This is just a straight copy and paste from a mailing list email. I’m assuming Nick Hunn doesn’t mind.
Posted: 28 Oct 2020 08:53 AM PDT
“It was the best of times, it was the worst of times…” Dickens’ could have written that opening line to preface an account of the Covid year for the hearables industry. Over the last six months consumer demand for earbuds has risen to an unprecedented level. In contrast, hearing aid manufacturers have been dealt a body blow, with sales tumbling by up to 75%. As one industry executive put it “we’d have done better if we were an airline”. Covid has also had unexpected effects on the service industries which have been traditional drivers of hearables growth. Audio streaming services like Spotify have seen listening times go down, while video streaming and video conferencing have experienced unprecedented demand.
As countries came out of lockdown during the summer, we saw further shifts in usage, but it’s apparent that overall, hearables have done well out of the crisis. That trend looks set to continue as we face a second wave of the pandemic and further lockdowns.
At the turn of the year I published a report on the potential for hearables over the next five years, predicting market growth to around 630 million hearables in 2025, with a market value of $80 billion. At that point I’d not expected any major upsets in the year ahead. I was looking forward to seeing what the mobile industry would unveil at the Mobile World Congress in Barcelona in February, with the expectation that the hearables on display might be more innovative than the phones. That wasn’t to be. Covid arrived, exhibitions were cancelled and within a few months most of the world’s population was locked down. Working from home became the norm for everyone who could do so, and social interactions were mostly limited to Skype and Zoom calls. In some ways, we were lucky that Covid didn’t appear ten or twenty years ago. Medical technology was unprepared, with no miracle cure, so the only strategy was isolation and lockdown. Fortunately, the internet has allowed many people to stay in touch in a way that wouldn’t have been possible a decade ago, ameliorating to some degree the level of social isolation and economic impact. That’s further reinforced our new love affair with the things we stick in our ears.
It’s difficult to believe how fast technology has transformed these devices in the past few years. Back in the seventies, when Douglas Adams imagined the Babelfish translating in your ear and Joanna Russ conceived a gadget for male managers’ ears to block out female voices, these ideas seemed like pure science fiction. Today you can buy devices which go a fair way to fulfil those requirements. Our enthusiasm for them continues to grow. A lot of innovation in the hearables space has come through crowdfunded campaigns, dating back to Bragi’s Dash and the Earin. That stays just as strong. Already, in 2020, over 100,000 backers have pledged over $10 million to more than 20 different hearable projects. But back to the effect of Covid on the market.
Empty Cities mean Different Listening
As country after country locked down, cities became deserted as more and more people were urged to work from home. That change of routine didn’t seem to alter our desire to be entertained, although it did result in a change of what we listened to. Although there appears to have been a lot of regional diversity there do seem to be some overarching trends, as shown below:
Users turned away from music streaming in favour of video. The most plausible reason put forward has been the massive reduction in commuting, which often favoured music streaming. At the same time, many people found more opportunity to stream video during the day, and the launch of new channels, along with a need to entertain children at home, will have driven that. What we don’t know is how many of these users listened with hearables. Interestingly, podcasts have done well out of Covid. Although they have been gaining popularity over the last few years, Covid has boosted that growth still further. They are nowhere near the level of music streaming, but it seems that the desire to listen to human voices has helped their growth.
Of course, all of this has been dwarfed by the growth in video conferencing, both from working at home and as a lifeline to stay in touch with friends and family, letting us salvage at least some degree of social contact. These have produced two very noticeable trends.
The first is the move towards wireless earbuds. When people wore earbuds and headsets to listen to music, they never seemed too bothered about how they looked – they used them to escape the world around them. Video conferencing has had an interesting effect, as people have begun to be concerned about their screen image. They are no longer a mark of isolation, but part of how you look to others. Over the course of the year more and more people have made the move from wired headsets to earbuds. It became apparent on TV, as presenters and announcers started working from home, but has spread to the wider public.
The second change is the move to use earbuds with laptops. It has always been convenient to use wireless headsets when you’re working, as there’s no cable to get in the way. Video conferencing has highlighted the limitation of laptop microphones, particularly if you want to move around, so true wireless earbuds have become the preferred accessory. It has always been relatively easy to use Bluetooth earbuds with MacBooks, but a significantly smaller portion of Windows users have used them with their laptops, as setting them up is perceived to be less intuitive. With around 90% of laptops running Windows , IT staff have allegedly been inundated with user requests to connect their earbuds. Outside the corporate workspace, millions have been consulting a growing number of YouTube videos for the same reason. The knock-on effect, as people have realised that they work with Windows, has been a surge in sales.
