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060 – Luke Pearce & Andy Bellavia – Hearables’ Massive Growth in 2020 & What’s on the Hearables Horizon

This week on the Future Ear Radio podcast, I’m joined by Futuresource analyst, Luke Pearce, and my good buddy Andy Bellavia, Director of Market Development at Knowles Corp. For this conversation, the three of us discuss Futuresource’s recent Hearables Market Report 2020, which examines the market trends and data from 2020. I’ve been anxiously waiting to see the market research come out from 2020, as it’s been widely expected that the hearables market would see considerable growth in 2020, and yet, I was still surprised at how strong the growth in the market was – roughly 60% from around 139 million units in 2019 to 223 million units in 2020, according to Futuresource.

It’s important to point out that we’re talking about total units sold and not total hearables users, which as we discuss, many of these units are tied to the second or third purchase from a specific user, as people outfit themselves with multiple devices for different types of functionality and situations. Regardless, the pace of hearables adoption continues to grow steadily, as many people opted to upgrade their standard headphones this year due to all the Zoom calls and virtual settings that the global population was forced into by the pandemic.

With a hearables user base that now consists of hundreds of millions of people around the globe, it should be no surprise that we’re seeing the emergence of all kinds of new apps and social networks built specifically off the notion that a huge chunk of people are walking around with things like AirPods in their ears for extended periods of time. From a sheer behavioral standpoint, true wireless audio devices allow the user to, “dip in and out” of the audio internet quite seamlessly throughout the day. One of the most notable changes in the past 3-4 years from a technology standpoint is that it’s become socially acceptable to have our ears connected to the internet in increasing amounts of time and situations, which is what has enabled apps like Clubhouse to become viable.

Key takeaways:

  • The data indicates that a significant portion of hearables purchases are for a second or third device. This makes sense to me as the feature sets are expanding and certain devices are specializing in new features (i.e. “conversational enhancement” or heart-rate monitoring or active noise cancellation). Nick Hunn, the analyst who coined the term, “hearable,” touched on this new trend recently as well.
  • I always like to look at what’s going on in the broad wearables market, as hearables are at the tail-end of the market in terms of its development cycle and maturation. What’s most striking to me is how compelling these new offerings are from companies like Whoop, Oura, and Levels. As we discuss at the end of the convo, biometric monitoring features for hearables will probably be less of a technical challenge, and more of a data visualization/actionable insights challenge.
  • That’s what these next generation wearable companies that I listed above have seemingly figured out. It’s less about capturing data and more about making sense of that data so that you can draw meaningful conclusions from said data. This will be paramount here as well, I believe, as demand for biometric monitoring features will only exist if there are compelling, actionable insights that can be packaged back to the user.
  • It was cited in Futuresources’ report that 60% of survey respondents were interested in “conversational enhancement” features. Qualcomm’s big, “State of Play” report indicated the number to be around 40%. So, let’s just split the difference and say the number is around 50%. That is a strikingly large number when we’re talking about hundreds of millions of people! This has to be one of the most encouraging trends with regard to the global effort to combat and treat hearing loss… wayyyy more people than ever are feeling compelled to purchase a device that offers a level of hearing enhancement.
  • This will surprise no one, but I am still very bullish on the future merging of voice technology and hearables. Voice and hearables are both very young technologies and early in their respective development cycles. We’ll likely see the first major implementation of voice with hearables be that of a user interface, allowing the user to control their phone and the app ecosystem within it, by their voice rather than tap-touch-and-swipe. The bigger picture though is the idea of having a true “personal assistant” in one’s ear that provides contextually relevant information in a proactive manner. (Starkey’s Bill Austin appears to be thinking along the same lines.) My hunch is that voice, biometrics and hearables will all be deeply intertwined, but it will happen gradually.

-Thanks for Reading-
Dave

EPISODE TRANSCRIPT

Dave Kemp:

All right, so we are joined here today by my good buddy, Andy Bellavia, as well as Futuresource analyst, Luke Pearce. So let’s go around real quick. Andy, reintroduce yourself, tell us a little bit about who you are and what you do.

Andy Bellavia:

Thanks, Dave, it’s great to be on once again. I’m the Director of Market Development for Knowles. My own involvement at Knowles is in the hearable space. I’ve been working hearable space since the beginning back in Bragi here in Nuheara days, Doppler, and so on, and I also advocated the intersection of hearables and hearing health. I’m hearing impaired myself, I’ve gotten really used to wearing ambient audio devices in my ears that are connected. So I’ve done a lot of time exploring the ambient audio ecosystem and how that can work when you have a low friction device in your ears.

Dave Kemp:

Love it. And Luke, welcome to the podcast. Tell us a little bit about who you are and what you do.

Luke Pearce:

Thanks very much, Dave, thanks for having me on. I’ve been following Future Ear for probably over a year now as it’s pretty relevant to what I do in my industry. So yeah, it’s a great privilege to be on here today. So yeah, Futuresource, we’re a market research and consultancy firm based in the UK, specialize primarily in technology industries and our core expertise really lies in the kind of audiovisual business. So my role as a market analyst is to look at the headphones and the hearables markets worldwide. So we’re tracking key developments across devices, content, technology, providing both a product level tracking detail as well as kind of five-year market forecasting and even some consumer surveys too.

Dave Kemp:

Well, that’s awesome. Thanks for joining us today, really looking forward to this conversation. When Andy’s in the mix, we’re going to be talking all about hearables, hearing aids and just the future of this market. And Luke and Futuresource team approached me, said that they just put on a new report. We took a look at it, some awesome findings in there, lots of fodder for discussion, so I figured this would be a perfect basis for a conversation. So brought Luke on the podcast and I figure, why don’t we just kick things off, Luke, by having you go through some of the major findings from this report? And then from there, we’ll just kind of start to parse them out and talk through some of these different trends, what we think they represent and where we think this market’s ultimately going.

Luke Pearce:

Yeah, sure, brilliant, okay. So yeah, I mean, 2020 was a huge year for hearables. So thinking over the last few years, it’s been accelerating every year, it’s quite extraordinary numbers really but 2020 was one of those which increased it even more. So despite pandemic disrupting kind of many industries, headphones and hearables particularly really kind of stood out as still being quite a strong growth performer. So looking at the market now, we’re looking at around a kind of 60% year-on-year growth from 2019-2020. So looking just kind of over 200 million unit, so continuing to really kind of accelerate.

