Ace Production Cut to Just 10% of Original Plan
While Sonos (Nasdaq: SONO) claims to have most of its app problems behind it, multiple reports are emerging that suggest it may have an even bigger problem – the introduction of its Ace premium headphone has flopped. If these reports are true, then Sonos may indeed be staring into the jaws of the one monster that can truly terrify it – growing consumer resistance to its new products.
See more on this troubling turn of events for Sonos
As regular Strata-gee readers are likely aware, for several quarters now, Sonos has been excitedly talking about a new product introduction in a “multi-billion dollar segment” that will generate $100 million in additive revenues for the brand. It was an open secret that this was going to be their entry into the headphones category.
As recently as its second-quarter earnings, about which I issued a full report, the company was still banking on the rollout of a new product in a new category (Ace) which was still expected to contribute $100 million in revenues this fiscal year. This is an estimate they repeated over and over and never revised, even as the product launch slipped to the third quarter. Yet, as I reported, even analysts began to display skepticism based on reports that consumers are holding back on spending on discretionary items.
Sonos Was Relying on Ace to Turn Its Fortunes Around
Ace was going to be an important product for Sonos as the company’s revenues have been declining for several quarters now. Sonos was increasingly desperate to offer consumers a “shiny new thing” to pump up their numbers.
Then the app debacle hit, and a beloved consumer brand was loved no more. As I noted in my report on Sonos’ third-quarter results – the negativity surrounding the app truly spoiled the launch of Ace. Now, we are learning that Ace’s problems may run even deeper than a weak launch.
‘Sonos Struggles to Sell Ace Headphones’
The most damning report comes from Mark Gurman of Bloomberg News who reports that “Sonos struggles to sell Ace headphones.” At the same time it was “trying to crawl out of the massive hole it created when the audio company prematurely launched a revised app,” sales of the Ace headphones have been dramatically disappointing. Gorman adds that while the company “hoped” the app would facilitate a new generation of products, instead “…the glitchy app plunged the company into crisis.”
That is pretty much how I saw it as well. However, the Ace launch was not a total failure. There was an initial buy-in, as I mentioned in the Q3 results, which finally showed a modest 6.4% year-over-year growth, likely thanks to Ace. Yet the “app disaster” as I put it in my previous post, was stealing the limelight from Ace and shrouded the company in a persistent black cloud of turmoil from which it has yet to extract itself.
Report – Ace Missed Its Projected Performance by 90%
I suspect that Gorman’s source is someone connected with the manufacturing partner for Sonos. He reports that Sonos had expected to build somewhere between 900,000 – 1,000,000 units per year…or about 2,500 headphones per day. Instead, Gorman says, that number is more like 250 units per day, which adds up to an annual production rate of between 90,000-to-100,000 per year.
If accurate, this means that the company is coming in at about 10% of its original forecast – off 90%! So much for generating $100 million from Ace this year (or any year at this rate) – if this rate continues, it’ll be more like a $10 million product line. For some smaller companies, $10 million would be a nice number. But for a company like Sonos with $1.6 billion in revenues last year, it’s only a little more than ½% of revenues – not meaningful and certainly not enough to move the needle. Also, it won’t be enough to save the company which saw revenues decline $100 million in 2023 as compared to the previous year.
Sonos Considers Scrambling to Build Another Step-Up Headphone
What should Sonos do about this poor Ace sales performance? According to the report, the company is contemplating dropping the price of the current Ace and then launching a new higher-end model (perhaps the Ace Ultra?). The thinking is that Sonos will cut the price of the current Ace model by $50 to $400 – and then launch a new step-up model at $450.
Apparently, the secret codename for this project is “Roundhouse.” There are no details yet on just what the step-up features would be to justify the extra expense. There is also no indication as to whether consumers would feel that two Sonos headphones, one at $400 and another at $450 make any sense. It sounds to me like Sonos is grasping at straws.
Bloomberg is also reporting that the company had planned to launch a set-top box this year – something along the lines of an Apple TV or Roku-type device. But the company has apparently decided to delay that launch until next year.
Trying to Stop the Leak in Sales, Sonos Launches New Arc Ultra & Sub4
However, the company has decided to roll out additional new products, pulling out all of the stops to try and turn around its declining sales. As part of this effort, last week Sonos announced the Arc Ultra, a new “premium” soundbar that is said to feature its Sound Motion technology. Arc Ultra will be available at the end of October and sells for $999 MSRP.
Sonos has also launched the new Sub4, the latest subwoofer model in its lineup. Sub4, the company says, has “a refreshed design and internals that elevate your favorite movies, hit shows and more with rumbling bass.” In the Sub4 are two drivers both facing inward to create a force-cancelling effect for lower distortion. Like Arc Ultra, Sub4 will be available at the end of October for $799 MSRP.
App Will Soon Reach 90% of Its Former Capability
Let’s not forget the wounded app. Sonos says that the latest update to its redesigned – and much maligned – app will bring back “90% of the new app’s missing features, with further additions on the way…” It’s incredible to think that it’s taken the company months, to restore 90% of the functionality of its own app.
We’ve worked tirelessly to resolve the most critical app issues and most requested legacy features. We have reached a level of quality that gives us the confidence to launch our extraordinary new products. As we laid out in our 3/10 commitments we will continue to improve the software regularly, and are determined to make the Sonos experience better than it’s ever been.
Patrick Spence, Sonos CEO
CEO Spence may be pulling back on the control stick, but this plane looks like it is still speeding nose down.
See more on Sonos by visiting sonos.com.
