Sonos/Google: patent trap
Speaker maker’s market valuation reflects concern about competition from well-funded rivals
Sonos will approve of the new openness from Google’s parent Alphabet in this week’s earnings release, and will want more of that. The California-based speaker maker’s claim that Google copied its patented music synchronisation system is a bold one. As well as suing Google, it has filed a complaint with the International Trade Commission and is gunning for a ban on US sales of Google speakers. Sonos chief executive Patrick Spence last month testified before a congressional antitrust subcommittee.
Sonos claims to have suffered market share losses. Yet at first glance it does not seem to be doing too badly. In the last quarter it generated $294m in revenue, up 8 per cent from last year. A deal with Swedish furniture maker Ikea to make more accessible products has helped boost sales.
But the smart-speaker market is growing more quickly than Sonos earnings might suggest. Google is estimated to ship four times as many speakers as Sonos. Amazon even more. Both sell speakers at low prices to funnel users on to voice-controlled platforms that feed into the wider business. Sonos’s market valuation reflects growing concerns about the competition from well-funded rivals. Shares trade 6 per cent below the listing price of $15. Valued on an enterprise value-to-revenue multiple, Sonos has fallen from two times to one since listing in 2018.
Any start-up that has found itself up against one of Silicon Valley’s biggest companies will be cheering on Sonos. But patent rules created in a pre-software age tend to mean lengthy and expensive lawsuits. Qualcomm and Apple were locked in a patent fight for years before settling earlier this year. According to Lex Machina, a legal analytics company, there were 3,657 patent cases filed in 2018 — the lowest since 2011, which may be linked to the high costs involved. Google parent Alphabet has $121bn in cash to hand. Sonos has less than $340m.
Google denies the accusation. But Washington’s interest should give the company pause. The alternative view is that Sonos wants big tech companies to enable simultaneous support for their voice assistants on Sonos hardware. A negotiated settlement may be the answer.