Luke Pearce:

I guess in 2020, we saw the way kind of consumers are using these devices changing, that’s why we saw kind of true wireless really continue to perform very well. So not only did we see it using for more kind of different types of entertainment, so we saw lots of people continuing to stream music and music streaming numbers are very high, also kind of spoken word like podcasts here today, and audiobooks and that kind of thing. But video was also a key use case for these devices but particularly communication.

Luke Pearce:

So a lot of consumers went out and purchased a hearable for working from home unable to kind of do their conference calls and things with a consumer device as not a lot of stock of kind of office-based headsets, if you like. So lots of consumers went to a consumer option like a consumer hearable. So we saw communication become an even greater part of the hearable device, which we have seen already kind of increasing over the last couple of years, but last year really made that a kind of key important for that device.

Luke Pearce:

So yeah, the report touches on hearables and it breaks it out by kind of various regions in terms of where we are now. We saw a huge growth in Asia Pacific yet again. Asia is now expected to take North America last year staggering volumes and the likes of the kind of Chinese smartphone brands but also, some of the kinds of Chinese value brands as well. Generally, there is much kind of a big appetite for any of our products in Asia, with China especially, being very much a mobile-first market. And hearables are really kind of seen as an extension of that smartphone user experience at the moment, so there’s no doubt, that’s why that’s increasing quite a lot.

Luke Pearce:

In terms of the kind of products we have on the market now, we’re seeing quite a big polarization in terms of price segmentation. So we’ve now got brands with a strong portfolio of many different products, third and fourth-generation products in different price brackets are good, better, best scenario with kind of the premium product offering the very best sound quality, the most innovative features, very best noise canceling. So yeah, we have seen an increase in the number of devices both at the premium end, also at the low end of the market as well. So quite a stretcher of different products there.

Luke Pearce:

Features wise, we are seeing these products become much more feature enabled. So we’ve seen a real growth in voice assistance, like the Googles and Alexis of this world. So I think now two-thirds of hearables have some kind of voice assistant optimization in them. We saw a lot of improvements in microphone and connectivity capabilities, but also most importantly kind of ANC, and we’ve seen a lot of active noise canceling now, very much a core user experience of the hearable device.

Luke Pearce:

And the way we’re using ANC has changed, it’s no longer not just for travel and for blocking out kind of aircraft noise, but also for blocking out sounds in the home when working from home and things like these as well. So the way consumers have used ANC has actually made it even more important and many brands are put ANC into their product now as well. So over a third of true wireless now have ANC according to our numbers. And CES, again, we saw the majority of new true wireless launches including that active noise cancellation.

Dave Kemp:

Yeah, well, thank you for running through all that, that’s definitely a lot there and I think we’re going to kind of break down much of what you said. So there at the very end, you mentioned CES. I know that both of you and your respective companies had a presence at CES. I know, Andy, you spoke there. So let’s go into maybe some of the takeaways that you two had from CES. I’ll kick it over to you, Andy, for general thoughts on what you saw. I know that because this was virtual, it might not have been the same kind of avalanche of new product releases that we’re used to, but I’m sure that there were still things that resonated in your mind and just things that were representative of kind of the space right now.

Andy Bellavia:

Yeah, okay, thanks. It’s interesting because with the virtual CES, I actually got a lot less out of it than I would in the in-person experience. But the announcements and the things that are moving to market have been happening around CES not directly in CES, and you can see those reflected in all the various reports. I mean, if I look at Luke’s, he has the top drivers, sound quality, comfort, price, build quality and battery life. And when you look at it, three of those are feature-oriented, sound quality, comfort and battery life. And I wonder, Luke, how you see that developing over time. If I look at the Qualcomm State of Play report, they say that consumers in Western countries want around 10 hours life and in China, they’re asking for 16 or 18 already. So do you see that trend continuing and how are people solving that conundrum between small size, comfort, great sound and long battery life? How do you see that playing out in the next couple of years ahead?

Luke Pearce:

Sure, absolutely, and our consumer research says similar things with kind of comfort ranked as high as battery life and these kind of are our core fundamentals to the user experience. And we have come a long way in the last two or three years, we have really improved on battery life, and call quality and sound quality in these small devices and we’re seeing rates of innovation which are very, very high, but we’re still not quite there yet. There’s still problems with comfort sometimes. There’s still things that need to be sorted out, I think, with comfort.

Luke Pearce:

When we did a survey, we asked about kind of any ear tips and open-fits designs, just kind of see where that preference was. Ear tips were preferred to that open-fits but still 15%-20% said that they simply didn’t like in ear products. So it’s still not necessarily working for everyone in terms of the comfort that those products have. And we are seeing brands experimenting with things like open ear audio or the Samsung Galaxy bean kind of style product which kind of sits out of the year. So we’re seeing brands kind of try and experiment with these different kind of form factors, if you like, to improve that sensation of comfort as well.

Andy Bellavia:

Yeah, and your tenure is a conundrum exposed there, I’m really interested to hear how you think this will play out going forward. Because you’re right, there’s a percentage of people who don’t want to close their device because the occlusion effect. Now, if you’re at home listening to music audio file style, you don’t care so much, but if you’re out and about, you’re talking, you’re eating, you’re moving, all those occlusion sounds can be uncomfortable, so then you’ll go to a more open-fit design. But now, you have a harder time excluding the loud outside sounds around you.

Andy Bellavia:

And you have systems like ams, for example, just introduced their new ANC system that will work with open-fit, but it tends to be more power-hungry. So now you start to hurt the battery life to go for this sort of device. Now, I’m spoiled, my hearing aids, okay, they don’t have ANC, but they’re so comfortable I forget I’m wearing them and they go all day long. And hearables in trying to approach that same idea, “I want comfort. I want isolation. One is loud and I want all day wear,” how do you see that actually playing out? Because I see open-fit, ANC, and long battery life and comfort at least today conflicting with each other.

Luke Pearce:

Yeah, absolutely, it is about kind of striking that right balance at the moment, it’s kind of a trade off at the moment between the number of kind of features that you can put in, the form factor, the small size, and so, we are seeing different kinds of experiments with that. One way is kind of technology. So as you mentioned having kind of ANC but also kind of transparency modes and being able to hear through the device by placing more and more microphones onto the device to kind of filter through that external noise to kind of make consumers aware of their surroundings. So could it be a case of technology? Things are improving. If you listen to transparency modes in products today, they are a lot better than they were kind of last year. So that that element is improving.