I have never had anyone ask for a Sonos headphone. No other dealer I’ve talked to has ever had a customer ask for a Sonos headphone. I suspect the broken app has led to fewer new customers buying into the platform. Rushing a broken app to market to enable a product that has limited appeal is a real problem.
I can’t believe the CEO still has a job
Hi Joe,
I’ve heard that same comment from a few dealers. I’ve seen some indication on various Sonos-related online discussion boards and social media that some consumers have purchased one – apparently directly from the company. But it seems like a muted reaction to Ace as compared to past Sonos product launches.
Ted
Diddo!
When your CEO is only known for his work at BlackBerry, and your company is failing – maybe there is where your answer lies.
Personally, I own 14 Sonos devices, all of which have been rendered useless since May. The dreaded software update. I’m still waiting for a response from customer service on all six of my tickets. Sonos has a clear problem. And they’re ignoring it.
I think those of us who already own Sonos products know better than to buy anything additional. So Patrick Spence must be banking on new customers filling the void. Until every home in the United States and abroad has Sonos products that don’t work. Only then will his task of CEO be complete.
It is all utter nonsense. This is just the free market ostracizing a crap brand.
The only unique feature of the Ace is the content button. With a TV made in the last 8 years likely having Bluetooth, and the WM-1000XM4 being about $250, you can pair them. When you turn on the headphone the audio output at l switches to the headphone. When you turn it off it switches back. Just like the Ace would. You can only have one wireless headset listening to the TV, and it doesn’t join any Sonos room audio. The two are identical for battle different sums of money. The Sony are lighter, similar comfort and battery life.
If they add DTS:X support to the Arc Ultra I will happily buy it, a Sub 4, and a set of their headphones just as a thanks. Not having that on the original Arc has frustrated me too many times to consider buying any of their products again, and the terrible app replacement was just more salt on that wound.
The original Sonos app was flawless after years of Developements. It was very intuitive and even those with little acuity rapidly learned to use it
In just a few minutes.. The easy app was its key to the success of the brand. The new amp controls only new products.. Did Sonos think consumers would rush out and replace their existing products and buy all the new products that worked with the new app? They didn’t think this through and now have upset their consumer and dealer base. Consumers are not interested in switching between apps and their entire Sonos eco system worked perfectly with the original app. There is a very simple solution and it’s in their pockets. Go back to the original app so consumers can easily expand their existing Sonos eco system. With additional new products.
Credibility and trust resonate with me.
“The most requested product of all time!”
As stated, no one has a customer or knows anyone anywhere that requested Sonos headphones.
If they are willing to tell me that, if they are willing to break one of the best apps on the planet that CLEARLY was beta software AT BEST, maybe alpha… not sure I can believe a single thing they say ever again.
It was SO GOOD that I could set it up in the home of 80 year old people and they could immediately choose music. This new app… I’m a dealer and I show it to clients and literally go, “Oh wait, where did they put this?” If I strain to find it intuitive, what about my new clients?
Credibility and trust.
Very valid points Tom. Thanks for sharing your thoughts!
Ted
I struggle to understand their pricing strategy on either the Ace/Ace Ultra or the ARC/ARC Ultra. The respective steps are too small in retail cost…how many Customers would actually NOT make the step when presented with the supposed benefits? I won’t comment on the App “upgrade” as that has been well covered and universal in sentiment.
As it relates to Sonos’ struggling sales and the independent dealers who actually helped build the brand, I received the Costco holiday mailer yesterday. In it were several Sonos products (SUB 3, Era 100, ARC, Beam 2 and Move 2) possibly lower in net cost than what a small dealer is able to purchase the same unit for at their local distributor…or direct for that matter. How does an Integrator or independent retailer compete with this?
As someone who has spent their entire adult life in specialty CE at various levels, I believe Sonos is losing or, has lost their way. And, it’s too bad as this was a reliable, go-to product that was pretty much universally loved by end users and dealers alike.
Sonos was never conceived as a CI brand. It was just so good, and reputable installers are always seeking things that are first and foremost trouble free, (secondly excellent in features) that we just kind of did that favor for them.
When enough CIs found that Sonos was selling to their customers behind their back, Sonos was forced to create a CI division, partially to build on the strength we provided them, but partially to placate us.
(Early on, you could register Sonos systems in the field to an extra email address of your own, to avoid Sonos marketing to your customers. But they closed that loophole.)
There is no doubt that the CI division support is significant nowadays, but the nature of their business depends on selling direct to customers, and that will always be a conflict to the installer channel.
As you are aware, some CIs are always looking for an alternative, some using Heos, Bluesound, MusicCast, just to get away from that unfriendly relationship. They of course are forced to settle for inferior products based on the principle involved. The gap may now be closing.
Tom,
My comment around independent dealers playing a significant roll in launching the brand was related to the fact that my first view of Sonos was at an annual CEDIA trade show when I was working as an independent rep…while I do not recall the year, it would have been close to 20 years ago.
The fact is, I do not know for certain if national chains such as Circuit City and Best Buy were on board initially. In my world view at that time, it seemed that independent dealer members of the Pro Buying Group (Tweeter, Sound Advice, Dow, Magnolia Audio Video, Hi Fi Buys, etc….maybe others as well) were the launchpads for Sonos
Jim
Sonos is trying to mimic Apple. They don’t have the resources nor know how to pull that off. Sonos is still a premium brand but they need to stick to what they know. I started off with one SL and now I’m up to 9 Sonos speakers and a connect:amp. I’m still a fan. They need to fire the CEO and kick off an extreme sale to rengage consumer and create new fans.