AMA­ZON ECHO TEAR DOWN

SoundMag - - Contents - Writ­ten by David Richards

As Sonos in­vests in spin doc­tors to spruik their pend­ing IPO a US VC fund has lit­er­ally torn apart a Sonos one and the highly pop­u­lar Ama­zon Echo Pro net­worked speaker a de­vice that has re­ally ex­posed the dif­fer­ence be­tween the two speaker of­fer­ings.

An­a­lyst firm Canalys ex­pects the smart speaker mar­ket to ap­proach an in­stalled base of 100 mil­lion de­vices by the end of this year, mak­ing it al­most 2.5 times big­ger than at the end of 2017.

Ama­zon Echo de­vices will ac­count for over 50 per­cent of the in­stalled base in 2018, while Google’s Home se­ries will ac­count for 30 per­cent leav­ing an­a­lysts pon­der­ing where there is space for Sonos in what is be­com­ing a crowded net­work sound mar­ket.

Ben Ein­stein is a Gen­eral Part­ner at Bolt, a US pre-seed and seed VC firm who spe­cialise in tear­ing apart de­vices he re­cently com­pared the Sonos One (See story here) Vs the Ama­zon Echo Pro that is strip­ping share away from the likes of Sonos. Ein­stein claims that Ama­zon was the e first com­pany to pop­u­lar­ize the smart speaker eaker con­cept. The Seat­tle gi­ant’s first foray y into speak­ers has been shock­ingly suc­cess­ful ss­ful (sell­ing tens of mil­lions of units to date). While le the rev­enue gen­er­ated by Echo is a tiny frac­tion of Ama­zon’s top line, ev­ery de­tail about out the im­ple­men­ta­tion of the prod­uct sig­nals als a com­pany spear­head­ing a new prod­uct uct cat­e­gory and a busi­ness model that doesn’t de­pend on prof­itably sell­ing con­sumer mer elec­tron­ics hard­ware.

He said, “This is clearly an ex­tremely un­usual way to de­sign a speaker”.

“From the very first part I looked at, it t be­came clear Ama­zon did not de­sign Echo like ke a tra­di­tional speaker. The en­tire prod­uct uct is as­sem­bled like a tubu­lar plas­tic sand­wich dwich with all com­po­nents con­nected ver­ti­cally y around a cen­tral axis (us en­gi­neers call this a stack-up). tack-up). It’s an ex­tremely un­usual way to de­sign a speaker”.

Af­ter peel­ing off the first plas­tic part in the stack-up, he found the au­dio and Blue­tooth ue­tooth

board. The bot­tom of this board han­dles the dig­i­tal cir­cuitry for gen­er­at­ing and ma­nip­u­lat­ing the au­dio sig­nal, while the top is the am­pli­fier, power in­put con­nec­tor, au­dio out con­nec­tor, and EFR32MG12 Blue­tooth chipset (EFR32MG12P232F1024GM48—say that three times fast).

The EFR32MG12 has a con­fig­urable sub-GHz ra­dio pro­grammed for the Zig­bee home net­work pro­to­col, which is one of sev­eral fu­ture low-power, IoT home net­work­ing stan­dards. This is yet another clue that Ama­zon is think­ing about Echo as a gate­way to the home rather than a speaker with some new tricks. Peel­ing off the next layer in the stack-up, he found the tweeter which plays the high­fre­quency spec­trum.

“Both the tweeter and midrange driv­ers are down­ward fir­ing, which again is quite rare for con­sumer elec­tron­ics speak­ers but a near ne­ces­sity for the cylin­dri­cal de­sign.” A few in­ter­est­ing notes about this bot­tom speaker “re­flec­tor” part to the right in the tear­down pho­tos.

This part is ex­tremely com­plex for such a sim­ple func­tional part. There are a sur­pris­ing num­ber of ribs, un­der­cuts, and bizarre ge­om­e­try not of­ten found in con­sumer elec­tron­ics parts.

