Why everybody is making earbuds

this video was sponsored by curiositystream in partnership with my streaming service nebula in 2016 musician and tv personality ray j surprised the world by launching his own tech company called raytronix yes that ray j the entrepreneur claims that a message from god got him to start selling electric scooters with saddles wrapped in leather from luxury brands like mcm but also tiny fans that you could plug into smartphones with messages based on faith and even a very dodgy looking smartwatch you have probably never heard of raytronix despite bizarre features during halftime shows at nba games as well as promotions involving high profile celebrities like chris brown or snoop dogg and the company's claims that they made the quote electric scooter everyone is talking about couldn't have been further from the truth likely because all of their products seemed comically bad attempts at slapping logos onto the first products one would find at a trade show in china if however you have spent any time on youtube in the last three years at all you have probably heard of what ray j decided to pivot his company to next recon raycon raycon raycock raycon raycon raycon raycon recon raycon raycons are one of the most advertised products on all of youtube with the company pouring an incredible amount of money into sponsorships their website once again names every second celebrity in existence as an endorser and the company has shifted all of its efforts from other product categories to these raytronix.com just redirects to the page selling raycons and all of the other weird product categories got removed pretty much the minute ray j stumbled upon the golden opportunity of bluetooth audio products these things are as close to a perfect once in a decade product category as there is and the amount of profit that can be generated with them is almost unparalleled it is no wonder that carl pay once the co-founder of oneplus launched his new company nothing with a pair of earbuds that lg after abandoning phones instead double down on earbuds that sony makes more money from audio than they do from selling phones now that hmd global announced 12 wireless audio gadgets on a single day or that charts like these are routinely made showing airpods alone driving more revenue to apple than most tech giants have revenue altogether in my app crowd where we track all of the newly announced gadgets wireless audio devices are already the second most popular category after smartphones by new releases and they are the fastest growing one by far companies are flooding the market with wireless audio accessories and there's a veritable gold rush here so in the 79th episode of the story behind series let's go over what makes these little things so damn special [Music] at its simplest a product category is attractive to companies if they can either sell lots of units like shampoo or toilet paper or if they can make lots of money per sale like with luxury bags or watches for example if either of the two are given they can make some money but if both are given like in the case of wireless audio products well that's basically a fortune waiting to be made so volumes are pretty straightforward counterpoint says that over 200 million pairs of true wireless earphones were sold in 2020 which is up from just over a hundred million the year before and the research firm expects an 80 year-over-year growth for the next few years to come reaching well over 600 million pairs by 2022. that's a gigantic market and the only other product category in recent memory that had a growth rate anywhere near as big were smartphones which of course became maybe the most important consumer product category ever and this huge growth rate is easy to understand if we look at all the macro trends that are supporting it with 3.8 billion smartphone users around the world there is a huge total addressable market as almost all smartphone makers drop headphone jacks from phones consumers have no choice but to adopt wireless audio devices as wireless earbuds aren't usually a free inclusion with a phone like their wired counterparts were most people actually have to buy them separately with the rise of music streaming and podcast listening users want better accessories since replacement cycles are short as wireless earbuds are easy to break or lose consumers actually have to keep upgrading frequently and while making a really good pair is difficult solid bluetooth standards have made it so that basically any schmuck can go on aliexpress and order an okay pair and then slap their logo on it and more or less get away with it it's almost like all of the tech trends in the world have aligned to provide massive tailwinds to this product category which means huge volumes are basically a given and the opportunity for profit is really strong too and to explain what i mean let's talk about kind of the opposite of this product category which would be windows consumer laptops this is a category that has huge volumes just like earbuds but the profits per unit are low because products are highly standardized and comparable and consumers are fairly knowledgeable every windows computer uses the same operating system almost all use standard components that consumers can actually recognize and meaningfully compare benchmarks directly highlight real differences between the products consumers who have been using pcs for decades more or less know what they're looking for when they're buying one and they can go to a store and physically try a machine to decide if they like the fit and finish and whatever in person the windows laptop market is extremely transparent which makes it very hard for one brand to charge significantly more than another for a comparable computer so margins at least on the mainstream consumer models are tight and even large manufacturers can rarely afford to spend anywhere near as much on marketing as raikon has spent on youtube for example now compare that with wireless audio and you'll quickly find that to most consumers wireless audio is everything but a transparent category to illustrate take a look at this unbranded pair of earbuds it has usbc touch controls and ok looking case and it's waterproof guess how much it costs well i bet you didn't guess four dollars over at aliexpress to be fair that's the wholesale price for companies buying at least a thousand pieces not the final retail price but it does include a company being allowed to put a custom logo on it and getting custom packaging too so they can sell these as their own now these earbuds might or might not be bad but the point is that you can barely tell anything about them by just seeing a video or a spec sheet of them like you would with a pc and if a company slapped the right logo on them and got the right people to promote them i bet that you could convince a ton of people to buy them regardless and due to hygiene concerns consumers can rarely try especially in-ear solutions before buying so they can't actually experience things like sound quality and comfort for themselves and are almost entirely left seeking out opinions of others online now there technically are of course ways to find good information online and measure things like audio and microphone quality somewhat objectively but quantifying things like sound quality beyond showing people frequency response graphs that the average consumer definitely doesn't know what to do with is hard and there is no simple benchmark number where higher is better and the consumer knows that one device will perform exactly i don't know 23 better than the other and is worth paying extra for so without hard data that they could rely on and without the option to try most of these devices consumers are left relying mostly on endorsements and reviews and even with a system like we have with crowd where they can get lots of opinions and do so over multiple attributes but they are still only learning about how others feel about a product not whether it will fit their particular year snugly or whether their particular preference for audio will be met properly for consumers there there's so much ambiguity in this product category and where there's ambiguity there's profit for companies well pretty much the only way for a pc maker to sell a more expensive machine is to include more expensive components which directly raises their costs and continues to leave them with slim margins in a category where quality and value are vague and almost impossible to quantify there is lots of room for maneuvering and brands like raycon can swoop in they can buy lots of endorsements and they can sell both loads of these miserable things these are not great earbuds they definitely shouldn't cost as much as they do but based on the amount of continuous sponsored messages millions of people must still be buying them and even if we move past companies that are basically trying to scam people out of their money there's actually plenty of legitimate reasons to buy earphones that go beyond just pure measurable functionality as well these devices are worn on our heads in the office in the gym and in front of our friends clients and lovers so by definition they are a fashion and lifestyle choice as much as they are a technical one they are kind of like glasses or sunglasses in the sense that sure i care a lot about the functionality as well but i also care tremendously about how they look and how they make me feel much more so than i would with most other gadgets just think about nothing a company that has spent i don't know three months hyping up the design of their earbuds like these happen to also be really nice earbuds but the primary attributes the company is promoting are clearly the design and the brand and carl pay is not the first person to come up with this strategy apple from the start realized that visually distinctive earphones were a valuable branding element but also beats in its early stage was built primarily on the back of celebrity endorsements and distinctive designs and they made it all the way to a three billion dollar acquisition without having made a single product that made audiophiles happy now i think the nothing earbuds the airpods and most beats products at least since they were bought by apple are actually pretty decent products but they illustrate just how much the intangible plays a role in the industry and since intangibles don't directly correlate to component costs there's plenty of opportunity for profit and since i've just mentioned apple let's also talk about ecosystems and economics most products like shampoo for example have to be sold on their own which means a company has to spend money to convince you to specifically buy them and then those products also have to make a profit directly but ecosystem companies and especially filmmakers are in a much better position once somebody has chosen to buy an iphone or a samsung phone they are already more inclined to buy airpods and galaxy bots than a random pair reducing customer acquisition costs and since these companies can also create bundles not every individual product has to sell at a profit as long as the overall balance is positive better yet they can also use earbuds as a way to offer you a discount that seems more significant based on its purchase price than it actually cost them to give based on manufacturing costs so it's unsurprising then that apple xiaomi and samsung the three companies with the strongest mobile ecosystems to lean on are the ones needing this category with 47 of the true wireless earphone category belonging to them i expect that they will grip even more of the market in the future as it matures and weaker brands eventually get squeezed out and i also expect some audio brands like nothing to at least explore making phones too because the power of ecosystems and bundling is just too strong right that's it for audio and if you're interested i've made a couple of minutes of bonus content that breaks down also the economics of smart watches and compares them to audio products that is available exclusively at the end of the nebula version of this very video and i've linked to that video down in the description nebula is of course our very own video streaming service built and owned by creators like myself real engineering polymatter lowspecgamer and many others it's a platform without ads or any nasty tracking and there's no algorithm to worry about so it allows you to just watch stuff that you want without interruptions and it allows us to just make good content for you that includes all of our regular videos and free and in the case of tech author usually a day or two early as well it includes little nebula plus add-ons to videos with stuff that didn't quite make it to the main youtube version and it includes high-quality nebula originals like hour-long documentaries from your favorite creators that are all available on nebula and best of all you can get access to nebula for free with a subscription to my sponsor curiosity stream which itself is just 15 bucks for an entire year that's like barely more than a dollar a month curiosity stream is of course the premiere place on the internet for high quality professional documentaries from the founder of the discovery channel and they have a huge library of science nature and history content to binge while you are stuck at home i've recently finished watching engineering the future on curiosity stream which took a closer look at the futuristic technological solutions to humanity's biggest problems and there's a ton of other great content here from hosts like david attenborough jane goodall stephen hawking and more so check them out at the link in the description and i'll see you in the next video [Music] you

