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This isn't a great opportunity:

1) There are tools to let you stream to airport extremes, e.g. Airfoil.

2) Competing on price is fail. Competing on a fundamental COST differential is sometimes win, assuming the incumbents aren't willing to lower prices to force you out. There is a difference. You surely won't be buying DACs and such cheaper than Sonos, so your only way to be cheaper is to accept lower margins. You could maybe carve out a tiny niche at a lower price such that it is not worth it for Sonos to lower their own prices (for fear of lowering their total profits), but I know I would rather be Sonos selling at $800 than a competitor selling a smaller volume at $250.

3) A $50 BOM is probably a $250 product. Also, in hardware, going from $50 BOM to $150 BOM (or, going to ipod-level volumes) lets you buy MUCH better DACs and such. Plus, industrial design.

The only opportunity I see is for an "embeddable sonos standard" where you actually eliminate the device entirely, and are built into AVR or TV. However, that is a lot easier for a big CES vendor than a startup. Or, something Sonos themselves could do.

Competing just on price (within a fairly narrow window, like less than 10x) seems like a fail. $100 BOM turns into a $200-300 product. If a $300 product came out, Sonos could easily come out with a feature-reduced version of their product.

2 comments

The bet is that you could build it for $40, sell it for $80, and capture enough volume to make it meaningful.

This could be a dumb bet. I'm treading on thin ice because I don't have experience with selling hardware. It seems like your biggest disagreement is the sale price needed to be profitable. So let's see -- if you make $40 on each purchase and want to make $4M per year you'd need to sell 100,000 units per year.

That's probably about what Sonos is doing now, six years into the company.

So it's a huge challenge, yes.

(Am I missing anything else?)

The product would need to be sold in retail to actually reach most customers, so your $40 BOM is going to be a $100 product (with your per unit costs like assembly, test, packaging, shippng) and then a $200+ product at retail.

The challenge is the squeeze from airfoil, roll your own, or just moving your ipod into the other room on the low end, and Sonos on the high end.

Sonos can always drop their pricing and produce a Sonos Lite for $250 if you become a threat.

Unless you come up with a fundamentally cheaper way to do something, it's hard to justify doing a startup. A fundamentally cheaper way in this case is selling Airfoil -- their marginal cost is $0. They can be more profitable selling Airfoil for $10 than you would be selling AlmostSonosLite for $200.

The other problem is user adoption and marketing -- the set of potential users for this is pretty small, relative to the overall consumer electronics market. Convincing people they actually need this is going to be very hard. The main use cases I see for wireless speakers are wireless rears in an HT system to avoid running cable, and temporary setups in large spaces (like at a party outdoors).

The core Sonos use case, listening to a central repository of music or HT audio in multiple rooms, seems rather specialized, and a lot of the potential customers would value the higher audio quality and polish of the sonos system enough to pay for it. If you're not going to put good speakers + amp in each room, having a good quality portable system (like a dock for an ipod) seems like the standard solution.

The biggest indicator that this is a soft market is that Sonos hasn't sold a huge volume in 6 years, even adjusting huge volume for their pricing being kind of high.

You're on the right path, but missing a lot of the key overhead costs in moving a consumer-electronics piece of hardware in volume.

Your rough BOM estimate is close enough to accurate, but you'll also double that by the time you add in assembly, packaging, shipping (from Taiwan/China), and some sort of sales commissions (you're not going to just walk into Best Buy and drop these on the shelves). An online/direct-sales model can augment your big box outlet strategy, but is unlikely to scale nearly quickly enough unless the concept explodes virally.

Or, you can do what you want from a price perspective and build a little niche business that supports you and 5 friends "nicely", but never becomes a household name.

To be more clear, Airfoil covers both complaints about the Airport Express: "I don’t believe you can play from any audio source on the computer, and I don’t believe you can stream to multiple AirPorts at the same time." Both iTunes and Airfoil can play to multiple Airports at once.

Wow -- Airfoil is very cool! This seems like the right software (very hard to get right!) with the wrong product and marketing.