still remembers bringing the Echo home to try with her family, which quickly turned into a shouting match with Alexa.
“She didn’t understand me with my funny Dutch accent. She didn’t understand my son with his high-pitched voice.” Frustrated, she returned the speaker. Days later, her son build a cylinder out of paper and put it in front of the family’s Sonos speaker. “He said: I made an Alexa. When is Alexa coming home? And I thought: Oh my god, this is it,” she recalls.
A former employee recalls that not everyone in the company was that quick to embrace the Echo. “There wasn’t a full grasp of where things were going,” the employee says. “Everything just came out of nowhere.”
With the Echo, Amazon emerged and as a major competitor to Sonos. Earlier this year, Consumer Intelligence Research Partners estimated that Amazon had sold more than 30 million Echo speakers.
A market leader taken by surprise by new technologies: Spence had seen this happen before. Prior to joining Sonos in 2012, he worked for more than a decade for RIM, the maker of the Blackberry smartphone. Spence observed firsthand how the company grew from 150 employees to 17,000, and from $50 million to $20 billion in revenue, only to be out-innovated, losing everything to Apple, Samsung and other competitors.
Sonos was in danger of following that path, which is why it hit the brakes in 2016. Amid rising competition from the Echo, Sonos had seen its growth slow, resulting in a round of layoffs and a new focus on voice control. Founding CEO John MacFarlane handed over the leadership scepter to Spence in 2017.
“Voice is here to stay,” Spence says now. “We are hugely focused on it.” Going forward, the company will be adding voice support to all of its products.
Sonos has made marked progress in that area: Last summer, it announced that it was working with both Amazon and Google on bringing their voice assistants to its speakers. In October, it released the Sonos One, its first speaker with integrated microphones. This month, it followed up with the Beam.
Getting Amazon and Google to work on the same device is an industry first, and something that Google in particular had long resisted. The search giant instead wanted speaker makers to exclusively implement the Google Assistant. But Spence argues that it doesn’t make sense that consumers have to choose between assistants, or worse buy multiple devices to access the services from different companies. “It’s like ESPN asking you to buy one TV, HBO to buy another and Netflix to buy another.”
Sonos ultimately got the tech giants to play nice by flexing its patent muscles. The company has numerous patents for its technology, and it has successfully defended some of them in court. Now, it’s using its intellectual property to negotiate with the tech giants eye to eye. “It helps level the playing field,” says Spence.
Those patents are likely also going to be a key asset as potential investors size up the company ahead of its IPO. Variety was first to report about the plans to go public in April. CNBC followed with a report that the company was preparing for a public filing for as early as this month.
In May, Sonos laid off 96 employees across the organization, which has widely been seen as the kind of clearing of the books that’s done before an IPO. “It’s a necessity,” says K2 Global managing partner Minal Hasan, who has been investing in music and consumer start-ups. “Public market investors want to see pretty numbers.” Spence and Sonos spokespeople declined to comment on any plans for an IPO, saying only that the company is growing and profitable.
A public listing is not without risk. Sonos faces considerable competition from companies like Amazon, Google and Apple, the latter squarely targeting the same crowd as Sonos with its Homepod speaker. “Sonos missed their chance,” says Internet of Things expert Stacey Higginbotham. Speaker hardware is ultimately commodity, Higginbotham believes, whereas the true value lies in digital assistants.
Others argue that competing products are positive for Sonos. “We view growing competition as a sign of a growing addressable market and robust appetite for such products,” argues SharesPost managing director and head of research Rohit Kulkarni. “We think Sonos is better positioned to capture the premium segment due to its focus on music quality and head start on multi-room systems.”
Another key aspect investors will be looking for is growth opportunities, like the partnership with Ikea. This month the Swedish furniture giant showed off a design concept of a speaker that doubles as a wall-mounted shelf. With plans to price them below the entry-level $200 Sonos One and sell them through Ikea’s network of more than 400 stores worldwide, the devices could significantly expand the number of Sonos households.
Some of those households will add other Sonos products to their setup, believes Spence: “It’s a good stepping-stone.”
The collaboration could also become a blueprint for Sonos to embrace new products and markets with the help of partners. Will this lead to Sonos tech finding its way into cars, or even headphones?
Company representatives aren’t commenting on future plans, and Spence admits that he isn’t sure how Sonos, and consumer audio hardware in general, will look 10 years from now. “I think we’ll find the right space over time,” he says while promising that some things won’t change: “We’ll continue to make what we believe are the best speakers on the planet.”
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