Yesterday Apple introduced the iPhone 7, which now lacks a 3.5mm headphone jack, ending several months of speculation that Apple would remove the port from the phone. There are likely several reasons for this design change. Eliminating the headphone jack would make room for a slightly larger battery and taking a port out of the phone helps protect the phone against water and dust damage. Additionally, Apple and Beats each announced their own Bluetooth products yesterday, and while eliminating the headphone jack from the iPhone will likely boost demand for Bluetooth headphones of any brand, Beats and Apple will certainly benefit.
Stereo headphone sales have been migrating towards Bluetooth for the past few years, so the removal of the headphone jack isn’t quite as sudden as it seems. In fact, for the 12 months ending in July, Bluetooth accounted for 45 percent of all headphone revenues and 13 percent of units, up from 31 and nine percent, respectively the year prior. In June and July of this year, Bluetooth sales even surpassed that of wired headphones, accounting for 52 percent of sales during those two months. The growth in Bluetooth is the result of increased affordability (today a third of Bluetooth units are priced $50 or under), the growth of the fitness headphone segment and an overall realization that Bluetooth provides a decent level of audio quality along with the convenience of eliminating wires.
Despite the make-up of the stereo headphone market naturally trending towards more Bluetooth, the iPhone 7 launch is likely to drive increased demand for Bluetooth headphones. A recent NPD study, fielded in the days leading up to the iPhone 7 announcement, found 60 percent of likely iPhone 7 purchasers (who expect to buy the phone within the next six months) already intend to buy a pair of Bluetooth headphones within that time frame. When these iPhone 7 buyers were then presented with a visual concept and explanation that the headphone jack on the phone would be removed (replaced with a pair of Lightning connector headphones and an adapter at purchase), their purchase intent for Bluetooth headphones rose to 78 percent- more than three times the purchase intent exhibited by smartphone owners (irrespective of their smartphone buying intentions or favored brand). According to these findings, most who expect to purchase the iPhone 7 consider buying Bluetooth headphones a near certainty.
As we’ve seen with the change from the 30 pin to Lightning connector on iPhones and iPods (which helped to launch the nearly $2 billion wireless speaker market), as well as the decline in USB ports and optical drives on Macs, Apple is not one to maintain the status quo when it comes to ports on devices. While yesterday's announcement seems extreme given the legacy of the 3.5mm input, smartphone design has always pushed boundaries. With Bluetooth now accounting for a majority of headphone sales, the elimination of the headphone jack in the iPhone 7 is more of an adjustment to how consumers are listening to music rather than a true shock to the system.
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