AirPods are Apple's surprise hit product of 2016. While their simplicity may evoke comparisons to previous Apple blockbusters like iPod, AirPods are something very different. We are witnessing a new chapter unfolding at Apple in which Jony Ive and the Industrial Design group press down on the wearables accelerator. While Apple Watch wages a war for our wrists, AirPods are kicking off Apple's battle for our ears.

A Wireless Future

There were hints that AirPods were going to be popular. Back in September, at Apple's annual iPhone event, the focus didn't end up being on the iPhone 7 or 7 Plus, or even new Apple Watches, but instead on a pair of wireless headphones. While Apple SVP Phil Schiller did not talk up AirPods much on stage, Apple's Chief Design Officer, Jony Ive, didn't hold anything back. The fact that AirPods received its own Jony video spoke volumes. Here's Jony describing the motivation behind AirPods:

"We believe in a wireless future. A future where all of your devices intuitively connect. This belief drove the design of our new wireless AirPods...We're just at the beginning of a truly wireless future we've been working towards for many years where technology enables the seamless and automatic connection between you and your devices."

On the surface, Apple's focus on a wireless future seems to describe the company's efforts to remove wires from our lives. As our iPhone and iPad usage have increased, the number of headphone wires and charging cables in our life have grown in number as well. However, Apple's interpretation of a wireless future isn't just about the lack of wires. Instead, Apple is focused on empowering people through a new collection of personal technology devices. This ends up serving as a good background for AirPods, Apple's second wearables product.

Impressions

I have been using AirPods for the past week. Here are my impressions:

Wireless Headphones. AirPods are Apple's answer to rethinking headphones. Relative to Apple Watch, AirPods contain much less risk as a product category. Given our increased dependency on consuming content via smartphones and tablets, headphone usage has been on the rise. In addition, wireless headphones had already begun to gain momentum in the marketplace. AirPods can best be described as wireless headphones that can do a little bit more. The wireless headphone part of the product will drive sales today while the "little bit more" part represents the vast potential found in a wearables product for the ear.

Pricing. At $159, AirPods are Apple's lowest-priced wearables device. The starting price for Apple Watch is $269. AirPods are also priced very competitively considering Samsung's Gear IconX retail for $199 and Bragi's Dash goes for $299. While there are much less expensive headphones available, including the free pair of EarPods that come with every iPhone, the value proposition found with AirPods centers around not having to deal with any headphone wires. In addition, there is value found with being able to seamlessly connect AirPods to my Apple devices. Given historical trends, it's safe to assume there will one day be a sub-$100 pair of AirPods. The prospects of a $99 wearables device from Apple goes a long way in redefining mass-market luxury.

Usage. I do not find myself wearing AirPods throughout the day. Instead, usage is heavily dependent on my current environment. While sitting at my desk, AirPods often remain in their case. However, AirPods become incredibly more valuable when I'm on the move. The lack of wires makes AirPods an ideal product for fitness activities and various workout routines (such as snow shoveling).

Comfort. Even though AirPods have a near identical shape to Apple's wired EarPods, the lack of wires gives AirPods a noticeably more comfortable feel. Without wire tension, it is extremely easy to forget that AirPods are in my ears. This will have many implications when AirPods receive additional functionality down the road. It is not difficult to envision a scenario in which we will want to wear AirPods for long durations (or at least until the battery dies).

Fit. AirPods are without question more snug than EarPods. Throughout my week of usage, I didn't have one instance of AirPods falling out or becoming loose. One reason I suspect AirPods are much more snug than EarPods, despite having a very similar shape, is their ability to sit at a slightly different angle in my ear. With wired EarPods, the device has to be worn at a particular angle due to the hanging cord. While AirPods fit my ears, others have had significant issues with AirPods fitting in their ears. It's difficult to put a number on the people impacted by ill-fitting AirPods. It probably isn't trivial. There is too much on the line for Apple not to eventually address various ear shapes with a few different AirPods sizes.

Sound. AirPods sound better than Apple's wired EarPods. With that said, wireless headphones don't strike me as a product category in which sound quality is high on the value proposition list. Instead, AirPods derive much of their value from the lack of wires and ability to seamlessly connect to my devices. For the vast majority of consumers, AirPods will sound just fine.

