The Power of Network Effects

Steve Jobs

Think back to 2007 when the iPhone debuted. If you recall, the device itself was pretty unique – multi-touch touchscreen, completely new user interface, iconic form factor – but, the initial functionality that it provided was not all that different from what existed at that time. Steve Jobs introduced the iPhone as, “an iPod, a phone and an internet communicator.” Aside from the iPod/music aspect of the iPhone, the other “smartphones” at that time provided the same combination of phone, email and (limited) internet. It just couldn’t do much more than what already existed.

The original iPhone was met with a lot of criticism and it was easy to point out the shortcomings and hard to see the potential. We know how this story goes, though, as the iPhone went on to be a smashing hit and many of us use one today. What’s interesting, however, is to look at why the iPhone was so successful. One of the primary reasons for its success was due to the power of network effects that Apple leveraged.

Network Effects

One year after the iPhone was released, Apple introduced the App Store with their iOS version 2.0. In less than two months, iPhone users had combined to download 3,000 different apps, 100 million times. This caught the attention of the software developer community, “100 million downloads in less than 60 days.” A pipe dream come true for anyone who had the technical wherewithal to develop mobile software. The gold rush was on, and thus began the virtuous cycle that is network effects.

worldwide-app-store-apps-by-2020

Each new person that bought an iPhone became a potential candidate to download apps.  This growing pool of users incentivized developers to create new apps, compete in existing apps to make them better, and introduce new features that could generate revenue. The more users there were, the more potential customers developers could acquire.

Simultaneously, as this third-party app ecosystem grew, it spurred further adoption of the iPhone because of the constant influx of new apps, or better apps that could be downloaded through the App Store. The more stuff you could do with an iPhone, the more compelling it became to purchase one. The value just kept appreciating.

Network Effects Comic Strip (2)

This is what was so revolutionary about the App Store – it created a marketplace that brought together third-party developers and users. By bridging the two, it allowed for the developers to produce an endless supply of utility, functionality and capabilities to be instantly downloaded and utilized by the users, enhancing the value of the device. It generated entirely new use cases and reasons to use a smartphone.

Ok, so what? Well, as I pointed out in my previous post, we’re all shifting to using “connected” audio devices. Furthermore, our connected audio devices as a whole represent a quasi-network, as one of the common denominators across these devices is the wireless connectivity to a smartphone. Therefore, these connected, ear-worn devices serve as new delivery mechanisms for software. Network effects can now begin to take hold because we’re using audio devices that can seamlessly access apps from our phones. In other words, we’ve erected additional bridges to allow developers to supply limitless value to our ears and wherever else we’re wearing computers on our bodies.

Thus, the virtuous cycle becomes enabled. As the number of connected audio device users steadily increases, developers become motivated to build apps specifically for said devices, resulting in more incentive to go buy Airpods, Pixel Buds, MFi Hearing Aids, or the many hearables to take advantage of all the new stuff you can do with these things. That’s why the shift to connected devices is so fundamentally significant. It has now become technically feasible and financially motivating for developers to create apps tailored to our little, ever-maturing ear computers.

Mini comic

We’re at day 1 of this new phase of software development, yet we’re already seeing applications specifically targeting and catering to this network. Smart Assistant integration, apps designed to collect and provide actionable insight on your Biometric data, live-language translation, and augmented audio. These are some of the first new applications and use cases for connected audio devices that will transform our single-dimensional devices into more sophisticated and capable pieces of hardware, enhancing their value.

That’s why I think it’s so important to point out that regardless of whether your interests lie in hearing aids, Airpods, or hearables, you should be excited about the innovation that is taking place in any one facet of the connected-device network. Over time, software and features tend to become made widely available throughout the network, so we shouldn’t really care where the innovation originated. Sure, some devices will be capable of things that others won’t, but for the most part, you’ll be able to do a lot more with your connected audio devices compared to what we’re used to with previous generation devices. Just as we learned over the past decade with our smartphones, network effects help to accelerate this pace of change.

-Thanks for reading-

Dave

Welcome to FuturEar

FuturEar plug illustration (2)

Hello and welcome to FuturEar! As the name insinuates, the purpose of this blog is to provide an ongoing account of the rapidly evolving audio landscape. My goal is to help make sense of all the trends that are converging toward the ear and then consider the implications of those progressions. This blog will feature both long-form assessments, as well as short, topical updates on news pertaining to the ear.

The inspiration for this blog was the realization that we’ve quickly begun wirelessly connecting our ears to the internet. For starters, at a broad level, Americans are buying more Bluetooth headphones than non-Bluetooth headphones:

BT Headphones vs Non BT Headphones
From Nick Hunn’s The Market for Hearables 2016–2020

If you look more specifically into any one segment of audio devices, you’ll see the trend applies there too. If we are considering hearing aids, Resound introduced the first Made for iPhone (MFi) “connected” hearing aid back in 2013 – the Linx. Flash forward to today, and all six major hearing aid manufacturers sell a MFi hearing aid (Phonak’s Audeo B hearing aid is actually compatible with Android too.) Similar to headphones, the majority of hearing aids now entering the market are connected devices.

Hearables, everyone’s favorite buzzword, have collectively attracted more than $50 million through crowdfunding on sites like Kickstarter and Indiegogo. These devices are inherently connected and wireless. Additionally, you have the 800 lb. gorilla in the room – Apple – that introduced Airpods last December. Airpods have accounted for 85% of totally wireless headphone dollar sales in the US since last December. Google launched its own flagship headphones, the Pixel Buds, at the beginning of October. So now we have two of the largest tech companies in the world competing and innovating audio hardware.

AirPods vs Pixel Buds

This shift to Bluetooth-connected devices represents a fundamental change to these devices, as this new generation of connected devices are able to leverage the power of software. Essentially, previous, non-connected devices would be considered “entropic” meaning that they flat-line then depreciate in value as the hardware deteriorates. There’s no new value created by the device.

On the flip-side, these connected devices are “exotropic” meaning that they appreciate in value, so long as the hardware permits (all hardware eventually craps out). Through over-the-air software and firmware updates, as well as software app integration, new value is constantly being created. In other words, we’ve essentially gone from using headphones and hearing aids that are akin to flip phones to one’s that more closely resemble iPhones.

 

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This blog will explore all of that new value, honing in on specific new use cases, as well as piecing together how a multitude of seemingly disparate trends all relate and ultimately lead to the ear. Just like all software-powered hardware that’s connected to the cloud, these devices will evolve, iterate and advance quickly and shift in unexpected ways. Exciting times!

-Thanks for reading-

Dave