Luke Pearce:

And in terms of kind of battery life as well, we are seeing technology such as the next generation of Bluetooth and Bluetooth Low Energy, as I’m sure you’re both aware of in terms of how the effect of that technology being rolled out kind of sets of all these products will help to increase the efficiency of these products even further to kind of get over that battery life.

Luke Pearce:

But on that kind of design aspect, we might see brands experimenting more with kind of the outside of the ear or even kind of we’ve seen some products like the audio enabled frames, if you like, so there’s a few products on the market at the moment and things like kind of both frames and a couple of others as well which aren’t necessarily targeting the ear as such but more targeting the face, but directing that audio into the ear, whether that’s by bone conduction or just kind of directional audio as well. So I think that’s a really interesting space as well and maybe we’ll start to see more of the body and the ear being used for these devices rather than just in the ear effect.

Andy Bellavia:

Do you see that being successful? Because of course, when you go to the frame’s kind of design, then you have no opportunity to reduce the outside sounds at all. So I’m on a busy urban street, for example, am I going to be satisfied with the frames kind of experience?

Dave Kemp:

Well, I’ll hop in here. I think that this speaks to what we’ve talked about before, Andy, which is having multiple different devices for multiple different use cases. As these things become more commoditized and more multi-purposed, I do think that it’s very likely that a lot of people will have a different device for different types of situations that they’re in. You might have a pair of AirPod Pros with ANC that you use when you’re commuting. I’m using Bose over the ear headphones right now as I’m podcasting, and then I might have something that I’m using when I’m working out.

Dave Kemp:

I mean, I just kind of see this as being more so ubiquitous as the demand for wearing them continues to go up because there’s just so many different things that you can do with them especially as the internet continues migrating toward our ear, I just think that it ultimately lends itself to this idea that while some people might prefer to just have one device for all their different things, I also think you’re going to have a number of people that are going to prefer different strokes for different folks, different devices for different types of situations throughout the day.

Luke Pearce:

Yeah, absolutely, I mean, you’re right, Andy, there are many obstacles to two frames at the moment. At the moment, these products are being positioned as sunglasses, so not everyone wears kind of glasses at the moment or has prescription lenses and getting someone to put something on their face if they don’t already do it is actually very difficult. And we’ve seen examples of that with kind of Google Glass and some of the failed attempts there. So asking someone to put something on their face which they don’t already is difficult. So sunglasses is a way that we can do that. Sports sunglasses as well as Bose have done with some others as well is targeting that specific use case because sports, running, cycling, skiing are sports where you probably do need to wear some kind of sunglasses and eyewear, but also, we need to be aware of your surroundings, where you’re going.

Luke Pearce:

And just to come back to your point, Dave, about kind of multiple products, I mean, that’s something we’ve looked at in our research and a question we tried to kind of ask consumers. When they were purchasing a true wireless, were they doing it to replace an existing headphone they have? So are they saying, “I’ve got a wired headphone, but actually, I’m making the jump to true wireless?” Or do they have multiple pairs and they’re looking for a specific device for a specific use case?

Luke Pearce:

And actually, it was pretty split. So I think it was about 50/50. Particularly, one of the biggest results that came out was the number of consumers that are upgrading from their free bundled headphones they got in the box with their smartphone jumping straight to true wireless. But then those who kind of had a premium over-ear noise canceling headphone, it was kind of split as to whether they thought that this device would replace it or whether they would use it alongside. So some people will, some people won’t, is the kind of what we’re getting at. And with things like ANC and true wireless, that does kind of counter with the kind of Bose or over-ear premium noise canceling as well. So it is interesting to see how that will exactly play out.

Dave Kemp:

Yeah, I mean, I think that looking at these numbers, it’s funny when I had Nick Hahn on, we talked about, at the time, it was in the middle of the pandemic, I guess we’re still in the middle of the pandemic, in the middle of the pandemic in 2020, and he mentioned that the pandemic was a big boom for hearables growth just because it, I think, was the impetus for a lot of people that say, like you said, Luke, “I’ve had these bundled headphones and now I’m just more or less interfacing so much more with my computer. And for whatever given reason, I need an upgraded pair of headphones and hearables.”

Dave Kemp:

And I just think that I’ve been citing this number, about 100 million people walking around with these connected devices that are more or less truly wireless, and I guess I need to revise that because I’m looking at the numbers right here, it’s 223. Now, granted some of those units, a significant portion of those units are those second pairs of devices that they’ve upgraded into, but I do think it’s probably fair to say that we’re well over 100 million different users, more or less.

Dave Kemp:

And so, I just think that this, again, before we started recording, we were talking about how, I think Andy and I, when we were first recording episodes and even before that when we would talk, would be this kind of notion of like, we all felt like the rise of hearables was clearly transpiring. You go to the airport and you’d see every other person seemed like they’d be wearing something like AirPods. And so, anecdotally, it felt like we were building toward this. And then here we are, and it’s here as evidenced by all this different market research that’s out there that just keeps reinforcing this idea that this is probably one of the biggest, I would say, stories of the last few years in technology, but also the behavioral change that goes along with it.

Dave Kemp:

I mean, for as much as people talk about AR glasses, and VR and all these things, I think that they discredit just how much of a behavioral change those will really require in order for them to be adopted at mass. And I think that one of the big success stories of hearables is that, largely, due to the fact that you had a super strong legacy use case in audio and media consumption, you were basically able to usher in this behavior change of people now walking around with things that look like AirPods in their ears for extended periods of time in accelerated even more so by the pandemic. So what does that mean? Well, I think now we’re living in an era where it’s now a foregone conclusion that the age of these connected in the ear devices and all the different form factors that are derivatives of that are 100% here, and now we’re starting to really see an emergence of applications, functionality being built off of this notion.

Dave Kemp:

I know that the thing that everybody’s talking about right now is Clubhouse. Everybody is like, “I can’t stop talking about this hot, new social audio app.” But that’s not really surprising if you think about the fact that this was built off the back of 150 million-plus people that are wearing something like AirPods. And that’s not to say that you have to wear AirPods or something like them to enjoy this app, but I think it just speaks to, that’s kind of the idea of it, is that it’s something that you can kind of passively be listening to, maybe you’re engaging, maybe you’re hopping up on stage. But this idea of constant media consumption and what I refer to as dipping in and out of the audio internet is very much here right now.

