SONOS NOT VERY SMART, & THEIR FOR­MER CEO LIED ABOUT PAST REV­ENUES

SoundMag - - Comment / Sonos - Writ­ten by David Richards

There is one thing that has been made abun­dantly clear by the re­lease of the Sonos IPO doc­u­ments and that is that Sonos the Com­pany who loves to brag as to how su­pe­rior they are, is not a very smart sound Com­pany and that they have openly lied about their past per­for­mance and lack of prof­its.

It’s also been re­vealed both Google and Ama­zon able to turn off their de­vices from hav­ing voice con­nec­tiv­ity which is set to be the fu­ture for sound sys­tems.

Ev­i­dence has sur­faced that their for­mer CEO John MacFar­lane openly lied about the past per­for­mance of the US sound Com­pany in an ef­fort to hide the fact that Sonos was un­able to gen­er­ate a profit un­der his man­age­ment.

Ac­cord­ing to the IPO doc­u­ments, Sonos gen­er­ated rev­enue of $992.5 mil­lion in 2017, up 10 per­cent from the year prior. In 2015, thenCEO John MacFar­lane told me that that the com­pany’s sales were around US $1 bil­lion he was plainly ly­ing, if the lat­est IPO data is to be be­lieved, as the rev­enues back then has been re­vealed as only be­ing $844 Mil­lion.

This is a Com­pany that has never posted an an­nual profit, a fact that tops its risk fac­tors.

The fu­ture for net­worked au­dio is go­ing to be about high qual­ity, high per­for­mance speak­ers that ac­tu­ally work with Ama­zon, they are also set to be about high res au­dio and Sonos can­not guar­an­tee de­liv­ery of ei­ther Ama­zon sound or high res au­dio.

For the sim­ple rea­son Sonos’ part­ners are also ri­vals, and Sonos’ reliance on com­pa­nies like Ama­zon, Ap­ple, and Google makes it vul­ner­a­ble and their IPO a high-risk in­vest­ment.

Sonos could not go to an IPO ear­lier be­cause they were un­able to de­liver prof­its and if their lat­est sound bar is any­thing to go by they are go­ing to need a lot more Sonos spin to get them over the line be­cause there is noth­ing in their lat­est Beam sound­bar that is not al­ready in sound­bars from the likes of Har­man, Denon, Sam­sung, LG, Philips or Pana­sonic.

This is a Com­pany that has never posted an an­nual profit, a fact that tops its risk fac­tors.

You have to give it to Sonos, they did try to min­imise the im­pact of their IPO by re­leas­ing it in a week when most US an­a­lysts are tak­ing a few days off due to the US July 4th hol­i­day. What Sonos have been forced to re­veal is that Ama­zon can dis­able Alexa on Sonos de­vices any­time, with “lim­ited no­tice,” ac­cord­ing to the fil­ing.

Another big boast from Sonos is that it of­fers the abil­ity to stream around 100 dif­fer­ent mu­sic and pod­cast ser­vices through its app.

All of those ser­vices are con­trolled by oth­ers, not Sonos and you can bet that when Ap­ple, Ama­zon and Google start crank­ing up head­phones and sound sys­tems as part of their sound of­fer­ings that Sonos will be well and truly on the outer and not the growth Com­pany that they are cur­rently bang­ing on about.

The re­al­ity for Sonos who is des­per­ate to get an IPO away so that the cur­rent di­rec­tors and in­vestors can get some money back out of the Com­pany, is that the new era of smart de­vices isn’t just about ask­ing Alexa to queue up a playlist for you.

It’s in­creas­ingly about ser­vices. It’s an era in which tech gi­ants like Ama­zon, Ap­ple, and Google are po­si­tioned to dom­i­nate the smart home, whether that means mu­sic lis­ten­ing, TV stream­ing, or home se­cu­rity, be­cause of their ser­vice busi­nesses.

Sonos’ claim that it wants to be the hub of the smart home, is a joke when you con­sider the po­si­tion, that Ap­ple with their hun­dreds of bil­lions in the bank and what Google and Ama­zon can throw at them are in this mar­ket.

Then there are the likes of Sam­sung and LG who are both in­vest­ing in the mar­ket and they don’t need to raise any cap­i­tal.

This is a Com­pany that were not even smart enough to build in any form of 24-bit sound re­dun­dancy into their net­work as they rolled out the Sonos of­fer­ing 12 years ago.

Sonos’ plans to go pub­lic were first re­ported by Chan­nelNews and even then, and be­fore the IPO doc­u­ment was re­leased we said that this was set to be a high-risk IPO.

Cur­rently there are 19 mil­lion reg­is­tered Sonos prod­ucts in use as of March 2019, in 6.9 mil­lion house­holds around the world. In the sec­ond quar­ter of 2018, Ap­ple alone sold 52.22 mil­lion iPhones. In the 2017 fis­cal year, Ap­ple sold 216.76 mil­lion iPhones. It’s taken Sonos 12 years to reach their 19 mil­lion.

