After the Google-Fitbit news, the market is now abuzz with talks that Sonos (SONO) could be Apple’s (AAPL) or Amazon’s (AMZN) next target. On November 6, D.A. Davidson analyst Thomas Forte hinted that Apple could acquire Sonos, a premium smart speaker brand, reports Market Watch.
Forte wrote, “Acquiring Sonos could materially advance Apple’s connected home efforts (an area we believe it needs improvement and where its own product, the HomePod, was a disappointment).” He added, “We see Sonos as a natural acquisition target for Apple, given the similarities in: 1) product quality, 2) design acumen, and 3) premium brands.” Sonos is a premium smart home speaker with excellent audio quality. According to Darrell Etherington from TechCrunch, “it’s hard to find two companies that seem more philosophically aligned than Sonos and Apple when it comes to product design and business model.”
As Apple and Sonos are both focussed on providing high-tech hardware, they seem to be a good match. Sonos is also compatible with Alexa and Google Assistant.
Interestingly, during its IPO last year, Sonos had a different take on Apple. In an interview with Axios, Sonos CEO Patrick Spence said, “It’s different because of strategic intent. I don’t see them building a set of products that fulfills what everyone needs. HomePod is good, but you also need iPod and Apple Music. To me that’s supporting a different strategic agenda, which is how to sell more iPhones.”
After indications of a potential acquisition by Apple and Amazon, Sonos stock jumped 4.67% to close at $15.01 yesterday. Forte cautioned, “Sonos also could go private if its shares continue to underperform.”
HomePod is struggling due to high prices and Siri
It’s no secret that Apple’s (AAPL) strength now lies in its wearables segment. In fiscal 2019’s fourth quarter, its wearables revenue grew more than 50% YoY (year-on-year), driven by the Apple Watch and AirPods.
Home accessories are still an inert area. The HomePod has failed to move the needle for Apple and hasn’t yet found footing in the smart speaker segment. One of the HomePod’s biggest limitations might be its pricing. As we’ve discussed previously, the HomePod caters to only 5% of the US market. Its price tag could be a deterrent, reasoned MacRumors on August 8. The HomePod costs four times more than the Google Home Mini (GOOG) and Amazon Echo Dot.
However, Siri is another reason the HomePod is far behind Amazon and Google. Alexa and Google Assistant are very consumer-centric and can perform many tasks for users, unlike Siri. Last year, Forbes contributor Kevin Murnane indicated that Alexa leads users to the Amazon store, while Google Assistant offers access to its productivity apps. Both companies continue to add thousands of third-party apps to enhance user experience, wrote Murnane. In comparison, Murnane pointed out that Siri can’t handle as many tasks as Alexa or Google Assistant, is restricted to Apple devices, and can’t call or message contacts. However, Murnane suggests Apple’s device is more suitable for music lovers because of its excellent audio.
Buying Sonos may not solve the HomePod’s issues entirely
Though Apple is becoming more service-oriented, hardware has always been its strength. Acquiring Sonos could enhance Apple’s capabilities, but wouldn’t fill a void. These circumstatnces are a stark contrast to the Google-Fitbit deal. Google was already present in the wearables segment but wanted to gain a foothold in health and fitness tracking. Fitbit was the ideal medium to do so.
The HomePod’s success also depends a lot on its AI-powered voice assistant, where Apple has yet to improve. Moreover, like the HomePod, Sonos is also a high-end speaker, with a base price of $199. Therefore, Apple acquiring Sonos wouldn’t solve the HomePod’s pricing issues.
Another impediment lies on the regulatory front. Strict US antitrust laws could make buying Sonos challenging for Apple. However, regardless of these potential obstacles, we’ll be paying close attention to Apple-Sonos acquisition news.