Apple: the Biggest Winner From Removing the Headphone Jack

If you take Apple’s word for it, removing the headphone jack from the iPhone 7 was a pure expression of its desire for technological progress. “Some people have asked why we would remove the analog headphone jack from the iPhone,” Phil Schiller, Apple’s marketing chief, said yesterday. “It really comes down to one word: courage. The courage to move on to do something new that betters all of us.”

Already Apple’s defenders have been echoing that sentiment. The headphone jack is century-old technology — why not get rid of it the same way Apple killed the CD drive and Ethernet port on laptops? After all, this is just another connector that can be replaced by something wireless.

But there were clear and tangible benefits to those changes (namely, much thinner and lighter laptops), whereas this change comes littered with downsides. Most headphones in existence are incompatible. You can’t charge the phone and listen to wired headphones at the same time. And if you do want to use old headphones, you need to keep a small adapter handy. And that’s just to name a few of the many drawbacks.

The benefits, on the other hand, are surprisingly few. Removing the headphone jack frees up a small amount of space inside the iPhone. And while it’s true that audio over Lightningcan produce a higher sound quality, that’s been an option on iPhones for years — now Apple is just forcing everyone into choosing it. There’s no actual improvement to sound in the iPhone 7.

While it’s tough to make the case that dropping the headphone jack is better for consumers, the benefits for Apple are much easier to see. The iPhone 7 will be bought by tens of millions of people during the next few months alone, and its lack of a headphone jack is going to make many of them consider buying Lightning or Bluetooth headphones. Apple profits from both.

Any company that wants to make a pair of Lightning headphones has to go through Apple’s licensing program. Though its fees are kept a secret, past reports have indicated that Apple charges a flat fee for every device sold using one of its connectors. So a bump in the likely low popularity of Lightning headphones is a win for Apple, since it’s getting a cut no matter who sells them. Apple did not respond to a request for comment on its licensing fees.

iPhone 7 and iPhone 7 Plus photos

And that’s just Lightning. More likely is that the lack of a headphone jack on the iPhone —and increasingly, on Android phones as well — will lead to an uptick in sales of Bluetooth headphones. And it just so happens that Apple owns the number one Bluetooth headphone company, Beats.

Beats brings in more revenue from Bluetooth headphones than LG, Bose, or Jaybird, according to NPD figures released in July. In terms of unit sales, it controls over a quarter of the Bluetooth headphone market.

Bluetooth headphones are also disproportionately profitable among headphones. NPD has them accounting for 54 percent of all dollars spent in the market, despite representing only 17 percent of units sold in the US. These headphones sell at high prices with high margins, and Apple’s company is making the best of it so far.

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Sales of Bluetooth headphones are already growing, with units up 64 percent year over year according to NPD’s US figures. And Apple’s removal of the headphone jack is likely to give them another boost.

“It certainly benefits the entire market because lots of people are using different brands of headphones with their iPhones,” says Ben Arnold, an industry analyst at NPD. “But I think it certainly benefits Beats the most as the market leader and being able to capitalize on marketing adjacencies at the Apple store and things like that.”

Not surprisingly, Apple is already prepared to do that. During its iPhone announcement on Wednesday, Apple introduced its first-ever pair of wireless headphones, called the AirPods. They sell for $159 (and seem to have the sound quality of the $29 EarPods they’re modeled after). Apple also gave some stage time to Beats, which announced three new sets of wireless headphones: the Solo 3 Wireless ($299.95), the Powerbeats 3 sport earbuds ($199.95), and a neck-wraparound called the Beats X ($149.95).

When Apple pulled the CD drive and Ethernet port from laptops, it started with one model: the first MacBook Air. It was overpriced, underpowered, and clearly meant for early adopters, designed to pave the way for a more interesting future a couple years down the road. This was a product that would only reach a niche market; Apple was just a minor player in laptops at the time — in seventh place, according to a 2008 report. That allowed for a quieter transition period, as CDs went away and the App Store came to life.

That’s far from the case this time around. Apple sets the standard when it comes to smartphones, and it’s pulling the headphone jack from its primary model and asking the masses to deal with it, without obvious reasons why.

No one’s saying that Apple is wrong about wireless being the future. But the notion that it needed to remove the headphone jack now, and in this way, to improve the iPhone isn’t credible. Apple is advancing a vision of computing that lets it capitalize further on a quickly growing market, bringing headphones more firmly within the company’s ecosystem. What killing the headphone jack really does is help Bluetooth headphone companies. That makes it a business decision, and not much more.


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