New Sonos CEO Patrick Spence on Taking the Reigns, Voice Activation and Meeting the Music Biz (Q&A)
A surprising changing of the guard as the smart speaker company adujusts to a changing market.
Last week Sonos' CEO and founder John MacFarlane, the smart speaker company's prime mover and force of personality, announced he was stepping down after 15 years of growing his business into a billion-dollar global brand. The sudden news came as a surprise to many in the music business.
The industry's support of Sonos products paralleled the company's (and streaming's) rise as MacFarlane personally cultivated many relationships within the business. Rick Rubin, WME Music's Marc Geiger, Giles Martin (the late George Martin's son], Hans Zimmer, Q-Tip and others became advisors and/or joined the company while the founder regularly met with top executives including the likes of UMG chairman Lucian Grainge. While Sonos Studios in Los Angeles and London supported artists and hosted performances, speakers seem to sprout up in many a music exec's office.
In a blog post on the company website entitled the "The Next Generation of Sonos Leadership," the now ex-chief executive wrote that as part of continually trying to "take Sonos to the next level" and "assessing his own role at the company" he had decided to pass the CEO baton to Patrick Spence, 42, a Toronto-native who joined Sonos in 2012 as its chief commercial officer after working for 14 years at RIM/BlackBerry. Spence's arrival comes at a pivotal time as the smart speaker market is undergoing dramatic changes with the rise of voice activation technology.
This led Sonos last spring to undergo a round of lay-offs and re-strategize. Since then, the Santa Barbara-based company announced last August it would be partnering with Amazon to integrate its systems with its popular Alexa platform. The company also opened its first retail store, in NYC, and announced (in Pusha T's presence) partnerships with China's QQ Music and Airbnb, West Elm and the Rough Trade store. The company has streamlined how Spotify controls the Sonos speakers and has similar plans for Pandora. Billboard caught up with Spence on the first day on the new job to get his take on the changing speaker market, his priorities for the new year and his relationship with the music business.
Billboard: Congratulations on being named CEO.
Patrick Spence: Thank you. It's an honor to try and follow in John's huge footsteps. He's one of the most selfless high-integrity people I've ever worked with and it's an honor to have him pass the mantle on to me
Last time Billboard interviewed John [MacFarlane] in March the company was undergoing a major pivot towards voice activation and went through a round of layoffs.
We went through a tough period in the middle of last year as we made the adjustment we needed to, but it's a testament to John and the entire team that we were able to make that turn quickly. I was on the leading edge of kind of ringing the alert about voice and the way it was changing listening in my own home. I got an Echo early on and saw the way my kids started interacting with it and the way I interacted to and I thought, "Wow, this is something that could really help in terms of creating a more enhanced music experience," and it was something we often talked about.
What are the advantages of voice activation?
You might have heard John talk about "Time to Music," which is about how quickly you're getting music playing in your house. Voice is an incredible way to do that. It's not like using the Sonos App or the Spotify App to control your Sonos speakers, you can't yet go deep in terms of building playlists and exploring new music and all the great stuff that comes from the music streaming services you get through the Sonos App, but it's a great way to get it playing, move the volume up and down and do the basic stuff.
How will Sonos move more towards voice activation in the future?
You saw us in August talk about the relationship with Amazon and the work that we're doing to bring that to Sonos and there's a whole lot more work ahead. The way I look at voice services is that they're a lot like music services: We were there from the beginning with music streaming services when there was only one service in the very early days starting with Rhapsody. We built from there and we've learned what it takes to integrate a variety of services into our speakers and our platform.
Did you ever consider bringing voice activation in-house?
There's a lot of people out there investing a lot of money in voice services area particularly when you think across mobile as well. Apple and Google are putting billions into this, Microsoft is with Cortana and Amazon with Alexa, so we think that it's smart to take advantage of that. You may see us add unique elements of Sonos into that mix, but just like we haven't tried to compete with Spotify we're not going to compete with Amazon or Google or Apple on voice service. But it's going to be a challenge for a lot of the more ecosystem-focused players, somebody like Google or Amazon or Apple, because they produce products that typically tie you into their service and don't provide a multi-service experience. We're in a really unique spot with voice right now.
How did 2016 compare with 2015, which MacFalane said drove a billion dollars in revenue?
It was good holiday season. We measure our business based on the number of new homes we are actually filling with music -- so I keep the team focused on that. For the holiday period, with no new products but driving what we did with the Spotify app integration and some great marketing, we were able to grow the number of new homes by 20% year-over-year. [That is] a great sign in terms of where we are and a really healthy sign in terms of growth in the music industry around the streaming side. It was a good quarter.
So if you were in 20 percent more homes last quarter, does that mean you were well over a billion dollars in revenue last year?
We don't typically disclose revenue... the number I was citing is the number of homes we fill with music.
We last reported that Sonos had eight rounds of funding totaling $320 million. Have there been any more rounds?
There's been no more rounds of funding and we are profitable and that's important. We're in good shape on that front and we don't need another round of funding for us to operate our business.
Your predecessor had in-depth relationships in the music business and high profile musicians, do you plan to continue those?
John's not going anywhere and I'm going to jump into those meetings with him as well and am looking forward to getting engaged. I'm going to spend more time being more externally oriented and try to understand what's happening in the ecosystem and the industry and bringing that back into Sonos in terms of what products we build and what services we support.
I see a lot of Sonos speakers in music executives' offices...
That's a testament to John as well as Giles Martin [the company's "sound experience leader"] and Thomas Meyer really connecting. We take our products before they're released to some of the folks in the industry. Rick [Rubin's] been up here often to check out our speakers and give feedback. And you still see a variety of different artists who might tweet when they get their new Sonos -- so that remains super important. We did a A Tribe Called Quest special edition speaker that came out in our New York City store with the launch of their new album which was pretty cool.
How do you think your vision differs from MacFarlane's?
I think you'll see us executing faster in terms of where we are and working together. One of the things I've been very very focused on is making sure the teams are aligned and together and figuring out where to go. What I bring to the table is my ability to bring this amazing team together around a shared vision and enable people to be able to go and create the magic around a variety of different things, like our software and the products we make. We are delighting the world with new stuff on a frequent basis. I'm really looking forward to doing that and making sure we're filling a lot more homes with music. It's going to be a new era. It takes something different at this stage for sure as we scale the company up. I had the good fortune of going through this at BlackBerry, the mobile phone company which went from 150 people and no revenue to 17,000 people and $20 billion in revenue and so I think i'm going to be able to help Sonos and the team here unlock a a lot of innovation.
Didn't BlackBerry lose the mobile phone wars in a big way? Were you there then?
Absolutely. I left there in 2012 just when it started to collapse
What did you learn from that experience?
That clarity and focus around the mission is really important and building a strong culture to make sure you're staying focused on what your customer needs as opposed to reacting to some of the other things happening in the eco-system or getting too caught up in what the competition is doing. And then making sure you're building, you're staying sharp and building a platform that allows you to innovate. At the end of the day it all boils down to the ability to innovate and to be consistently exceeding your customers' expectations
What is Sonos focused on for the new year?
Really there's three things: There's voice. There's streaming music and that's just exploding, you see that obviously in the U.S. with streaming revenue overtaking everything else and growing the industry again, which is awesome. And then the third thing is the push around the connected home. Meaning there's a lot more products around the home that will emit sound and we think they should be emitting sounds through Sonos.