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HEARABLESA DISRUPTIVE INNOVATION

Keaton Batten Jenna Bonner Tiffany Iriana Sam Stanford

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EXECUTIVE SUMMARY

“Sound drives the bulk of our technology use and earbuds are the only piece of wearable

tech to have gained ubiquity and social acceptance. These devices

are about to undergo a revolu<on in capability, ge>ng rid of their

cables and giving them the opportunity to be the standard

bearer for wearable technology”

3

1910 1958 1978 2001 2007 2009 2015 2018

Headphones

are first manufactured by Nathaniel Baldwin

Supra Aural headphones are sold for mobile listening

Stereo headphones are sold for at home listening

iPhone the rise of the smart phone era begins

iPod w/Earbuds Mobile music and inconspicuous earbuds are introduced Fitbit

is first introduced, representing a new industry of fitness focused wearables

Market share of smartphones reaches 77% of the US mobile market

• Today, earbuds are packaged with all of the market leaders in smartphones, yet headphones still drive a $290 million dollar retail industry, with 95% of new revenue growth focused on premium stereo headphone options

A HISTORY RISE OF THE INDUSTRY

Investment in hearable technology jumps 150% to $31.2m

Hearables are projected to be a $5b industry, realizing a market void for fuller, invisible integration of smart technologies into daily, mobile life

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Hearable devices present dual opportunities as sustaining innovations and as new-market innovations, both advancing on current trends and adding new capabilities

and products to the market

DISRUPTING THE MARKET CHRISTENSEN’S THEORY

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Cords Headphones are connected via cables

which tangle, knot and encumber

Bulky Most high quality headphones are

substantial in size and profile

No Audio Input Many headphones lack a microphone

Limiting Use Most headphones have extremely

limited applicability for exercise. They are damaged by sweat, fall out easily

especially with higher impact activities and cannot be used for aquatic activities

No Cords Hearables eliminate the need for cords entirely, allowing you to listen to music without another device

Minimal Sleek design makes them unobtrusive, often unrecognizable

Enhance Hearable devices not only play audio, they provide value within the flow of daily life without obtrusive form factor

Performance Hearable devices take advantage of the unique benefits of the ear, for accuracy in measurement and use of sensors

USAGE OLD VS NEW

Single Purpose Device Headphones exist for one purpose: to play music. This requires an additional

device for fitness tracking and monitoring

Multi Purpose Device Hearable devices exist to combine the use of multiple devices (headphones and fitness trackers) into one single device.

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Inputs Transformation

Workout: • Heart-rate • Pace • Distance • Music • Body Temperature • Accelerometer

Feedback

Workout: • Actionable data • Reporting Structure • Tracking

OutputsWorkout: • Instruction • Sharing • Data Playback

HEARABLE FEEDBACK LOOP

Lifestyle: •Music •Phone Calls •Microphone •Accelerometer •Touch controls •Geo-location

Lifestyle: • Noise cancelation • Stand alone • On-board memory

Lifestyle: • Sleek Design • Navigation • Music • Hands free communication •Optimization

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The Human Ear

Acceptance Streamlined Blood Flow Accuracy Waterproof Stability

BUSINESS VALUE FEATURES

“When you want to make a wearable that you wear all

day long, it needs to be socially acceptable. And the best

way to make it socially acceptable is to make it invisible.”

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Dash by Bragi Freewavz Dot Trex Hearnotes

Retail Price

Smart?

Target Market

Key Features

Fiscal Profile

Availability

Mobile music consumers

Kickstarter $325k

Still In Development

COMPETITIVE ENVIRONMENT NEW AND EMERGING WIRELESS DEVICES

$299 $299 $149 $299 $349

Fitness and sporting Fitness and sporting Fitness and sportingFitness and sporting

Indiegogo current

Fundable campaign current

Kickstarter $3.4m

Kleer TechnologyComfortSize and weightBluetoothWaterproof

On-board memory

Indiegogo current

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Headphones are an existing product. Hearables are the next step

Product Synergy

American Apparel customers are young, urban, trendy, active and fully engaged with emerging and

dominant technology.