Channel: TechAltar

Views: 387,470

Rating: 4.9416661 out of 5

Keywords: bluetooth earbuds, wireless earbuds, in-ear, earphones, earbuds, bluetooth, wireless, headphones, audio, speakers, profit, profitability, business, sales, growth, product category, business model, Nothing, Carl Pei, OnePlus, Airpods, Apple, Air Pods, Airpods Pro, Sony, WF1000XM4, Pixel Buds, Pixel Buds A-Series, smartwatches, hearables, market share

Id: bJG37Z9wPFQ

Length: 12min 56sec (776 seconds)

Published: Tue Aug 31 2021

Reddit Comments

[u/UGMadness]

The degree of obfuscation and lack of knowledge from the general audience is what makes this product segment so profitable. The newer the product category is, the fewer objective metrics people are familiar with that they would use to judge for themselves whether a product is better than another. Happened with smartphones in the beginning too, with wildly disparate platforms that people didn't even know which apps were available in which ones and which weren't. Cameras? Megapixel war.

Electric cars are going through a similar revolution, and manufacturers are already busy obfuscating objective data points in order to market the experience instead for more profit. Give these markets another couple years and things will start to stabilise as people slowly learn what works for them and what not. If anything, this will be a boon for the audiophile community as manufacturers will slowly be forced to engage in an arms race for better and better sounding devices as people upgrade their TWS earbuds and won't be willing to go to something that sounds worse than their previous one.

[u/QuantumMechanixZ]

Sometimes I wonder if you should never buy an advertised product, because if the company truly cared about making a good product they would spend more on r&d than actually advertising the product into your consciousness.

[u/FutureDeadAlcoholic]

Samsung and Sony TWS IEMs compete for sound quality with wired IEMs at their price. Not all TWS are bad and they're very convenient when you have to take your mask off on public transport several times a day. But yeah don't buy shitty TWS earphones.