Sonos redesigns its app and enables a subscription model.
Sonos is facing a decline in its revenue for the second consecutive year and needs to balance its accounts. Could a strategy that has become common in the hardware industry be the solution?
Sonos has faced a challenging half-year following the problematic implementation of its new control app. The company has tried to restore its reputation by offering belated apologies, temporarily suspending some products, and allocating resources to resolve issues with the app, which is still not fully finalized.
Recently, Sonos published its revenue for fiscal year 2024, which was not encouraging. The company reported an 8% decline in revenue compared to the previous year, with the fourth quarter being particularly difficult, seeing a drop of 16%. Although the company attempted to downplay the impact of its mistakes by attributing them to "lower demand due to market conditions," it ultimately acknowledged that challenges related to the recent app update also significantly influenced the results.
This marks the second consecutive year that Sonos has experienced a decline in revenues, having fallen by 5.5% in 2023, despite two rounds of layoffs. CEO Patrick Spence described the year as "challenging." In the latest earnings call, investors noted that Sonos only managed to add 1 million new users during the year, the lowest figure in the past decade. While the number of speakers per household increased from 3.05 to 3.08, the question remains how Sonos will generate revenue in a seemingly saturated market.
As Sonos seeks to recover, it wouldn't be unusual for the company to explore a subscription model to stay afloat. Established brands like GoPro have successfully adopted this approach. GoPro, which introduced a subscription model in 2016 in response to declining sales, has seen its subscriber base grow from 160,000 to 2.56 million by November 2024. Although its total revenue has decreased, recurring subscription revenue has increased by 11%. Similarly, video game console manufacturers have also capitalized on subscription models, as evidenced by the success of Xbox Game Pass.
Within the smart product ecosystem, the trend towards subscription models has also increased. Automotive companies like Mercedes-Benz and Tesla offer subscriptions for access to additional features. For this reason, it would make sense for Sonos to consider expanding its current Sonos Radio HD service, which provides an enhanced experience compared to its free option.
However, community forums raise concerns about a possible shift towards a subscription model, especially given the radical change in its app architecture. The new app operates through the cloud, which could allow Sonos to better control its ecosystem. A developer known in the Sonos community has criticized this decision, pointing out that the simultaneous change in the backend and frontend was an unusual engineering choice.
Former employees have also expressed skepticism about the direction of app development, questioning the extensive resource allocation for a product that does not generate direct revenue, although they acknowledge there could be plans related to a subscription model. Despite a negative statement from Sonos regarding the implementation of such a model, speculation among users persists.
Sonos hopes to get back on track and launch promised products in 2025, which represents a risk that could prove profitable. Throughout its more than 20 years of history, the company has learned that sustainable growth may require exploring new markets or business models, such as subscriptions, to adapt to a constantly changing world. The recent redesign of its app could open the door to this possibility, becoming a bold change that could alter its financial trajectory.
