Apple to Enter High-End Headphone Market Bloomberg Reports

And so it begins...

It appears from this Bloomberg report that Apple is considering an entry into the high-end headphone market.

The latest plans call for headphones targeting the high-end of the market, replicating Apple’s approach with the $349 HomePod speaker, released earlier this year. In addition to noise-canceling capabilities, Apple plans to include similar wireless pairing functionality to the AirPods, according to the people familiar with the product’s development.

The article goes on to say that:

  • AirPods have been key for Apple’s Other Products segment. The category generated more than $5 billion in revenue, which represents 36 percent year-over-year growth. Within that category, wearable product sales, which include the Watch, AirPods, and Beats headphones, surged 70 percent last year.
  • The "Other Products" category is Apple's fastest growing division thanks to devices like AirPods.
  • Sales of AirPods and Beats headphones gave Apple 27 percent of the wireless headphone market and almost half the dollars spent on the category.
  • Apple’s cost for each $349 HomePod is $216, resulting in thinner profit margins than typical Apple hardware products. AirPods have been tricky to assemble and use unusual design tricks, likely making them expensive to produce. The Apple headphones will likely use similar audio technology, driving up costs.

I reckon Apple and Bloombergs definition of "High-End" is likely quite different from ours—I seriously doubt we'll be seeing a $1000+ headphone from least in the short run. So, let's think about, say, $499-$599 as a potential price point. The Bloomberg article claims Apple is making a boatload of money in the "Other Products" category, and then goes on to say that the margins are seriously weak there. If there's one lesson to be learned by Beats success it's that pricing for headphones seems to be pretty malleable. Apple may see this as a move to make some serious margin in "Other Products."

Of course, Apple already owns Beats, how are they going to position an Apple branded headphone relative to Beats offerings to maximize success? (Notice I didn't say profits.) Well, Apple and Beats are both strong brands with strong followings, but I doubt there's much overlap between the two, so I don't think an Apple headphone will cannibalize Beats sales significantly. Also, Beats then can afford to be a bit platform agnostic and more open to connections and features that work with a wide variety of devices, while a new Apple headphone can be more focused on whiz-bang features developed for the Apple hardware/software eco system.

I've written before about smart headphones and that Apple will likely lead the charge due to their complete control of the hardware/software environment. There's no doubt they're doing just that with their AirPods. Their patent grant from last year calls out numerous biometric sensors for: heart rate; VO2 (oxygen); GSR (galvanic skin response); electrocardiogram (EKG); impedance cardiography (ICG); and temperature. And just this week Apple was granted 41 patents many of which were related to the AirPods including one for improved voice quality for telephone conversations, and a continuation patent to add features to their previously existing AirPod patent. So they're working on it, for sure.

Thing is, the AirPod sensors are primarily to improve its performance as a fitness earphone, which is something not really needed for a full size "high-end" headphone. Why would Apple want a high-end headphone if it's not going to have all the sensors when they have a perfectly good quality headphone maker in Beats? ( I do think their quality went up dramatically in their releases over the last two years.) I think it's a strategic move.

Beats really isn't positioned as a high-end (high audio quality) headphone maker; they're best thought of as a successful fashion brand—and successful they are. No reason to rock that boat. But the Apple brand definitely embraces high performance as a defining characteristic. With the eventual need for all sorts of cool virtual and mixed reality features, Apple almost certainly sees a full line of headphones in its future. It's probably a few years too early for those sorts of features to show up in their headphone, however...

My guess is this: Apple has historically only made earbud type headphones. These products are well known, for sure, but they're not well known for high-fidelity reproduction—quite the opposite actually. If they're going to dive into the headphone business in a serious way, they need to be known for making headphones that sound good. My guess is behind the fortress walls they've been talking a lot about sound quality and how they can make it a compelling feature for their brand of headphones. While the market may not be quite ready for all the whiz-bang virtual headphone technologies, it does seem poised to highlight sound quality in a serious way. I bet we're going to see Apple (and Beats) take advantage of the momentum started by Sean Olive's campaign to nail down what it means to get good sound on headphones.

Consumers say they want headphones with good sound quality, but studies show styling, comfort, and build quality are more often the deciding factor. Given that consumers believe they want sound quality but have no idea what that actually means, I think Apple rightly sees that as an open door for the kind of broad market changing campaign that only they, and a rare few others, might be able to pull off. Just imagine if Apple could "own" in the mind of the consuming public the position as trusted purveyors of high-fidelity on headphones. It just might be able to erase the memory of cheap ear buds and ensure success of further high tech headphone developments...and maybe spill a little of that holy water into the Beats camp to bolster their brand as well.