The ex­ter­nal sur­face has no draft (mean­ing the wall has no an­gle). Draft is a re­quired fea­ture of nearly ev­ery in­jec­tion moulded part, so this part is ac­tu­ally two parts (the in­ner/up­per part is in­jec­tion moulded and the outer sur­face is ex­truded or machined). Again, a very un­usual de­ci­sion that is both beau­ti­ful and ex­pen­sive.

This con­i­cal re­flec­tor + outer sur­face part is eas­ily 3–5x more ex­pen­sive than I would have guessed from the out­set.

Pulling off the sleek speaker grille, he found what he de­scribed as a “shock­ing se­cret”

an ex­truded plas­tic tube with a sec­ondary ro­ta­tional drilling op­er­a­tion.

“In my many years of tear­ing apart con­sumer elec­tron­ics prod­ucts, I’ve never seen a high­vol­ume plas­tic part with this kind of process. Af­ter some quick math on the pro­duc­tion time­lines, my guess is there’s a multi-headed drill and a ro­ta­tional axis to cre­ate all those holes. CNC drilling each hole in­di­vid­u­ally would take an ex­tremely long time. If any­one has more in­sight into how a part like this is made, I’d love to see it! Bot­tom line: this is another sur­pris­ingly ex­pen­sive part”.

As he peeled away lay­ers of the stack it started to be­come “painfully clear that Ama­zon is spend­ing far more to pro­duce this speaker” than he ini­tially es­ti­mated.

This pri­mary struc­tural part (where the main cir­cuit board is mounted and that holds the mid-range driver) was ex­posed as be­ing wildly com­plex. “Look­ing at the draft an­gle (blue ar­row and dot­ted lines) we know this part is pulled out of the in­jec­tion mild tool ver­ti­cally, which is both ex­pen­sive and fraught with de­sign con­straints. Why Ama­zon de­cided to mould the part this way is be­yond me. It also strikes me as un­usual to place the heav­ier driver (the midrange) above the tweeter. Usu­ally speak­ers are de­signed with the heav­i­est mag­nets as close to the bot­tom of the prod­uct as pos­si­ble for sta­bil­ity” he said.

The main PCB sits at the cen­tre of the prod­uct and is loaded with Me­di­atek parts (mov­ing away from TI in the first-gen­er­a­tion Echo prod­uct line).

As he peeled away the last layer of the stack (and the top of the prod­uct) we found the vol­ume con­trol, two push­but­tons, and mi­cro­phone ar­ray/user-in­ter­face PCB.

“The vol­ume con­trol is an in­cred­i­bly cre­ative assem­bly built around a con­tin­u­ous ro­ta­tion po­ten­tiome­ter, an el­e­gant round light pipe and cus­tom gear­ing in the vol­ume ring. It is noth­ing par­tic­u­larly ex­pen­sive or com­plex, but it’s a very neat de­sign” he said.

Pulling the user-in­ter­face assem­bly com­pletely apart, he ex­posed the many parts it takes to build a cus­tom vol­ume con­trol. Again, Ama­zon is will­ing to spend real money to build some­thing in­ter­est­ing and dif­fer­en­ti­ated.

“There are eight cus­tom-moulded parts that come to­gether for the vol­ume knob, a very dif­fer­ent story than the sin­gle part and ca­pac­i­tive sen­sors for the Sonos One”.

On the mi­cro­phone PCB, he found seven mi­cro­phones (one more than the Sonos, the ex­tra be­ing in the cen­tre of the board likely for di­rec­tion­al­ity) and 12 LEDs that dis­play the vol­ume and di­rec­tion­al­ity of Alexa’s voice.

“I’ve al­ways loved the light dis­play on the Echo line of prod­ucts but I’m cu­ri­ous why the LEDs aren’t equally spaced (maybe to show di­rec­tion­al­ity around the mics?”

Con­clu­sion Ama­zon Vs Sonos

De­spite these two prod­ucts serv­ing nearly an iden­ti­cal pur­pose, they couldn’t be more dif­fer­ent from each other in terms of de­sign in­tent.

Af­ter care­fully dis­sect­ing them both, it’s clear Sonos only buys into the smart speaker cat­e­gory be­cause they have to, in or­der to com­pete with oth­ers. Ama­zon has spent sig­nif­i­cantly more on their bill of ma­te­ri­als (BOM) cost for a lower sticker price speaker vs the Sonos One.