Andy Bellavia:

Yeah, that’s really a key point. If you think about the difference between audio and video, I mean, audio is kind of ambient experience. So for example, let’s say you’re in a romantic restaurant with your partner and there’s music playing in the background, it adds to the experience and you can have the music and your conversation at the same time. But if there’s a hockey game over your partner’s shoulder and you keep flipping your eyes up to look at it, you’re going to ruin the whole day. And so, the VR experience is more difficult to be going out and about with because you can’t attend to the real world around you in the VR unless it’s very, very subtly done. Normally, you’re going to be constantly hopping between distractors. But you can have that ambient audio going on in your ears and still attending to the outside world.

Andy Bellavia:

I’m getting pretty used to doing that all the time. I could have a podcast playing in the old days when I’m sitting, waiting at the airport. I’d be streaming something and I’d have the balance between outside and inside set. So I could go to the gate agent, talk to them, get on the flight and all this sort of thing, and never stopped the podcast at all as if a background radio we’re playing. And so that’s really the difference in why I think ambient audio consumption and ambient audio experience is ticking off whereas VR, apart from the cost of it, VR and AR has a limited use as you’re out and about in daily life.

Dave Kemp:

Yeah, I think there’s just something about that for as much as I think there was hype in the, I’ll say, 2015-2017, which was really the incubation period for AirPods and hearables, you heard so much about AR and VR. And there wasn’t a whole lot of thought around, “Well, what happens if AR is actually really ushered in through our ears?” And if you now think about it in retrospect, it makes so much sense because, again, it’s that behavioral change.

Dave Kemp:

Getting people to wear glasses is such a stretch. It will probably happen in time, but it’s going to take a pretty Titanic shift in the behavioral change. Whereas with headphones and in the shift from just kind of the legacy headphones into these more hearable connected devices, well, it started off as the value proposition, was like, “Well, wouldn’t you want to just kind of enjoy all the benefits and all the use cases more seamlessly?” And then kind of like under the radar, the devices were becoming computerized, there was just more and more incremental things that were happening that were ultimately bringing us to this point where, in many ways, I really do think that these devices are probably the first real forays into augmented reality.

Luke Pearce:

Yeah, I mean, absolutely, even just some of the technology within these devices such as the advent of spatial audio in hearables is particularly interesting, it’s being able to now place that sound in a kind of 3D environment within the ear. So no longer is it just kind of left, and right and stereo pairing, but it’s being able to place audio, and sound and things like that in a location-based 360 sphere wherever you may be.

Luke Pearce:

And I think that spatial audio is really important for a number of these different applications that we talk about kind of hearables being whether that is kind of consuming kind of video entertainment and augmented reality. But also, just for conversation and things like kind of chat room, Clubhouse, sorry, kind of putting people in a sphere, if you like, kind of sitting around a table, you can kind of do that now with audio, with these kind of spatial audio effects or in a boardroom, for instance, for office use cases. So I think the technologies in the devices are also enabling these kinds of new experiences and enhanced audio experiences which has been lacking for quite a while.

Andy Bellavia:

Yeah, and I’ll just add that that’s a necessary precursor to VR and AR anyway because if, for example, you’re having a virtual conference experience in your VR glasses, the audio better be positioned at the same place as the people or it’s going to get very dizzying.

Dave Kemp:

Yeah, I love that you touched on spatial audio too because, again, like as I was trying to describe is that’s the computerization element of this, it’s like those are the little features that are actually going to be really, really important as this all does really start to become more of this augmented reality. I mean, Clubhouse, what strikes me so much about that is at any given point, you can be having what feels like a cafe conversation with any number of people.

Dave Kemp:

And so, if you sort of follow that trajectory out and you think about like, “Well, what does the evolution of that look like?” Who knows? Maybe with glasses it’s kind of a holographic display of all the different people that are talking. And to Andy’s point, what the spatial audio will allow you to do is it basically creates that feeling of there’s somebody to my right that’s speaking and therefore the audio is properly synced up that way, and there’s people to the left that are speaking and vice versa.

Dave Kemp:

For the biggest company in the world, Apple, they have probably a very deliberate strategy, they have very well-thought-out roadmap. And so, if their focus is on audio right now and making sure that they nail all the different aspects of audio in order for the next thing, which will probably be Apple Glasses or some type of thing like that, I think it’s just really, really striking that much of what we’re seeing right now from Apple, Samsung, a lot of these big tech titans is the audio play. And I think that they’re all focusing so much on an audio right now because they know the importance of that for when you really do take it to the next level and you have that next phase of augmented reality or virtual reality.

Andy Bellavia:

Yeah, I’d like to ask Luke a question actually with regard to the ubiquity of audio. If I look at Voicebot’s latest report, Bret Kinsella, he kind of outlined his three-part timeline that talks about phone streaming of audio with ordinary earphones, then people adopting true wireless hearables for the convenience of it and thereby walking into a low friction voice experience. And you can see some of that coming. For example, Spotify is a voice assistant, it’s really, really good. How do you see that playing out, Luke? How important do you see undergo voice assistant use? How important of a use case is that and how do you see that developing?

Luke Pearce:

Yeah, no, it’s a great point, we’ve seen kind of voice pervade our homes with kind of smart speakers and that kind of thing. And now, we are at the next stage where these companies are putting voice into hearables to take that experience from the home but out on to the move, so kind of using that voice experience. Absolutely, if you just sort of see that as the future, we do see having a conversational voice assistant in your ear, personal assistant to you particularly if it’s using kind of sensors like GPS and having that kind of location-based proximity to give you really interesting insights.

Luke Pearce:

But that’s the thing with voice assistants and hearables, it has to give you that number one result each time. It can’t be a typical Siri and say, “Here’s what we found on the web,” because that doesn’t work in audio well, you need the number one result of exact kind of key information that you’re looking for as well. So absolutely, it’s in these products, it is being used. We’ve kind of got some survey information as well about how much kind of consumers are using it, and what for. Generally, at the moment, it’s more for kind of voice calls and music control like, “Hey, Siri, call dad,” or whatever. But yeah, we do see that evolving as the voice assistant evolves as well.

