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Summary:

One has to look really hard to find a Silicon Valley startup that has found success in the hotly contested consumer electronics marketplace. However, one company might just change that: Sonos, a Santa Barbara, Calif.-based maker of networked digital music devices.

The Sonos system eliminates wires, and integrates a variety of music sources.

One has to look really hard to find a Silicon Valley startup (unless you consider Apple a startup) that has found success in the hotly contested consumer electronics market place. Many have failed. Some have tasted early critical success and been acquired by bigger players: Slingbox, for example. However, one company might just change that: Sonos, a Santa Barbara, Calif.-based maker of networked digital music devices.

The History

After hitting it big in the corporate networking world, the five founders of Software.com left the successor to their company in 2001 and decided to take their earnings and start a networking business all over again — this time in the home. With the sense that networking would continue to spread, the founders of what would eventually become Sonos first decided to build networking gear that would connect the instrumentation of an airplane. But Tom Cullen, VP of sales and marketing and a co-founder of Sonos, said that when he looked at that idea, he didn’t want to have the Federal Aviation Administration standing between him and his customer, which freed the founders up to create a networked, home-music system.

Using their own money and an undisclosed amount raised from angels, Cullen, Sonos CEO John McFarlane, and three others created Sonos in 2003, believing the phenomenon of IP communications in the workplace would soon invade the home. Building a system that made moving music digitally across a home network in a simple and easy-to-use way became the goal. “We wanted it to be like grabbing a CD off of a shelf and popping it into a player. It had to be that easy,” Cullen said. Fast-forward to today, and the company, which doesn’t report sales, has sold millions of its products and has seen sales grow by more than 105 percent in 2010 from the previous year, thanks in part to the release of its S5 product. The S5 resembles a boombox, connects to your wireless network and delivers whatever songs are stored on your iTunes or a home media server.

The Sonos S5 is making Sonos a household name.

For those who have a Sonos (I do), the experience is unbelievably simple (albeit expensive). You plug in the product; it gets online; and two minutes later, you can listen to music stored on your media server or from an online music service such as Pandora or Spotify. The new-found success has brought in $25 million in new funding from Index Ventures.

This rise to the top hasn’t been a straight line. There are more twists and turns in their story that there are on the Blue Ridge Mountain Parkway.  Along the way, the Sonos crew has learned some valuable lessons that any consumer-focused startup should consider in order to create a good user experience and profits. And for those wondering, Cullen wouldn’t give a time frame for the release of an Android controller, only saying, “We can see a handful of other potential platforms, and we want to see which one has the biggest concentration of music lovers.”

Lesson#1: Focus and Refine

Tom Cullen of Sonos

“We wanted to be the Bose of the digital world,” Cullen said. But in order to do that, the Sonos crew had to figure out how to make a product that was easy to use and could deliver a sound quality that audiophiles and those listening to MP3s would appreciate (as an aside for digital music junkies, Cullen says he stores his audio files as 320 kbps MP3 files). Improvement is ongoing, with the latest advancements being the way it built its S5 boombox-style device. Sonos, not longer content to shuttle bits around the home network through a proprietary wireless system, designed a new speaker for the S5 that digitally controls the output from the different parts of the speaker.

An advantage of this is that the S5 sounds the way most consumers prefer their speakers to sound (at least according to the gurus at Lucas Arts who vetted the sound quality for Sonos) and that the speaker profile can be changed via a DSP programmer tweaking the settings. Expect those advances to be seen in future Sonos products. Cullen also notes that the home audio market is the focus today, but people listen to music in other places, such as in their cars or via headphones — an area Sonos will one day explore. As it does, it’s staying focused on providing the best sound for digital music and continuing to refine the way it builds its products in the service of that goal.

Lesson#2: Consider Usability Before You Build

It took the guys at Sonos a few months to build their first prototype, and at the end, they were left with a product only a geek could love. Realizing this, they sought help from a usability expert, who told them they didn’t need a usability expert until much later in their process. What they needed was an industrial designer who could get in early and help them build the hardware and software with an eye toward the consumer. The team eventually hired Meiko Mieko Kusano, a designer for Phillips, who told them, “Usability is in the bones of the product, not the skin.” Cullen still credits that mentality with Sonos’ success.

“Most consumer electronics companies build out hardware and then add software to update it and change their designs every 18 months. We turned that on its head, building hardware that will last and software that we can update whenever we need to in order to improve the experience.” Cullen credits that shift to Kusano, and offers up Sonos’ Zone Player products as an example. “You should be able to stream music over that for the next 15 years.”

Lesson#3: Don’t Be Afraid to Cannibalize Yourself

That long-term vision for the hardware is part of the success of the Sonos platform, but the other is the philosophy the company has about working with partners and even introducing new products to expand its base. When it launched, a Sonos system could run a user about $99 for a wireless router, another $350 to $500 or so for something that picks up that signal and connects to speakers in one room (each room would need another of these), and a special controller for about $350 to drive the system. But in 2008, Sonos released a free app for the iPod that mimicked the functionality of the controller and thus brought down the cost of the system. Sales surged. The loss in controller revenue was more than offset by sales of the new system, Cullen said.

