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COMMENT: Sonos Not Very Smart, & Their Former CEO Lied About Past Revenues

There is one thing that has been made abundantly clear by the release of the Sonos IPO documents and that is that Sonos the Company who loves to brag as to how superior they are, is not a very smart sound Company and that they have openly lied about their past performance and lack of profits.

It’s also been revealed both Google and Amazon able to turn off their devices from having voice connectivity which is set to be the future for sound systems.

Evidence has surfaced that their former CEO John MacFarlane openly lied about the past performance of the US sound Company in an effort to hide the fact that Sonos was unable to generate a profit under his management.

John McFarlane Former CEO exposed over past Sonos revenue claims.

According to the IPO documents, Sonos generated revenue of $992.5 million in 2017, up 10 percent from the year prior. In 2015, then-CEO John MacFarlane told me that that the company’s sales were around US $1 billion he was plainly lying, if the latest IPO data is to be believed, as the revenues back then has been revealed as only being $844 Million.

This is a Company that has never posted an annual profit, a fact that tops its risk factors.

The future for networked audio is going to be about high quality, high performance speakers that actually work with Amazon, they are also set to be about high res audio and Sonos cannot guarantee delivery of either Amazon sound or high res audio.

For the simple reason Sonos’ partners are also rivals, and Sonos’ reliance on companies like Amazon, Apple, and Google makes it vulnerable and their IPO a high risk investment.

Sonos could not go to an IPO earlier because they were unable to deliver profits and if their latest sound bar is anything to go by they are going to need a lot more Sonos spin to get them over the line because there is nothing in their latest Beam soundbar that is not already in soundbars from the likes of Harman, Denon, Samsung, LG, Philips or Panasonic.

This is a Company that has never posted an annual profit, a fact that tops its risk factors.

You have to give it to Sonos, they did try to minimise the impact of their IPO by releasing it in a week when most US analysts are taking a few days off due to the US July 4th holiday.

What Sonos have been forced to reveal is that Amazon can disable Alexa on Sonos devices anytime, with “limited notice,” according to the filing.

Another big boast from Sonos is that it offers the ability to stream around 100 different music and podcast services through its app.

All of those services are controlled by others, not Sonos and you can bet that when Apple, Amazon and Google start cranking up headphones and sound systems as part of their sound offerings that Sonos will be well and truly on the outer and not the growth Company that they are currently banging on about.

The reality for Sonos who is desperate to get an IPO away so that the current directors and investors can get some money back out of the Company, is that the new era of smart devices isn’t just about asking Alexa to queue up a playlist for you.

It’s increasingly about services. It’s an era in which tech giants like Amazon, Apple, and Google are positioned to dominate the smart home, whether that means music listening, TV streaming, or home security, because of their service businesses.

Sonos’ claim that it wants to be the hub of the smart home, is a joke when you consider the position, that Apple with their hundreds of billions in the bank and what Google and Amazon can throw at them are in this market. Then there are the likes of Samsung and LG who are both investing in the market and they don’t need to raise any capital.

This is a Company that were not even smart enough to build in any form of 24 bit sound redundancy into their network as they rolled out the Sonos offering 12 years ago.

Sonos’ plans to go public were first reported by ChannelNews and even then, and before the IPO document was released we said that this was set to be a high risk IPO.

Currently there are 19 million registered Sonos products in use as of March 2019, in 6.9 million households around the world. In the second quarter of 2018, Apple alone sold 52.22 million iPhones. In the 2017 fiscal year, Apple sold 216.76 million iPhones. It’s taken Sonos 12 years to reach their 19 million.

There is already a big trend in consumers switching to a superior networked sound system from the likes of Apple, Denon Heos, Bluesound and from Companies such as Google and Amazon with their Alexa voice controlled speakers.

In the fiscal year ended September 30, 2017, Sonos said it sold 3.9 million devices. During the first 10 weeks of sales Apple sold 3.2 million HomePods first 10 weeks of sales, it eked out 10 per cent of the smart speaker market Amazon had 73% per cent market share for their Echo devices and Google carved out 14 per cent for the Google Home, according to Slice Intelligence. Sonos was nowhere to be seen in these numbers other than buried in ‘Other’.

Strategy Analytics says there were 32 million smart speakers shipped last year; it says Sonos ranked fourth, behind Amazon, Google, and Alibaba.

Their IPO states “We are dependent on a number of technology partners for the development of our products, some of which have developed or may develop and sell voice-enabled speaker products of their own,” the filing says.

Wired Magazine said that another challenge for Sonos who are set to open a pop up store in Sydney later this month is that their rivals have their own retail channels, where they can promote their own products over Sonos’. Or they could remove Sonos products from their stores entirely.

This is not unprecedented: Apple has cleared the competition from its shelves before, and Amazon’s ongoing spat with Google over Amazon’s refusal to sell Google hardware products in its store has resulted in a less-than-ideal YouTube experience on Amazon streaming devices.

The fact that YouTube, which is part of Google, no longer works natively on Amazon streaming devices is a good example of what could happen when tensions arise among the tech giants and why they’re all building their own integrated services.

The bottom line for Sonos is not looking good, their products are fast becoming inferior and a lot of people could end up losing money by investing in this sound Company.

It also sums up how crappy the experience can be for consumers when giant tech companies push their own services, again and again. Apple’s integrated approach means there’s a simplicity in how things work, but it also means Apple promotes Apple Music above all else and has made its Siri-enabled smart speakers off limits to anyone with an Android phone.

Sonos has positioned itself as a purist—we make great speakers, and that’s why people love us—and as a promoter of other services. It also says that customers listen to approximately 80 percent more music after purchasing their first Sonos product. “What’s going to set them apart are these partnerships. They’ve built a kind of strategy moat around their business,” says Matt Pencek, a director at MorganFranklin Consulting. He cited a collaboration with Ikea as an example of an unconventional partnership that might fare well for Sonos in the long run. “But those partnerships also leave them exposed,” Pencek added.

When I asked Sonos CEO Patrick Spence in a recent interview whether Sonos would ever create or sell its own services, he replied that he “doesn’t think that’s in the best interest of the consumer.” Sonos has weighed this before, around streaming music, and now has been forced to confront the “services” question again with voice assistants. Spence said then the company is looking at opportunities to make the voice setup experience better but insisted Sonos “wouldn’t build an ask-anything assistant, like an Alexa or a Google Assistant.” Even if Sonos were to launch its own streaming music or voice-control services, it would be years behind the others.

Investors love the idea of services, with their recurring revenue stream, Spence acknowledged at the time. Sonos’ recurring services, he said, are building great products and getting people to buy more of them. It’s been successful at doing that. The question now is whether Sonos can maintain its status as an agnostic outlier or whether it will eventually have to use the same kind of services hooks that other tech companies employ.

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