Why do you think Apple might be building a high-end headphone?

coastman25's picture

This is what was reported in the British press on the matter: "Is Apple ready to cut the cord and cancel the noise to fulfil its 'high-end' audio aspirations in a pair of over-ear headphones?
Only a week after getting wind of Apple’s reported plans to launch its own branded headphones, Bloomberg has suggested the Cupertino tech giant has been working on noise-cancelling over-ears for the past year. That’s according to “people familiar with the product’s development”.
We could see these headphones before the year is out. However, it’s possible the project could be delayed (like its HomePod smart speaker) or even scrapped altogether.
We’ve our collective fingers and toes crossed that they come to fruition, although they'll have to come prepared for tough competition. After all, the ‘premium’ noise-cancelling over-ear market (which is where these would almost certainly fall) has been deservedly dominated by the likes of Bose, B&W, Sony and Sennheiser for some time.
Naturally, the move into that market would encroach on territory marked by Apple's Beats by Dre. brand, too.
The sonic benchmark set by its AirPods would certainly need raising, although the impressive-sounding HomePod proves that Apple is taking sound quality more seriously."

PAR's picture

That is interesting to read. However this is the kind of thing when it is preferable to post a link to the original article. Copying and pasting copyright material to a website leaves that site vulnerable to action being taken against them by the copyright owners.

coastman25's picture

OK fine I will merely extract the relevant parts in the future if I should find myself quoting from an article again. However think it is extremely unlikely that this website is in danger of being sued over copyright in this case!

Beagle's picture

What does Apple know about hi-end sound? Or is that even the goal any more? They just want to cut into the high priced headphone market and the quality of the product will be anyone's guess. I don't think great sound will be a consideration. It will be about style and initial "grab" impact.

PDC3's picture

With the LG 30 phone and Aptx HD and Sony LDAC the Apple brand that rests upon tech excellence is being threatened in the Audio community. And we are opinion leaders to our non tech neighbors. AAC is often ignored by BT devices as a codec. So Apple needs to do something inside their walled garden to sustain audiophile respect. Wonder if high end phones introduction will be coupled to an intro of improved Apple codec or Apple Music access to ALAC. I’d use Apple Music to buy-to-own tracks if I could download the track in ALAC and store it on the idevice for full rez listening. Possible now thru HD Tracks but a convoluted process that’s made moot if using BT.

HeadphoneAddict's picture

Yes, Apple needs to step up it's wireless codecs for one thing, and allow buying music in ALAC for audiophiles, and also make lightning headphones and earbuds with hi-quality DACs inside. Apt-X HD and LDAC support would be a start.

Journeyman's picture

and you can be sure headphones are profitable specially considering the sheepish following of their user base.
Also lately IMO Apple is losing ground on their iPod market share, cheap but solid brands from China, Higher-End models from AK, Sony, Pioneer, etc. All eat away their once lucrative portable audio market share.
Sony for example released the Walkman NW-A40 series, an attack on the 32Gb iPod Touch, sure the specs are different but Apple is falling behind slowly.
I'm sure they want to be big on audio market again, but other brands also want that.

BaggedMilk's picture

The only iPod still in production is the Touch, and that thing hasn't seen a hardware update since 2015, slightly before the iPhone 6S. Since then, they've released 2 new generations of iPhone along with a mega flagship, and butchered the headphone jack. It's simply more profitable to focus on the higher profit margin and better selling iPhone that can do everything a consumer wants and eliminates a need for a second device.

They're losing ground, but only because dedicated audio players have become niche.
In my experience, lower priced players are most often purchased for kids or by those who work out. Uncommonly you'll find those still using their old iPod classic or SanDisk Sansa clip+ to extend their phone's battery life or for other reasons.

I never see people outside of headphone meets who use AK or Pioneer DAP's, however, so I can't say that Apple is losing market share to other companies... Outside of the subset of hobbyists who finally decide to put down their iPod classic and grab something else, that is.

More likely, it's just a lack of consumer interest in the product in general and compelling indirect-direct competition from smartphones.

