November 13, 2006

Stereo System for the Digital Age

By Allison Bruce, Ventura County Star, Calif.

Nov. 12--Sonos Inc. came out of near obscurity in 2004 to launch what its leaders think is the beginning of a new way of enjoying music at home.

The Santa Barbara company's products began to gain attention last year, mostly from high-tech audiophiles and people seeking high-end sound systems.

Sonos now is poised to make its mark with mainstream customers.

That's not to say the firm is moving away from its core group of 35- to 55-year-old men who love music. Sonos is just hoping to help music buffs sitting on a stack of CDs move into the digital age with as little pain as possible.

"We're a small company," said Mieko Kusano, director of product management. "People in the industry know about us -- nobody else does. We have a bit of a TiVo problem. You have to experience the product to know what it does for you."

Sonos brings wireless multiroom audio into the home. There is no need for running wires through walls to complete a surround-sound system. Instead, speakers can be plugged into the Sonos players, boxes that receive a signal and play music.

People who already have a wired system in place can pair it with Sonos' zone players to tie in with the rest of the home, plus have easy play selection with Sonos' controller.

Often likened to an iPod, the Sonos controller is rectangular and fits comfortably in two hands. The controller can be used to select "zones" -- areas of the home with Sonos players hooked to speakers -- and then select music to be played. The same song can be piped into the living room, bedroom and kitchen simultaneously or different songs can play in each zone.

The system can be configured for up to 32 zones, though average homes have about three or more. Factors such as where someone lives, the size of a home and household income influence just how many players they have.

Some people in Santa Barbara have 20 to 25 zones, said Craig Shelburne, Sonos' chief financial officer.

The company is hoping to gain even more customers from an innovation that provides users more options.

Because the system uses digital music, users must plug the Sonos system into their computers to access music ripped from their CDs or MP3s purchased online.

And about a year ago, the company struck a deal with RealNetworks to play music from the Rhapsody subscription music service.

In September, a software upgrade took the computer out of the equation.

Users can plug their Sonos system directly into the home's broadband router and access the Rhapsody service through the controller.

It means not having to keep the computer on all the time to play the music. For a monthly fee of $9.99, users can plug into Rhapsody's huge music database. Or people can continue to listen to their home music libraries off their computers.

Shelburne, who has had Rhapsody for about three years, said that's basically all he listens to anymore.

"I have my whole library replicated on Rhapsody," he said.

Michael Gartenberg, a senior analyst with JupiterResearch, said there is definitely a market for Sonos among music lovers who have large collections or are drawn to the subscription service.

"For it to go mainstream, someone has to explain subscription services to consumers," Gartenberg said.

While something like iTunes lets people buy a song, which is then downloaded to their hard drives, a subscription service lets users create "libraries" of music.

Basically, libraries are online archives. Subscription service users can include all of the music in their CD collections. It also gives them access to any music they care to hear -- virtually expanding their collection to a wealth of music they might not have heard otherwise.

That opens up new opportunities for discovering or rediscovering music.

People are more adventurous about listening to new music when using a subscription service, RealNetworks PR manager Rhonda Scott said.

"They're not penalized if they only like one or two songs on an album," she said.

The thinking is people kicking back in their living rooms with a Sonos controller might be more inclined to explore than they would sitting at their computers.

In fact, Sonos owners have different usage patterns than other Rhapsody users.

Sonos users access the service about five times more often than the average subscriber, said Robert Williams, RealNetwork's vice president of music software.

They use Rhapsody the most on weekends, with Saturday outweighing Sunday use. During the week, the peak period is in the evening.

In contrast, traditional Rhapsody subscribers pick up in the morning, slump at lunch and return in the evening.

Many Rhapsody listeners tap into the service during daytime work hours.

Williams calls Sonos' products the "killer app" for getting music off of the computer and into a more natural listening environment.

Sonos users are almost evangelical in their praise of the company's products.

Santa Barbaran Sam Chesluk is a friend of Mike Zapata, Sonos' direct sales manager. He discovered the system by playing with it at Zapata's home.

"It's an entertainment piece in and of itself," Chesluk said. "I was just enthralled with the thing."

He and his wife incorporated a five-zone Sonos system into their home. Though he had converted his entire CD collection to digital music, Chesluk said the Rhapsody service is really all he uses anymore, especially now that it's even easier to access without having to turn on his computer.

Chesluk explains that he was the guy who would buy a new CD and then keep it in the player, listening to it over and over until he was sick of it.

"I find this so refreshing," he said of Rhapsody. "There's constantly new music."

Of all of the elements in his oceanfront home, Chesluk said the Sonos system is the big conversation piece when people come over.

"It's that cool and that easy to use," he said. "It kind of evangelizes for itself. People end up fighting over who gets to have control of the handheld."

Even analyst Gartenberg has tried it.

"They've done a really great job of making the system easy to use," he said. "The out-of-the-box experience is top notch."

The key will be getting the prices down to something that will appeal to the mass market, he said.

The complaint that comes up occasionally on blogs and message boards is that the price is still out of reach for some. Over time, Sonos expects that its systems will become more affordable, Shelburne said.

He added that a multiroom audio system is cheaper with Sonos because wired systems cost thousands of dollars to install.

In the future, Sonos might look at providing a system that handles video feeds as well.

"We have a belief the system we developed is the right system for digital music for the future," Shelburne said. "We have the people and resources to take this and make it the stereo of the future for the home."

Kusano puts it another way: "What iPod did to the Walkman, we want to do to stereos in the home."





--History: The company started out of a tiny office over a Mexican restaurant in Santa Barbara in 2002. It is now headquartered in a U-shaped building in downtown Santa Barbara.

--Employees: About 50 in Santa Barbara, with about 40 more at offices in Cambridge, Mass., and Europe.

--Products: ZonePlayer with amp, $499; ZonePlayer without amp, $349; controller for wireless players and speakers, $399. A bundle with two ampless ZonePlayers and a controller, $999.

--Awards: Sonos has won numerous awards. The most recent was the Wall Street Journal's Technology Innovation award for consumer electronics.

--Operations: A privately held company, Sonos officials don't give out much in the way of numbers. Chief Financial Officer Craig Shelburne said Sonos has sold units numbering in the "high tens of thousands" and moving toward the hundreds of thousands. It has customers in the tens of thousands.


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