There is al­ready a big trend in con­sumers switch­ing to a su­pe­rior net­worked sound sys­tem from the likes of Ap­ple, Denon Heos, Blue­sound and from Com­pa­nies such as Google and Ama­zon with their Alexa voice­con­trolled speak­ers.

In the fis­cal year ended Septem­ber 30, 2017, Sonos said it sold 3.9 mil­lion de­vices. Dur­ing the first 10 weeks of sales Ap­ple sold 3.2 mil­lion HomePods first 10 weeks of sales, it eked out 10 per cent of the smart speaker mar­ket Ama­zon had 73% per cent mar­ket share for their Echo de­vices and Google carved out 14 per cent for the Google Home, ac­cord­ing to Slice In­tel­li­gence. Sonos was nowhere to be seen in these num­bers other than buried in ‘Other’.

Strat­egy An­a­lyt­ics says there were 32 mil­lion smart speak­ers shipped last year; it says Sonos ranked fourth, be­hind Ama­zon, Google, and Alibaba. Their IPO states “We are de­pen­dent on a num­ber of tech­nol­ogy part­ners for the de­vel­op­ment of our prod­ucts, some of which have de­vel­oped or may de­velop and sell voiceen­abled speaker prod­ucts of their own,” the fil­ing says.

Wired Mag­a­zine said that another chal­lenge for Sonos who are set to open a pop-up store in Syd­ney later this month is that their ri­vals have their own re­tail chan­nels, where they can pro­mote their own prod­ucts over Sonos’. Or they could re­move Sonos prod­ucts from their stores en­tirely.

This is not un­prece­dented: Ap­ple has cleared the com­pe­ti­tion from its shelves be­fore, and Ama­zon’s on­go­ing spat with Google over Ama­zon’s re­fusal to sell Google hard­ware prod­ucts in its store has re­sulted in a lessthan-ideal YouTube ex­pe­ri­ence on Ama­zon stream­ing de­vices.

The fact that YouTube, which is part of Google, no longer works na­tively on Ama­zon stream­ing de­vices is a good ex­am­ple of what could hap­pen when ten­sions arise among the tech gi­ants and why they’re all build­ing their own in­te­grated ser­vices.

The bot­tom line for Sonos is not look­ing good, their prod­ucts are fast be­com­ing in­fe­rior and a lot of peo­ple could end up los­ing money by in­vest­ing in this sound Com­pany.

It also sums up how crappy the ex­pe­ri­ence can be for con­sumers when gi­ant tech com­pa­nies push their own ser­vices, again and again. Ap­ple’s in­te­grated ap­proach means there’s a sim­plic­ity in how things work, but it also means Ap­ple pro­motes Ap­ple Mu­sic above all else and has made its Siri-en­abled smart speak­ers off lim­its to any­one with an An­droid phone.

Sonos has po­si­tioned it­self as a purist— we make great speak­ers, and that’s why peo­ple love us—and as a pro­moter of other ser­vices. It also says that cus­tomers lis­ten to ap­prox­i­mately 80 per­cent more mu­sic af­ter pur­chas­ing their first Sonos prod­uct. “What’s go­ing to set them apart are these part­ner­ships. They’ve built a kind of strat­egy moat around their busi­ness,” says Matt Pencek, a di­rec­tor at Mor­ganFranklin Con­sult­ing. He cited a col­lab­o­ra­tion with Ikea as an ex­am­ple of an un­con­ven­tional part­ner­ship that might fare well for Sonos in the long run. “But those part­ner­ships also leave them ex­posed,”

Pencek added.

When I asked Sonos CEO Pa­trick Spence in a re­cent in­ter­view whether Sonos would ever cre­ate or sell its own ser­vices, he replied that he “doesn’t think that’s in the best in­ter­est of the con­sumer.” Sonos has weighed this be­fore, around stream­ing mu­sic, and now has been forced to con­front the “ser­vices” ques­tion again with voice as­sis­tants. Spence said then the com­pany is look­ing at op­por­tu­ni­ties to make the voice setup ex­pe­ri­ence bet­ter but in­sisted Sonos “wouldn’t build an ask-any­thing as­sis­tant, like an Alexa or a Google As­sis­tant.” Even if Sonos were to launch its own stream­ing mu­sic or voice-con­trol ser­vices, it would be years be­hind the oth­ers.

In­vestors love the idea of ser­vices, with their re­cur­ring rev­enue stream, Spence ac­knowl­edged at the time. Sonos’ re­cur­ring ser­vices, he said, are build­ing great prod­ucts and get­ting peo­ple to buy more of them. It’s been suc­cess­ful at do­ing that. The ques­tion now is whether Sonos can main­tain its sta­tus as an ag­nos­tic out­lier or whether it will even­tu­ally have to use the same kind of ser­vices hooks that other tech com­pa­nies em­ploy.

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