It now has a free app for the iPad, and as mentioned earlier, Cullen says support for other platforms will come. But last year, Sonos introduced a much more disruptive product: its S5 boombox. For $400, the S5 has speakers and allows someone to create a Sonos network with the addition of a Zone Bridge for $99. The launch of that product has changed the profile for Sonos, moving it out of the specialty market and into the mainstream. At the time of this writing, items No. 3 and No. 6 on Best Buy’s Top 10 bestselling wireless and streaming audio products were S5s. However, Sonos’ S5 cracked the top 100 of Amazon’s Bestsellers in Home Audio & Theater Products list at No. 73, behind rivals Logitech and Bose. But Cullen says the fear of cannibalizing sales of its more expensive gear hasn’t been realized; instead people buy an S5, then tend to add more onto their networks.

Lesson #4: A True Platform Doesn’t Pick Winners
As a platform, Sonos plans to release a breadth of hardware and software to ensure a better digital music experience, but it also extends that to partnerships it signs with music providers. Sonos currently supports Spotify in the U.K. and Scandinavia, and that partnership alone has enabled it to boost sales of its system in those countries by a non trivial amount. In the U.S., a partnership with Pandora has had a smaller but still noticeable affect on sales as well. Cullen said Spotify and other some partners have offered to pay Sonos for providing access to their content to Sonos users, but Sonos doesn’t play that game. “We don’t take revenue from people,” Cullen said. “We don’t want any incentives to guide our behavior rather than the user choosing what they want to listen to. We don’t want to be picking winners and losers.”

So far, Sonos’ strategy is working. The company has now raised $65 million,and while Cullen wouldn’t discuss IPO plans, he says the company has been approached by buyers. However, the $15 billion home audio market beckons, and Sonos believes it has learned how to play the game well and can take the disruption provided by digital music and home networks to give the industry giants a run for their money.

Related GigaOM Pro Content (sub req’d):

  1. [...] places that users listen to music. Sonos co-founder and VP of sales and marketing Tom Cullen told GigaOM that the company’s roadmap was guided by the principle that “people listen to music in [...]

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  2. Stacey, good article. It is actually “Mieko Kusano”, not “Meiko”. ;-)

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  3. loved the article so much too;))

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  4. What a wonderful article. I have not previously considered buying a Sonos product but after reading this I am going to do some research into the S5. I will make sure you get the commission Stacey :)

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    1. Thanks. I do love my Sonos, but the story here is pretty sweet, especially given how hard it is to build a gadget company.

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  5. I would love to buy a Sonos but I will not until they support Android. Seriously this should be a no-brainer.

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  6. I met with John McFarlane just as the 2008 financial crisis was unfolding, and asked him how the high-end of CE would hold up as consumers got scared. He said there was some potential exposure as consumers wallets shut tight, but ultimately what I think you saw was the company kept innovating during the downturn and that sustained them: The iPhone app controller came out just around that time and created overall higher demand despite potential cannibalization of their controller, and then the S5 came out and that’s become their biggest seller. Now their well-positioned as consumer confidence comes back after a big trough.

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  7. Lesson #5: Don’t forget about the usability of the website. Perhaps it’s just me, but with a technology and product line such as Sonos’, at least one page that compares the products would be nice. As it is, you have to jump around from page to page, see which product “does what”, write down the features, go to the next product page and compare.

    A comparison of benefits would also be nice. Selling 101: sell benefits, not features. Selling 102: start with the benefits of your top product so the consumer can see what the lower products are missing. A comparison page on a website would do this.

    I presume they want to do most of the selling at the specialty retail level (I’m including Magnolia at Best Buy here), but I would appreciate a better user experience at the website level.

    Thirty years ago when I sold electronics I was very much into the latest thing in computers and audio / video. (I was the poster child for Reaganomics.)

    Now that I’m in my 50s I do not want to spend the time, although I will spend the money (albeit more discretely) for a great quality product. However, I do want to have a satisfying web experience website that I can get some information before I go to the retailer.

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    1. I agree with you. When I was trying to buy my Sonos system I was really confused about what I needed and what I didn’t. I did manage to figure it out between a trip to Best Buy and Amazon, but it did take effort.

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  8. How will Sonos keep up with cheaper Airplay-enabled units right around the corner?

    Has Sonos adopted Airplay?

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  9. [...] Everybody’s favorite connected audio solution got a little bit better this week. Heck, from where you’re sitting, the latest Sonos music service might even represent a dramatic upgrade… as I know XM Radio Online has been one of their most requested channels. While Sonos has streamed Sirius forever, XM Online just never made an appearance – as a solo entity or as part of the merged Sirius XM. So I’m glad to see my badgering finally paid off (and hopefully Slacker and Android are next in line). [...]

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  10. [...] lying around the house. But it proves several things I covered in a story last month on the lessons a business could learn from Sonos. Sonos listens to its customers, isn’t afraid to cannibalize its business and is continuing [...]

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