Sonos Confirms It Will Enter Automotive in Q4 Via Audi Partnership

That diversification will continue into the automotive market later this year, CEO Patrick Spence acknowledged in Q&A, after an analyst queried management about a Sonos logo that appeared subtly in an Audi ad, which Protocol reported Tuesday. “We want to be in all the different categories of audio,” Spence said, citing the $90 billion spent on audio annually with a “big chunk of that in auto.” Sonos' first auto deal is with Audi for the next release of the electric E-Tron due in Q4, he said, saying “stay tuned for more.” It’s “early days” in automotive where Sonos wants to bring its “unique connectedness,” said Spence. He said Audi is “very innovative on this front and willing to experiment.”

The company wants people to think of Sonos when they think of sound overall, said Spence. Now, Sonos is associated with home audio, “but we aim to eventually be there for sound in every area of their life and throughout their day.” Innovation in sound and software freed the company from thinking about “only traditional form factors for creating sound experiences,” he said, citing the Ikea partnership. Sonos sound will show up in “surprising ways” in the future, he said. The company is looking at ways to bring the Sonos experience to new areas of audio while maintaining its own product signature. Features like Sound Swap, announced with the Roam, introduces a feature that’s unique to the portable speaker space and specific to the latest generation of Sonos speakers; it allows Sonos speaker owners to “throw” audio from a Bluetooth speaker and play it on all the speakers in a Sonos household.

Setting up the Sonos technology platform for longevity is a key initiative for the company, Spence said: “What you do today may not be what you do in the future.” He referenced the Ikea partnership, the move “beyond the home” and other partnership opportunities afforded by “the power of software platform.”

In an update on Sonos’ legal front, Chief Legal Officer Eddie Lazarus said the company has 2,149 utility and design patents worldwide and just over 1,000 in the U.S. Hundreds of U.S. patents extend into the 2030s, he said. On litigation against Google, Lazarus said Sonos showed Google last year how it infringed over 100 Sonos U.S. utility patents, a number that has grown to about 150 from 30 patent families. Sonos included five patents in its action against Google at the International Trade Commission (see 2002070038) covering grouping and synchronizing playback among smart devices, volume control for a group and individual device, stereo pairing and setup. Having finished the ITC trial, Sonos is “confident in the strength of our case.” It expects a decision in early-mid-May.

Another case filed in the Western District of Texas (see 2009290037) names five patents for features including creating and storing groups and transferring playback responsibility for a cloud-based stream of media content from a smartphone to a media playback system that’s configured to retrieve and playback the cloud-based content, Lazarus said. The trial is set for June 2022. Google told us last month Sonos “has misrepresented our partnership and mischaracterized our technology. Our products and devices were designed independently” (see 2102110012).

On whether Sonos has the financial resources to fight multiple intellectual property battles simultaneously, Lazarus said litigation is always a last resort and not the company’s preferred strategy for developing relationships with companies using its technologies. “I hope we don’t end up in a situation where we have to sue lots of big companies at once, but we’re going to do what’s necessary and we have the wherewithal to do what it takes to make sure that the many companies that have built their platforms on the technologies we developed and patented treat us fairly in that process.” IP is an area Sonos wants to develop as an “ongoing stream of revenue as far as the eye can see,” Lazarus said.

Sonos’ direct-to-consumer (DTC) business had “multiple years of acceleration” over the past 12 months, due to the COVID-19 pandemic, Spence said, saying the percentage of sales via Sonos.com doubled from FY ’19 to ’20. The company will continue to focus on DTC because of its ability to reach existing customers -- which account for about 40% of new account registrations each year -- through the website. For FY ’20, it saw an 84% increase in revenue and 48% rise in conversions in its e-commerce business.

The retail channel remains important to Sonos, executives said. The brand is now in 699 Costco stores in North America and launched in Yodobashi Camera, the third largest retailer in Japan, last year. Roam opens new retail opportunities, Spence said. “We’re looking to add selectively new retailers, new partners, new areas," he said, “but we’ll continue to lead with our DTC.” Spence also cited the “massive” and “resilient” custom integrator channel that “bounced back tremendously” during the pandemic.

A promotional partnership with Disney+ for The Mandalorian, with an exclusive Sonos.com offer tied to the purchase of an Arc or Beam sound bar, delivered a 12% uplift in web traffic, 27% offer code redemption and 735 million paid media impressions, Sonos said.

The company continues to “test and learn” with the $7.99 monthly Radio HD, its high-res audio channel with a broader catalog and exclusive content vs. the free ad-supported Sonos Radio, said Dworkin. The scale and traction Sonos Radio is showing indicates the ad-supported channel will remain the larger part of the streaming business, said Dworkin. It has 500,000 paid subscribers for Radio HD.

In an update on Sonos for Business, Dworkin said the end-to-end offering is in early stages but has a strong opportunity for revenue. The platform connects content to business partners with Sonos products. The combination of a hardware and software platform, ecosystem, ease of setup and control system integrations matters “tremendously” in retail, leisure, wellness, hospitality, healthcare and enterprise markets, he said. “The ability to control sound in spaces, to decide who can access, ensure the music is legal, to manage and move that sound around distinctly in zones … all of this is critical to business,” he said.

Spence took a personal turn in the investor meeting, citing his previous life at Blackberry developer Research in Motion and how he’s drawing on his experience there in building out Sonos. In his last year at RIM, Spence's team was responsible for $20 billion in revenue, “but we also screwed it up,” he said: “We didn’t build the conviction in who we were, how we would innovate to say no to Verizon when they needed a response to the iPhone on AT&T.” His team “didn’t build the kind of culture that could pivot away from hardware when that was the right move,” he said. Spence called Sonos “my second act and a chance to put everything that I learned at Blackberry to work.”