Demographic Overlap

Hands on experience will support introduction of a new product

In-Store and Online

The cost of the product is high, compared to other American Apparel products. Hearables are outside the existing American Apparel brand

Risk

While hearables would be outside American Apparel’s model of vertical integration, this type of product should be considered for cross-promotional opportunities. The demographic alignment and opportunity to introduce the next development in wearable technology should be considered.

ANALYSIS AND RECOMMENDATION

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Introduce product line for early 2017, right before the projected industry

peak

Timing

Hearables will simply be an expansion on Walmart’s existing

lines of electronics. Offer multiple hearable options to

support customer choice and drive down UPC

Multiple Products

Hands on experience will support introduction of a new product

In-Store and Online

Opportunity to lead the retail market with new product introduction, providing value to Walmart’s current customer and appeal to early adopters and atypical Walmart consumers

Leadership

Walmart is already selling premium headphones, smartphones and several brands of wearables. These ear-oriented devices are more than just variations on existing headsets. In-ear devices, powered by apps, will win over consumers, drawing new customers to Walmart and positioning the company as forward focusing.

ANALYSIS AND RECOMMENDATION

11OPPORTUNITIES AND CHALLENGES

Price Point The current generation of hearable devices are projected to retail between $150-$300, putting them in the vicinity of smart phones and tablets

Technology The value of a hearable is entirely contingent on the technology that supports it, much of which is young. Further expansion into apps and integrations will enhance the value

Social The social stigma against hearing aids will be pitted against the social ubiquity of earbuds. Social acceptance is key for the mass appeal of any wearable

Development Hearables are still very much in development and thus are subject to substantial roadblocks before they are available for sale. Timeframe is unknown.

As with any new technology or product, there are risks to being on the cutting edge and leading early adoption

12Sources

• hkp://www.theverge.com/2015/9/6/9268495/bragi-dash-wireless-earbuds-hands-on • hkp://www.wired.com/insights/2014/10/hearables/ • hkp://www.forbes.com/sites/anthonykosner/2015/08/12/hearables-face-off-starkey-halo-i110-vs-resound-linx²-leverage-iphone-and-apple-watch/ • hkp://techcrunch.com/2015/07/30/vcs-arent-hard-of-hearing-for-innovaoon-as-investments-for-hearables-surge/ • hkp://www.appcessories.co.uk/blog/wheres-the-bragi-dash-an-update/ • hkps://www.indiegogo.com/projects/dot-world-s-smallest-bluetooth-headset#/story • hkps://www.fundable.com/hearnotes-staples • hkps://www.indiegogo.com/projects/trex-truly-wireless-earphones#/story • hkp://www.theverge.com/2015/7/31/9077719/bragi-dash-earin-Dot-ony-wireless-earbuds-date •hkp://coolmaterial.com/roundup/history-of-headphones/ •hkp://www.bragi.com/ •hkp://staybasic.blogspot.com/2011/05/ch8-segmenong-and-targeong-markets.html •hkp://www.slideshare.net/mcgronow/american-apparel-case-study •hkp://readwrite.com/2015/10/27/hearables-wearables-components-technology •hkp://techcrunch.com/2015/07/30/vcs-arent-hard-of-hearing-for-innovaoon-as-investments-for-hearables-surge/ •hkp://mashable.com/2014/05/13/wearable-technology-history/#JZGBPYf0nZq6 •hkps://www.kickstarter.com/projects/freewavz/freewavz-smart-earphones-with-built-in-fitness-mon/descripoon •hkp://venturebeat.com/2014/10/21/why-hearables-will-trump-wearables-and-make-you-healthier-too/ •hkps://www.comscore.com/Insights/Market-Rankings/comScore-Reports-July-2015-US-Smartphone-Subscriber-Market-Share • hkp://staybasic.blogspot.com/2011/05/ch8-segmenong-and-targeong-markets.html • hkp://www.slideshare.net/mcgronow/american-apparel-case-study • hkp://mashable.com/2015/11/30/apple-iphone-7-no-headphone-jack/?utm_cid=mash-com-t-main-link#Nfzgh7twqPqn