Vinhcomputer's picture

I really like this idea given the dedication Apple puts on their products and the approach of "one size rules all others" (and show others how suck they really are).
They have long history of creating excellent multimedia devices, software and services, even Mac OS was optimized to the core for multimedia creators and usage, so I hope their headphone will be one-of-a-kind on quality in general, especially on sound.
Given their control over the production chain, it might be a surprise if they won't push studios to mix music that sound best on their headphone(s), for the good or bad of the world.
I bet their design will be similar to PM-3 or Aeon Flow phones - truly elegant ones (Focal is very nice too, but in a way like Swiss watches).
Tyll's expectation of very good headphones with DSP is becoming real I think.

reader's picture

Closed-back headphones are far behind to their counterpart open-back headphones at this moment. And it is unthinkable for me to imagine apple logo over some open-back designs. Of course, they have boatload money to acquire Audeze or MrSpeakers which are in their neighbor. Still, an open-back headphones from Apple is unthinkable.

jgazal's picture

IMHO, if any company wants its mobile hardware ready for VR experience (gaming, 3D movies etc), then it has to develop comfortable headphones (to wear over long periods), low distortion transducers and precise sensors (allowing DSP customization and head tracking). No cables and noise reduction would make then even more comfortable. Choosing where to locate sensors also depends on consumer behavior (perhaps mobile main unit, smart watches, sport bands, headphones and VR headsets will all feature an extensive range of sensors for convenience and redundancy. Tuff challenge. Music quality is definitely not the main driver. But music lovers may benefit indirectly.

darkswordsman17's picture

I think there's an easy answer to why Apple is doing this that wasn't touched on. They NEED to in order to transition to AR/VR, as sound placement plays a major role in making that work (it plays a huge role in orienting ourselves in an environment, and so it'll likely be a safety necessity for AR and be very important for VR immersion). Now, sure you could say they could wait til they have an actual AR/VR device, but they are working to prepare people (big AR push on iPhone, mainly aimed at getting developers to start taking it into account), and it is a big transition where getting it not right means bigger consequences. This gives developers a platform to work with. It also helps setup a natural transition, from headphones to headsets with embedded displays. Many things they'll learn from a product like this will help feedback (stuff like ergonomics, comfort) that will help their future headsets.

There are other aspects as well that make this seem natural for Apple to develop. Think of all the blind people that miss out on a lot of modern "smart" products' capabilities. Which, while noble, probably wouldn't be a large enough market for Apple to warrant something for, but think about things more (like how Beethoven would "listen" to his music by feeling vibrations). This could open up a new thought process for interacting with our technology. Much like how they've pushed haptic feedback and touch interactions, this is the same thing. They're looking at how to maximize interactions with all your senses.

Apple has always pushed how sound (music) plays a big role in the connection we have with devices (and audio cues are known to play a role in psychological connection which is why so many corporations put a lot of effort into coming up with distinctive ones as a means of branding). Frankly, you could argue that audio played the biggest role in Apple's rise post 90s, as the iPod could absolutely be argued as being a major factor in Apple's popularity, and absolutely helped setup the iPhone. Apple could see how important audio is due to them removing the headphone jack too. I still see even ardent Apple fans that have refused to upgrade to a new iPhone over that (most saying they will almost certainly cave at some point).

I think this might be part of some other goals, as a lot of the sensors seem medically focused, and there have been reports of Apple putting a lot of effort into medical grade capabilities. I wonder if Apple has been tinkering with health affects of sound (like for breathing exercises, from everything from panic and asthma attacks to Lamaz, and maybe other things like preparing/regulating sleep). Heck, imagine if they could offer people an easily accessible alternative to expensive hearing aids. I would expect them to shrink the technology, with probably them doing some custom fitted IEM setup (that integrates this stuff, maybe they'd just do fitted eartips or something though, or just do a lot of work on fit/comfort with some universal/adjustable setup).

Or maybe I've rampantly speculated for nothing, and there's just some audiophiles in Apple's R&D labs that were able to make a business case for things? Will be interesting to see what they do release and how it progresses though.

crenca's picture will be Beats like, or Sony like, or some such - you said it yourself people think they want sound quality, but they really want other things and Apple knows this.

arthur li's picture

The launch of ipod changes the way people listening to recorded music entirely. People used to see stereo-system a necessity, just like a TV. No longer the case after the prevalence of ipod - most people just stick with their mobile devices and earbuds forever. Then we see the disappearance of mid-tier stereo equipment offerings in the market (as the demand shrinks). Apple's streaming service steadily drains the last bit of vitality of the music industry as well. Just as Steve Guttenberg stated, streaming will eventually kill CDs and LPs. The iphone 7 doesn't have a headphone jack and suddenly "wired" becomes obsolete. Everything has to be wireless nowadays or it just won't sell - despite the fact that sound quality is drastically compromised with wireless.