The industry has struggled to keep up with demand. All hearables are difficult to make, with little opportunity to second source the specialised components inside them. Lead times were already tight and are now extending out to six months or more. If you are Apple, Huawei or Samsung you can probably get them; if not, your production will be constrained. That has been exacerbated by panic buying of components, particularly in China, where companies are concerned about further US trade bans. For the foreseeable future, the demand for hearables is likely to exceed production capability.
The consumer industry has done very well. On the other side, the hearing aid industry has suffered. The hearing aid sales model in most of the world requires them to be supplied by an audiologist, as they are regulated medical devices. As social distancing came in, audiologists stopped consulting and sales plummeted. The chart below from BHIMA , which monitors hearing aid sales in the UK, shows the dire effect during the first lockdown.
The situation in the UK is slightly atypical; as the data shows, most hearing aids are supplied by the NHS, which provided some buffer, but the general pattern has been repeated around the world. There is an irony that had Over The Counter (OTC) sales been introduced in the US before Covid hit, it might have mitigated the effect there. As it was, companies selling direct to consumer (DTC) or offering sound amplification devices like Eargo , Nuheara and Alango , have benefited, although they currently only represent a small fraction of the market. Whilst there has been a recovery in the last quarter, nobody knows how long the effects of the pandemic will last, so much thought is going into consideration of future business models.
I am sure the hearing aid industry will bounce back, but that may be in an arena where new competitors in the OTC and DTC devices start to change the market dynamics. If we look at the growth in consumer earbuds, much of the innovation outside of the market leaders has been built around Qualcomm’s new QCC5100 SoC platform. Qualcomm acquired Cambridge Silicon Radio (CSR) some years ago, integrating their market-leading Bluetooth audio platforms. CSR’s strategy had been to provide reference designs which included everything that a manufacturer needed – all they had to do was configure the firmware and add the plastics. By solving most of the complex design decisions it made them the market leader in Bluetooth audio. Earbuds are even more difficult to design, but Qualcomm’s new platform builds on the CSR reference design model by bringing in a wide range of specialist audio companies to offer enhanced features. The most recent partnership is with Jacoti – a European hearing specialist which develops hearing solutions. It’s a partnership which has the potential to lower the entry barrier for assisted hearing devices, and eventually maybe for hearing aids. There is enormous potential in this area, as it’s estimated that around 90% of people who could benefit from a hearing aid don’t have one. In the next few years, that may begin to change.
The Market Continues to Grow
What all of this means is that the hearables market look set to grow even faster than I had predicted at the start of this year. The consumer desire for earbuds has become even stronger – demand is running ahead of production for many companies. As working from home becomes a permanent option for many, we are likely to see more people purchasing a second pair, or being given a “work” pair by their employer – something that seemed unlikely a year ago. The poor repairability (they generally score low on any scale), plus the aversion to wearing second-hand ones (maybe Douglas Adams’ concept of the telephone sanitiser needs to be resurrected for earbuds), mean that they will be regularly replaced.
Feeding these trends into the numbers, it now looks as if we will see the market grow even faster, with around 800 million devices being shipped in 2025, equating to a total market revenue of around $95 billion.
The graph above shows the effect on the two main industry segments. Consumer hearables have a continuing upside, which is already apparent. 2020 will go down as an annus horribilis for hearing aids, but the industry will bounce back. The people who needed hearing aids this year will need them even more at the point they can see an audiologist, which will result in a compensating peak when lockdowns end. As the industry embraces OTC and DTC and new entrants find it easier to participate, the market will grow. If it can find a way to end the stigma associated with hearing aids, that growth could be phenomenal. Exactly when the recovery kicks in will depend on how Covid plays out – we could have several more years of lockdowns which will continue to hurt the hearing aid industry and may force it to change its model. We won’t know until it’s all over. Over the next few weeks, I will be finishing off a Covid Annex for “ The Hearables Report 2020 – 2025 ”. Keep an eye out for it on my blog at www.nickhunn.com