Siri. Double tapping on an AirPod will bring up Siri. It took a few days of practice to figure out how to get the double tap just right to activate Siri nearly every time. After a week of using AirPods, I have seen a modest increase in my Siri usage. While it is nice to have Siri access through AirPods, I haven't found it to be a game-changing experience...yet. Half the time I wear AirPods, I end up just saying "Hey Siri" since my iPhone is close by. While some people are jumping with both feet into a voice-only paradigm of computing pushed by devices like Amazon Echo and Google Home, I still have major reservations. Voice is an incredibly inefficient way to transfer data, and I am finding that I really don't want to talk with my computers. Siri's potential continues to be found in being more of a proactive assistant. In that scenario, Siri and AirPods will be incredibly useful in my life. We aren't there yet.

Simplicity. Apple was deliberate in maintaining a high degree of simplicity with AirPods. There is only one control available on AirPods. A double tap to an AirPod enables one to either activate Siri or answer a call. This produces a rather obvious drawback when it comes to music playback controls. The user is required to either use Siri or a controller (nearby iPhone, Apple Watch, iPad etc.) I think Apple made the right decision in not adding a lot of controls to AirPods V1.0. If not done correctly, additional controls such as swipes and triple taps could lead to a disaster. In terms of music playback, I find using 1) Apple Watch 2) iPhone 3) "Hey Siri" to be adequate options. For the first time, Apple Watch's Digital Crown proved to be useful when it controlled the music volume for my AirPods.

Design. AirPods are designed to be worn and seen. Everything about AirPods, from their white color and long stem to their charging case, screams Apple Industrial Design (ID). The product is an example of how the Apple ID group is firing on all cylinders when it comes to its push into wearables.

Given Apple's culture and functional organizational structure, the ID group holds near to absolute power within Apple. This structure is one of the most critical elements to keep in mind when analyzing Apple's product strategy, including AirPods' trajectory. I have been very outspoken about Apple ID gaining power within Apple.

Exhibit A: The Jony Ive Promotion
Exhibit B: Jony Ive Is Making People Uneasy

This power is manifesting itself in Apple's aggressive push into wearables.

Window into a Wearables World

One of the main takeaways from using AirPods for the past week is that they represent a window into a wearables world. When the Apple Watch was unveiled, Apple talked about a scenario in which one can leave the iPhone by the door and just use an Apple Watch around the house. This hasn't happened. As it turns out, AirPods end up having a much better chance of achieving what the Apple Watch was originally tasked to achieve. AirPods help break the chains that have held me so close to the iPhone. Combine AirPods with an Apple Watch, and an even greater number of chains are broken. While we aren't at the point of being able to move beyond the iPhone, AirPods provide glimpses as to how this process is going to occur.

Sales Implications

I think Apple is going to sell a lot of AirPods. While the device is not an impulse purchase with a $159 price, AirPods have a few things going for them that should result in significant sales.

AirPods work with any device that supports bluetooth. This gives the product an addressable market that is at least 7x larger than that of Apple Watch. There are faint similarities between AirPods working with Android and the iPod working with Windows. It was that Windows support that set iPod sales on its eventual blockbuster sales trajectory.
AirPods have a very clear value proposition out of the gate. Many customers are going to see value in AirPods as they are wireless headphones. All of the device's additional functionality found with Siri (available with Apple devices) is just an added benefit.

The most accurate measurement of AirPods demand will likely be measured in tens of millions of units over the next two years. For context, Apple sold 20M Apple Watches in 20 months while Amazon has reportedly sold 5M Echoes in two years. The ingredients are in place for AirPods to be a multi-billion dollar business within the next few months. It doesn't hurt that sales expectations facing AirPods are much more contained than the lofty goals set for Apple Watch at launch.

The Battle for Our Ears

Apple Watch kicked off Apple's battle for the wrist. Given the finite amount of wrist real estate available, there is an incredible amount of power found in getting a device on one's wrist. This means that Apple Watch is in one way or another competing against everyone from Swiss watchmakers to fitness & health trackers and jewelry makers. Much of Apple's future strategy with Apple Watch will be guided by this battle for the wrist.

Apple is now kicking off a new battle with AirPods. This time, the battle is for our ears. Every pair of AirPods sold and worn represents another set of ears ready for Siri. In some ways, Apple has a head start as the company has been selling hundreds of millions of wired EarPods each year. In addition, Beats gives Apple instant access to parts of the headphone market not addressed by AirPods. My suspicion is that this difference in target markets is one reason why Apple has given Beats headphones a bit of independence since the acquisition. However, the message is clear: AirPods are Apple's flagship weapon in its quest for our ears.

Over time, Apple will expand AirPod functionality to include additional voice capabilities such as translation, various types of audio curation and delivery, biometrics monitoring, and augmented reality. The greater the number of AirPods that are out in the wild, the more valuable these additional capabilities will become.

As the smartphone battle quiets down, the battles for our wrist and ears are only beginning. Welcome to the wearables era.

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