Luke Pearce:

So at the moment, it’s very much a kind of a command-and-control initiative so it stays kind of silent until you activate it, but it needs to get to that next level whereas actually interjecting with conversational and kind of interesting kind of points as well. So absolutely, we do see it as the future. Although, there are some barriers at the moment in terms of kind of consumer adoption. Getting that user experience right is a bit tricky. And Dave, this kind of comes back to your point about how consumer behavior usage is kind of changing and what’s socially acceptable or not.

Luke Pearce:

And is going outside when you’re on the walkabout speaking to a voice assistant out loud? Is that socially acceptable? Particularly in some countries in Asia like in Japan, for instance, speaking to the voice assistant out loud is just not the darn thing. So we do need to kind of look at and experiment how we act with these voice assistants whether that is kind of wake word or push to talk, we do have that kind of split and increasingly wake word is coming into these devices. But there are some other kind of interesting ones on the horizon to guest your controls, for instance, are some of-

Dave Kemp:

Yeah, Bragi gesture controls.

Andy Bellavia:

So if I just repeat backward, I think you said you think there’s two keys for widespread voice adoption in mobile. One is cultural, when does it become culturally acceptable to be talking to a voice assistant out loud? And the other is taking advantage of the mobile use case, what am I doing and where am I at while I’m doing it? Is that correct?

Luke Pearce:

Yeah, absolutely, so that voice assistant has got to evolve as well as the society. But we do think both of those things will happen and we’ve got the foundations in place now very much so with consumers owning these devices with voice assistants. So it’s just a case of waiting for some of the big kind of companies to figure out these challenges and how we then approach them to make this much more a future initiative.

Dave Kemp:

Yeah, I think that’s a great point because I think that you’re right. I think that ultimately, with voice in particular, given my passion for it, and following it along and being really immersed in that space, it’s all going to be contingent on the evolution of that space too. I mean, these are two disparate but also, I think deeply connected areas that are really early on in their development cycles. And I mean, there’s still a lot of major fundamental things that the voice assistant space is working out. A lot of the things that are happening in that space right now are actually extremely encouraging from a true, like the fundamentals, like the plumbing, the infrastructure, the NLP is getting significantly better.

Dave Kemp:

A lot of the things that I think are the pain points today that you speak to Siri or Alexa and you get, “I’m sorry, I didn’t understand that.” That’s going down and that’s going to become necessary because all it takes is one or two bad experiences and you revert back to the current incumbent modality which is usually just the mobile tap, touch and swipe interface. But I do think that there’s a lot of promise to this. Andy can speak to it more than anyone with walking around with these connected hearing aids that are borderline invisible. I think that his experience is very, very representative of where things are kind of going broadly speaking. And so, I do think that as that space matures, it will make more and more sense for the on the go use cases that will probably be spawned from that.

Dave Kemp:

And not to mention, I mean, I think that a lot of what we see today is just more or less voice user interface, which is a really important facet of it, but we’ve very, very barely begun to scratch the surface on the conversational assistant element, the proactivity that’s the dream of it where you really are being fed contextual type notifications and information that’s derived from the sensors, from the information that you’ve shared with your assistant, the things that will actually make it a true “assistant.”

Dave Kemp:

And so, there’s a lot of promise there, I think, that we’re going to see as this all evolves but it is something that I think is constantly needed to be reminded of is that it’s early, and because of that, expectations shouldn’t be sky high right now. And I think most people are there. I think most people recognize that it’s kind of not fully baked out quite yet. So I’m hopeful for what’s coming in that space but I do think that where we’re at now, we’re only beginning to see the kind of the connection between the two.

Andy Bellavia:

Yeah, definitely agree. And I actually have another question for Luke on another area of the hearable space that seems to be now taking off very, very rapidly and that’s the hearing enhancement in hearables. I mean, we’ve talked about this for years, Dave, but then all of a sudden you have Apple adding the accommodations to AirPods Pro, you have Jacoti, hearing health software algorithm company inking a deal with Qualcomm. You have Nuheara making a three-year supply agreement with Hewlett Packard for what clearly looks like a professional communications device with both ANC and hearing assistance built into it, from what I can tell today. How rapidly do you see that growing and how do you see that affecting you overall hearing health space?

Luke Pearce:

Oh yeah, that’s a great question, and something that I know this podcast focuses on a lot, and it’s an area which we find extremely fascinating and are following very much. And the Hearables Report absolutely looks into this dynamic, and the kind of overlap with OTC and regulation changes and hearing aids as well. So this is something we’re definitely looking at. So yeah, conversational enhancement, as we would call it, so we do at the moment see it very much being a feature of an existing kind of hearable. So some like kind of Nuheara, for instance, a very much that is kind of the core USP of their hearable devices, this kind of conversation enhancement feature.

Luke Pearce:

But absolutely, we’ve seen like you’ve mentioned Qualcomm and Jacoti partnership, we’ll expect probably to see hopefully some products kind of leveraging this technology, probably looking maybe hopefully this year or into next year, we’d expect to see some products on the market. Qualcomm, SOC are in a number of products and well-known brands, so whether they make use of that is yet to be seen but we all know that this is a particularly interesting area, one that is a unique selling point and an additional feature that consumers probably will want.

Luke Pearce:

So we actually ask consumers about a conversational enhancement in an earphone of the future in our research to see what would consumers already think of this. Is this just going to be something that might be a novelty? But absolutely 61% of the consumers that we asked, which are kind of headphone owners, said that conversation or enhancement was appealing or very appealing. And actually, that was the number one out of all the potential features we asked about. We asked about kind of translation, and heart rate monitors, and sleep tracking and this kind of thing, but conversation enhancement was number one where consumers found the most kind of interest in them appealing us in that kind of product as well. So absolutely, we think this, over the next couple of years, will start to become a feature but also maybe even more than that as well.

Andy Bellavia:

Yeah, 60% is amazing, in the State of Play report it was only 40 and even 40 made me step back and go, “Wow.” I mean, from my point of view, I think the prospects of really at the mild or moderate and of hearing loss getting far greater rates of adoption is huge. And we haven’t even talked about third-world countries because in developing nations, people need to have access to audiological services or can afford a full hearing solution. So even a solution that’s 70% in a case like that is really a life changer.