What's next?

sszorin's picture

How can streaming kill CD format when I can not get "streams" of music which I have on CDs or on vinyl [transfered to CDs] ???

Beagle's picture

The future points toward a strong idiot base so it should work out.

Geoffrey's picture

Cynicism on message forum. How novel (;
Quip "The masses are assess" not far off truth.
Advances in technology coupled with poor critical thinking skills and ignorance of those outside our country has us where we are now.
Need only look who we have selected as our leaders of late to see how far we have fallen as a country.

Geoffrey's picture

Talk about irony. I used poor critical thinking myself posting inappropriate message. Please delete my posts on this thread, and apologies for being off-topic.

arthur li's picture

The problem of streaming is that musicians simply cannot earn enough money from it to survive. It's not only a problem of compromising sound quality (lossy compression, timing error etc.), but also a threat towards the music industry.

catscratch's picture

The hi-fi headphone hobby is rapidly becoming a luxury hobby, rather than an enthusiast hobby. Headphone makers have figured out that there are bigger profit margins to be had targeting luxury buyers rather than enthusiasts that demand a lot but usually have empty pockets. Hence, the price escalation that went hand in hand with overall market growth.

Needless to say, I think it was only a matter of time until Apple decided they wanted in on the action.

Relationship to Beats is probably more about market segmentation than anything else. Beats are a youth fashion symbol. Here they're more likely after the affluent techie buyer, or general Apple fan.

I expect it will be a stylish, closed headphone full of tech and gadgets, which will make its buyers feel special and provide a satisfying user experience for most buyers - and which will sound a bit above average, maybe. Not really a competitor for the Focals and Staxes of the headphone world, but one that should make its buyers happy. Apple have the whole luxury gadget thing figured out.

sanchester's picture

Wearable computers is a frontier that Apple has shown a very strong interest and has already made big investments with the Apple Watch. I think we should use the Apple Watch as the model for what these headphones could be. As such, this high end entry is more a "smart headphone," than a great sounding headphone. The market is in smarts not in great sound. I wouldn't be surprised if these had sensors that will have health related functions, maybe for hearing impairment and for diagnosis. It will have also have intelligence that will pair with Siri, the Apple Watch, and the iPhone of course. I just see this clearly as a computer in your ears with capable and sophisticated sensors.

donunus's picture

I would be stunned if apple made an endgame $2500 headphone to rival the he1. One can only wish lol

pkroliko1's picture

Apple isn't really known for price to performance. If they made an end game headphone wouldn't be surprised if it was more expensive than that.

Entropy's picture

High end headphones aren't known for price to performance ratios to brag about either. If Apple enters the fray, odds are that they are going to sell volumes that allow them much better price performance than any of their competitors while retaining margins. The benefits of volume production and good bargaining position vs. the supply chain.

Many seem very anxious to proclaim how the cans will sound even though they are only a rumour. Says more about their biases than anything else. :-)

pkroliko1's picture

I will agree that high end headphones don't have a great price to performance. That said I would disagree about apple offering a better one based on apples history. Their computers certainly don't offer a good price to performance relative to the hardware you can buy from a windows machine. I can easily buy a laptop for half the price to 3/4 of the price of a mac that will crush the respective macbook in performance. The same goes for their beats headphone line, their phones etc. Apple routinely overprices their products relative to the competition and i would expect no different if they moved into the high end of headphones. The brand and ecosystem does more of the selling than the product imo.

Entropy's picture

I disagree about the value of Apples products.
In this case however, the issue isn't their margins per se, but the volume of sales. Higher end headphones have very modest volumes and their prices are more a reflection of inefficient production and low volumes to amortise fixed costs rather than merit (some would add consumer gullibility and placebo).

An Apple headphone would be able to reach very different volumes compared to say an Audeze LCD2.
Not that I think they will aim for the high-end purist/fairy dust market. They are far more likely to leverage their technological edge using their own dedicated processors for wireless connectivity, noise cancellation and distortion and resonance reduction. If so, purists will disdain them for their use of processing (and bypassing their expensive D/A and amplification chain) and the rest of us will enjoy the benefits of modern technology.

These cans are no more than a rumour, and we can already read on forums what they sound like. :-)
The high-end community is very predictable.

Entropy's picture

Can't see that I can edit my posts.
I would like to retract my comment about the high-end audio community. After all, I'm part of it myself. ;-) It is not very different from the same group in photography, or any other area that couples the subjective with technology.

Geoffrey's picture

Good post sanchester.