Ama­zon has three wildly un­fair ad­van­tages, which doesn’t bode well for Sonos’ IPO.

Part of this is due to Ama­zon be­ing both the OEM and the re­tailer (no mar­gins on each sale) but a big por­tion is Ama­zon’s clear long-term think­ing to dom­i­nate this nascent mar­ket. It is al­ways tricky to es­ti­mate BOM cost with­out dili­gently re­search­ing each cus­tom part and pur­chased com­po­nent, but my sus­pi­cion is that de­spite the 25% lower price tag, the Echo Plus is about 15–20% more ex­pen­sive than the more pre­mium Sonos One.

Ama­zon has three wildly un­fair ad­van­tages:

Ama­zon’s Un­fair Ad­van­tage #1: Re­tailer and OEM

Ama­zon sells nearly all of its Echo prod­ucts through their own re­tail chan­nel, this means they don’t pay a mar­gin to other re­tail­ers. I can’t think of a sin­gle con­sumer elec­tron­ics com­pany that sells tens of mil­lions of units nearly ex­clu­sively, di­rectly to con­sumers like that. In prac­ti­cal terms, it means 35–50% of the prod­uct’s price that the re­tailer typ­i­cally takes can be di­rected to make a bet­ter prod­uct.

Sonos, on the other hand, has to pay this cost to re­tail­ers (in­clud­ing Ama­zon!) This is the pri­mary driver for Ama­zon’s prod­uct be­ing both more ex­pen­sive to man­u­fac­ture and cheaper to buy. There’s sim­ply no way to beat that strat­egy in a mass-mar­ket prod­uct cat­e­gory like speak­ers where price is one of the ma­jor de­cid­ing fac­tors for con­sumers.

Ama­zon’s Un­fair Ad­van­tage #2: Plat­form Own­er­ship

Even though Sonos’ speaker has nearly iden­ti­cal Alexa func­tion­al­ity, 100% of the busi­ness lever­age rests in Ama­zon’s con­trol. The real IP and value is not in the metal and plas­tic that con­sumers are buy­ing. It is in the soft­ware, data, and sys­tems that Ama­zon is con­tin­u­ally build­ing. We’ve al­ready started to see this strat­egy play out with nearly ev­ery prod­uct at CES 2018 brag­ging about “Alexa in­side.” This is how plat­form lever­age is built and the in­di­vid­ual nodes on the plat­form (like Sonos) are al­ways dwarfed by the owner of the plat­form it­self (Ama­zon).

Ama­zon’s Un­fair Ad­van­tage #3: Di­ver­si­fi­ca­tion

Sonos’ speak­ers rep­re­sent the full Sonos busi­ness and brand. As such, ev­ery dol­lar they make must come from sell­ing phys­i­cal prod­ucts. As I’ve writ­ten about ex­ten­sively, this is a tough busi­ness and very few com­pa­nies reach large scale ($1Bn+ of rev­enue) over mul­ti­ple prod­uct cy­cles. Ama­zon, on the other hand, can eas­ily lose bil­lions of dol­lars on “side bets” like the speaker prod­uct line be­cause their rev­enue spread out across many other busi­ness units (AWS, re­tail, and Prime). This busi­ness model di­ver­si­fi­ca­tion makes it tough for com­pa­nies like Sonos to com­pete be­cause it’s not a ze­ro­sum game for all.

Short or Long on Sonos?

As you may have gath­ered, I don’t have high hopes for Sonos’ tra­jec­tory. If the up­start was re­ally set on em­brac­ing the next gen­er­a­tion of con­sumer speak­ers, they would be re­think­ing how to build their au­dio prod­ucts sys­tem­at­i­cally from the ground up to own as much of the plat­form as pos­si­ble. But the prod­ucts they’re ship­ping don’t tell that story: they show a tra­di­tional speaker man­u­fac­turer in­cre­men­tally adding tech­nol­ogy in an at­tempt to keep up with a fast-mov­ing race. This is never a win­ning strat­egy in the long term.

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