Andy Bellavia:

So it’s all very exciting. And the fact that you see 60% of people in your survey wanting that is a feature in the future. I think, really says a lot about where hearing health is going and how it will help change the game across all levels of hearing loss. Because I would expect that people who adopt a hearable solution walk around with something in their ears, enjoy the benefits of conversational enhancement, will find it that much easier to step up to a full hearing aid should they need it later on.

Luke Pearce:

No, absolutely, we do see hearables with kind of conversation enhancement features as that first step into the hearing aid market for many, and this is obviously something you discuss on your podcast quite a lot. But that journey to actually getting a hearing aid is a very difficult journey at the moment as it stands and absolutely hearables with conversational enhancement will firstly help consumers to recognize that actually they may have a problem and they didn’t realize they had a problem in the first place with things like hearing tests, improving kind of what their actual labels to hear in a social scenario, so definitely that kind of first step into the market. Unlikely to cross over directly with perhaps hearing aid sales as much, we still see hearing aids as very much kind of regulated medical devices. And we don’t necessarily see that stepping over, certainly, it will be a first step into that realm of hearing health and then they may do something after that as well.

Dave Kemp:

I want to read a line from your executive summary that I think speaks to this, that I thought was really interesting, I want to talk about it a little bit because it piggybacks right off of what you were just saying right there, Luke. “Due to strict requirements for medical certification, Futuresource does not consider the regulations as an open invitation for consumer electronic vendors to flood the OTC market with true wireless products offering hearing correction features. It is more likely that both new investment back startups and traditional hearing aid vendors will release products into this segment, utilizing new brands that both appeal to consumers in which do not diminish their existing high-end hearing healthcare business and audiologist channels.”

Dave Kemp:

So there’s a couple of things that are really, really interesting. First of all, you say in there that it will likely come from investment back startups. So Whisper.ai is something that comes to my mind there, really interesting new product, Eargo, another really interesting product. Ear and traditional hearing aid vendors will release products into the segment. So immediately the thing that jumps out in my mind is what, I think it was Signia, just released.

Dave Kemp:

So I mean, this is where things, I think, are getting really, really interesting is that in my world, in the world of hearing healthcare and in this industry, I think that there was a misnomer about what the OTC market was going to comprise of. I think a lot of people just thought, “Oh gosh, here comes all these consumer electronic companies.” And not a lot of thought of like, “Well, what happens if it’s actually the hearing aid companies?” And I think that’s what we’re ultimately going to see.

Dave Kemp:

I think that the Signia product that looks like a pair of earbuds, and you could also probably attribute the Phonak Virto Black that look like earbuds, this is a lot of what Andy and I have been talking about, which is this blending of hearables and hearing aids. And kind of this idea where it’s not necessarily to say that the high-end part of the market, the people that have severe to profound hearing loss, it’s not really who we’re talking about here. We’re talking about this untapped portion of the other half of the spectrum, the moderate to mild that hasn’t really been tapped into yet. I think it started with these, whether it be AirPods and some of the corrective features there and just exposing people to like, “Oh gosh, this exists.”

Dave Kemp:

I mean, it’s not surprising to me that we keep seeing this market research that keeps indicating that more and more people are open to this idea of conversational enhancement, hearing enhancement, whatever you call it, because you have more and more people that are now being exposed from these mass-market products. And I think that’s an extremely exciting prospect because for once we now have a potential solution to solving the problem that has plagued the hearing loss industry for so long, which is, it takes so long to get people to accept the fact that they have this hearing loss and treated. And the problem is we had been trained to fit a square peg in a round hole. Like here are a pair of hearing aids and people say, “I’m not ready for that. I don’t want that.”

Dave Kemp:

And so, where we are now is the most exciting point in terms of treating hearing loss at scale because we have much, much more appropriate products for people, and not to mention, they’re coming from the companies that built the hearing aids. So it’s not as if it’s some consumer electronic company that doesn’t have the interest of the patient in mind or anything like that, I mean, these are very much audiology-oriented products that are just repurposed for that half of the spectrum.

Dave Kemp:

And I think that one of the most exciting things about this whole hearable space right now is the things are kind of shaping up right now, I think, for us in the next few years, we’ve talked about it a bunch, Andy, but I think the stigma of hearing aids and treating your hearing loss is like it is up against the ropes and it is about to be knocked out.

Andy Bellavia:

I really hope so. And I’ll use my own experience, I mean, I fulfilled the requisite seven years before finally dealing with it, and it’s a terrible mistake, actually, it really, really is. And you think about now, we’re all much more aware of social isolation and what it is doing to us. Why would you want to voluntarily accept that? I mean, I remember when I first got them, I couldn’t wait. I got them on a Thursday and I said to my wife, I said, “Tomorrow, we’re going to our favorite watering hole.” Which is a place that has like 100 beers on tap, is insanely loud. And we went there on Friday night and I didn’t even realize that I was sitting back comfortably in my chair, we were talking like this, and she goes, “Those things must be working, you are far more relaxed than you ever were.” I mean, tears started coming down eyes.

Andy Bellavia:

I mean, I would usually have to lean across the table to hear what you were saying in that environment. Why do you want to do that to yourself? And so, if that stigma barrier can be broken down so that people will seamlessly roll into the hearing health solution that they need when they need it, everybody benefits, that person benefits tremendously rather than waiting all the years of solely going down that isolation curve before they deal with it, it’s very, very exciting.

Luke Pearce:

Yeah, absolutely, and that’s great to hear your experience there and the personal experience as well. Yeah, I mean, anything that happens in this space is good for everybody. I mean, we’ve mentioned some of the hearing aid vendors, I think they are becoming more open to the idea. For the report where we spoke to a lot of the vendors, some were a bit more concerned than others. But generally, hearing aid vendors should embrace this really, it’s an opportunity for everybody as well. So yeah, we certainly do see that pathway for consumers to be easier now to hearing healthcare

Luke Pearce:

. So kind of starting with a hearable, perhaps with kind of conversation enhancement, then maybe moving to an OTC hearing aid device that looks quite similar to their hearable device, has similar features, a bit more emphasis on the kind of conversational enhancements and the kind of hearing health, and then eventually stepping over into a hearing aid as well which will really kind of help that hearing loss.

Andy Bellavia:

Yeah, there’s one other area of the hearables growth that we haven’t touched on yet, and that’s biometrics. I mean, there’s a lot of conflicting opinions on just when biometrics will become a major feature of hearables and exactly how those biometrics will be used. What’s your thinking on that, Luke?

