Sonos’s future depends on not getting crushed by Amazon or Apple
2 weeks ago admin2 0
Smart-speaker company Sonos isn’t letting its dependence on other distributors—or profitability—stand in the way of going public.
The Santa Barbara, California-based firm filed paperwork today (July 6) with the US Securities and Exchange Commission to for an initial public offering of stock.
The company says it has registered over 19 million devices since it was founded in 2002. Yet Sonos is relatively far from profitability. It generated $992.5 million in revenue in 2017—and posted a loss of $14.2 million.
Perhaps more worrying, Sonos relies on a few companies to sell its products. In the potential risks section of its IPO filing, Sonos notes that the US big-box retailer Best Buy accounted for 17% of its revenue for the first half of this year, and the ALSO Group—its distributor in Germany, Sweden, Denmark and Norway—accounted for 12%.
Sonos also relies heavily on Amazon as a retail channel. Sonos uses AWS, Amazon’s cloud-hosting service, to run its app. “Our brand, reputation and ability to retain and attract new customers depend on the reliable performance of our technology and cloud-based content delivery,” the filing said. “Because AWS runs its own platform that we access, we are vulnerable to both system-wide and Sonos-specific service outages at AWS.”
Sonos speakers are compatible with Amazon’s popular Alexa voice assistant, which lets owners control smart-home devices and play their favorite music services. Amazon’s own speakers, the Echo line, directly compete with some of Sonos’s most popular offerings. If Amazon decides to prioritize its own products, Sonos would be in serious trouble. It could happen in multiple ways: Amazon could cut off access to Alexa, removing Sonos products from its site—or even more dramatically—cut access to AWS or raise AWS prices to a prohibitively expensive level.
Apple also sells Sonos’s products on its site, as it also begins to enter the home-speaker business. Apple released the HomePod earlier this year, which competes directly against the Sonos One in the high-end smart-speaker market. Sonos even ran a promotion offering two of its One speakers for the price of one HomePod when it was released. Sonos relies on Apple’s App Store and Google’s Play Store to get the app that controls its speakers to customers. Again, if Apple decided it wanted to more aggressively push the HomePod, it could remove Sonos speakers from its site, or even block Sonos’s app from the App Store.
“The markets in which we operate are extremely competitive and rapidly evolving, and we expect that competition will intensify in the future,” Sonos’s filing said.