Luke Pearce:

Yeah, absolutely, biometrics, I mean, it’s not new, is it necessarily? I mean, biometrics, heart rate sensors have been able to be in a kind of headphones and any ear devices for a few years now. And those particular models in the word extraordinary and are just kind of small growth. But biometrics is certainly an interesting area and we’ve got the kind of sensors and the capabilities now to do that. There are still a few hurdles, as you mentioned, kind of battery life and fitting those features in already is difficult. But as we mentioned here, we are improving on battery life and able to put in those kind of new features as well.

Luke Pearce:

But with biometrics, I think, again, coming back to that kind of consumer viewpoint as to actually changing the behavior, at the moment, monitoring your heart rate on a headphone device is okay but it needs to be giving some accurate, not just accurate insights but also some really kind of meaningful insights. Okay, it’s great to know my heart rate is 167 beats per minute when I did a run, but really, what it needs to tell you is monitoring that over time, telling you if there’s any kind of deviations, if there’s anything wrong, if using kind of other metrics to say, “Actually, you’re quite stressed when you do this, maybe you should change this or change your diet.”

Luke Pearce:

So absolutely, we do see it as future potential for biometric sensors but it’s a lot to do with how we use that data and the software that goes behind that which is probably something that can only really come from a really big player with those kinds of software capabilities, I think. But absolutely, we do see it as something to hopefully kind of come into these products in the next few years.

Andy Bellavia:

Yeah, I kind of want to get your feel for when you actually think all the pieces will come together so that you can have intelligent use of biometrics.

Luke Pearce:

Yeah, I mean, we’re not too far off, I think, the capabilities-wise, we’re probably pretty close now. To be fair, we may even have products in development at the moment that do have some kind of sensors and that software behind them ready to be launched. And it’s probably only in the hands of maybe a couple of big players, and Apple are obviously one of the first ones to name. And Google as well with kind of the acquisition of Fitbit do have that that kind of capability. So we could see these products within the next year or two, it could be as early as that. So it’s very much in the hands of these players as to when they decide the market timing is right, whether they decide to need to.

Luke Pearce:

But the thing is Apple is particularly doing very well in the headphones and true wireless market as it is, they’re still the market leader, they’re still performing very well in terms of kind of [inaudible 00:47:06]. I’m sure they could take it up to another level but do they really need to right now? Perhaps, we’ll see. But yeah, I definitely think maybe within the next two years, we’ll definitely start to see the first kind of brands releasing these products, experimenting with them, managing how that relationship works with other products such as a wrist wearable, kind of seeing how that relationship between those two products might interact with a different kind of sensors on each device as well.

Dave Kemp:

I think that one of the things about biometrics is that it’s just like what you said, Luke, it’s not enough to just say, “Here’s this data, you had a heart rate that was at 175 beats per minute or whatever.” And that’s actually something that I think it’s finally being cracked. These new generation wearable companies, WHOOP, or Eight Sleep, Levels, all these different companies, they figured it out because what it is is it’s capturing the data accurately, which is something that I think the first generation landed itself to, I think we basically got to the point to where all the different sensors were capable of capturing the right insights but then you had to come up with a way to visualize that data in a meaningful way.

Dave Kemp:

And I think the pandemic was another really good example of what can be done in this instance and where things might ultimately go here. A lot of what interests me about biometrics is preventative health. And when we think about the patient demographic that wears hearing aids and because of the power capabilities of a hearing aid, I think that might be the first real in that year form factor that we see that has a lot of these sophisticated biometrics.

Dave Kemp:

And so, I think that what we’ll have to really see from this space will have to be something along those lines of capturing the information and then providing meaningful insights into whether it be what Starkey is doing is really, really interesting around kind of like the whole overall thrive score which is a combination of kind of like a rudimentary Fitbit data combined with the acoustic data of the hearing aid. So it gives you a cognitive score, which is really interesting when you think about it because it’s like how much did you engage in conversation? And all these different things that we know are really important as you age for warding off things like cognitive decline and things like that.

Dave Kemp:

So I think that much of what’s going to happen in this space, it will have to be really thoughtfully done in such a way where it’s not enough to just say, “We’re going to put a PPG sensor or whatever kind of sensor into this device,” and then wash your hands of it, you’re going to have to take it a step further into making sense of what that data means.

Dave Kemp:

And so, I think that there are a lot of really exciting possibilities here. I look at the WhOOP company, the insights that they provide are brilliant, they’re very actionable things. Like if I drink before I go to bed, I’m going to have a terrible sleep score, and I can see that the next day, and therefore that encourages a behavioral change. The same might be done with these in-the-year devices where you can see meaningful behaviors that are happening, whether they’re positive or negative, that might ultimately encourage you to live a little bit differently. And so, that’s where I think this is going to have to really take shape is, I think we’re getting closer and closer to the point where it’s feasible from a technical standpoint but it’s going to have to be compelling for the users for them to actually care about the functionality.

Luke Pearce:

Yeah, I mean, in terms of kind of when we look at risk-based wearables, we do see some interesting things in terms of kind of life insurance policies and that kind of thing being linked to wearables giving an actual financial kind of discount depending on how healthy you are based on. And you can change that by changing your behavior by being more active, by being more healthy. And kind of you obviously do get into a few kind of moral problems when we go down this route, but absolutely, linking kind of fitness, and health and biometrics with some other incentive towards the change behavior is certainly, I think, the kind of way forward.

Andy Bellavia:

Yeah, it’s interesting, I’ve had a couple of conversations with a person named Frank Fitzpatrick who’s exploring exactly those topics and in particular, how hearable devices can gauge a person’s emotional state and use that as a lifestyle improvement or enhancement device. And even potential applications for people who have emotional or behavioral issues and who are on behavioral plans, how you can actually have an interactive device that can help address your emotional state and alleviate unproductive emotional states. And here he’s talking about not only the biometric, but also a voice analysis and so on, it’s really an intriguing area and something that’s probably worth discussing further at some point.

Luke Pearce:

Yeah, I mean, I was surprised when Amazon released the Amazon Halo because I think they also have that, but actually they placed the microphones in the wrist which I found interesting. I thought you have the echo buds; you should have put the microphone in the ear where we have lots of microphones as well. So absolutely, using microphones to detect those emotions and how your soundings of people in the morning might be perhaps a bit aggressive or a bit moody, and then you can actually kind of change that. So actually, having those microphones on the ear where they already are is probably the better way to go, yeah.

Andy Bellavia:

Yeah, of course, the second half of this podcast will be about the privacy implications of all these which is certainly something that will have to be thought through at some point. When you start gauging emotional states, that really strikes a nerve in a lot of people. We’ll definitely going to need to talk about data transparency when we get there.

Dave Kemp:

Yeah, I mean, it’s going to be a big quagmire of a lot of ethical questions that will come from this because what’s happening is, we’re getting more and more granular and personal data that can be accessed by these things and there’s so many questions about who holds what and all that. And like you said, it would require a full-on discussion for that. And it’s something that I know we’ve talked about before. We need to have it. I need to get somebody that’s a really good expert to be on for this.

Dave Kemp:

But I do think that when you think about the big future use cases of in-the-ear devices, and I’ve always thought that two of the big ones will be biometrics and voice assistants, and I actually think those two are going to be very deeply interlinked because I think that a lot of that data and a lot of the actionable insight from that data will actually be communicated to you through your voice assistant. I think that it will be something where you’ll have this set of data that’s captured through that type of device or maybe it’s going to be an ecosystem of devices worn on your wrist, your ears, wherever, and then the challenge is always going to be, “Well, what am I looking at?” And that’s where the big value I think is going to come from is whoever can crack this and come up with the things that you can take meaningful action on are going to be the things that I think will resonate with people.

Dave Kemp:

So I think that what’s exciting with technology broadly speaking right now is that wearables as a whole are really growing up, they’re way beyond just these glorified pedometers into now driving meaningful change for a lot of different people and it’s only increasing. I think now people are really understanding that these new generations of wearables are not like the first generation of the Fitbit. So I think there’s a lot to be excited for there. And like I said, I mean, you start to think about the different segments that you can apply this type of data to, and who better than our aging population who already might be at risk for a lot of these different things?

Dave Kemp:

And if you can communicate the Thrive Care portion of the Thrive app with Starkey, I thought that was really exciting too where it actually allows for you as the caregiver to get access to that data. And you can see, okay, my mom or my grandmother, whoever it is that I’m caring for, I can see all their data. They’re not going outside of their house. They’re not engaging in any conversations throughout the day. And therefore, it provides a little bit more clarity and insight that way too. So I just think that there’s so much here that can be done. The onus is going to be on data visualization and data output more or less coming up with ways that you can make sense of all this in action on it.

Dave Kemp:

Okay, well, this has been an awesome chat guys, I know that we’re coming up here on the end. So as we sort of wrap, what are we thinking for the remainder of 2021? I know that this is exciting times right now. Like we said at the top, we’ve moved beyond the phase of will hearables really cement themselves as a mainstay? And I know in the data here that it’s projected that by 2024, about a fourth of all smartphone users will have a hearable. And so, there’s tons of growth potential. But for this year, Luke, what’s on your mind as to what we might expect and maybe leave us with one surprising thing that you think could happen this year.

Luke Pearce:

Sure, okay, so as you mentioned, it will just continue to growing so much this year, there’s no doubt that growth slowing it’s completely still in its very early phases even though we’re seeing such big numbers. So as you mentioned here, almost one in four in 2024, and even that could be seen as maybe even conservative, there’s still so much potential. But this year, will it be a case of incremental innovation or large-scale innovation? That’s the kind of real question.

Luke Pearce:

In terms of incremental innovation, we’ll definitely see these devices becoming better with the things we’re using them for. So we’ll see lots of improvements in microphone quality. We’ll see lots of development in terms of kind of device switching, so being able to switch from smartphones, to laptops to other products a lot better on Android and other products as well. Spatial audio, I do think we’ll see more of that in true wireless and hearable devices as we spoke about today and kind of enhancing all those kinds of use cases that we’re already seeing.

Luke Pearce:

But hopefully, for the end of this year, we will hopefully see the first steps into the market for some of the things we’ve been talking about today. And I do think that 2021 could be the year, at least by the end of the year, when some of these features in these products might become available. So conversation enhancement features and biometric sensors, I think we could start to see some products at the end of this year incorporate those kinds of exciting things we’re talking about.

Andy Bellavia:

I’m very much in line with Luke, I feel this is going to be a transition year. You see, so many things are happening on the hardware side so that at the end of the year, things are going to look so much different than in the beginning. I mean, we had no scope, we’re working on more output with good sound quality for smaller size out of our bass, improving the quality of the microphones. You have the SOC providers driving the chip power consumption down. You have Bluetooth 5.2 coming with its audio codec with higher streaming quality. So all of these things are going to make that triad of long-life, quality sound, comfortable wear really come to fruition over the course of his year.

Andy Bellavia:

And now having put a device like that in your ears by the end of 2021, now you’re really going to see the use cases explode like voice, for example, like mass adoption of hearing assistance, for example, because the hardware issues will start to be behind us and we’ll have devices that people will really want to and are capable of wearing for long periods of time.

Dave Kemp:

Well said gents, well, I think this has been an awesome conversation, really enjoyed this. Luke, thanks so much for coming on and sharing all this awesome market research. So before we wrap up, Luke, tell us a little bit about where we can go read more about this, where we can access the report and just learn more about this whole space that Futuresource is covering.

Luke Pearce:

So yeah, thanks very much Dave and Andy for having me on the podcast. I love talking about all these things, this is what I do every day so it’s been great to chat about you guys who are very informed about this market. So yeah, the Hearables Report was published just a couple of months ago, really focuses on the growth of hearables, the competitive landscape, some of the feature and price development that we’ve spoken about today, particularly with a focus on that conversation enhancement feature, the OTC and hearing aid, as well as peace app space. So head over to futuresource-consulting.com to find out about more of our reports which we do at a number of different areas for headphones and hearables.

Dave Kemp:

Awesome, thank you. And Andy, where can we go to connect with you?

Andy Bellavia:

You can reach me on LinkedIn under Andrew Bellavia or on Twitter at AndyB_Knowles, and I look forward to connecting with people.

Dave Kemp:

That’s awesome. Well, thank you two so much, it’s been an awesome conversation. Luke, we’ll definitely need to get you back on the podcast at some point, continue the conversation. So thanks for everybody who tuned in here to the end and we will chat with you next time, cheers.

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