From BlackBerry to Wall Street with Sonos' CEO: Opening Bid

Sonos (SONO) recently unveiled a completely overhauled redesign of its app, replacing the old version without notice, which received mixed reviews from its users. The company recently posted its second quarter results, with a revenue that beat expectations, and just entered the headphones market with the Sonos Ace.

Yahoo Finance Executive Editor Brian Sozzi is joined by Sonos CEO Patrick Spence to discuss what he's learned throughout his career from the early days with BlackBerry (BB), how new tariffs have impacted the company, the future of the company in an evolving space, and more.

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Video Transcript

All right.

Hey there, my investing, curious friends.

Welcome to opening bid.

I'm Brian Sazi.

Yahoo Finance's executive editor.

Thank you for joining us either on youtube, Yahoo Finance, Spotify, iheartmedia, Pandora or Amazon Music.

If you're loving opening bid, hit us with those likes and fire off your questions.

And hot takes to me on X at Brian Sazi and at Yahoo Finance, we are here to help and listen.

Now let's make some money and get smarter.

Jeremy Tay is a special guest.

Very special guest.

Patrick Spence, the CEO of Sonos.

Patrick.

Why aren't we?

Why is an opening bid on the new uh Sonos app, man?

Like, what's up with that?

We get that memo, bro.

Like what's going on?

You can absolutely listen, you can absolutely listen to opening through any of those services on your Sonos.

I certainly hope that you will add that to your payroll.

No, fair enough.

Now, look, uh this is going to be on unboxing now, what you may not realize like Patrick is, I haven't seen Patrick about a year and a half since the Goldman Sachs type conference.

I think he's been buried somewhere in a bunker like getting ready to work on this secret product.

We're not gonna unbox just yet because I want you to watch this whole podcast.

But good to see you, Patrick.

I know you're usually out there running and working out in the morning.

So, so talk to us a little bit about your, your leadership journey before we get into all the cool new stuff at, at Sonos.

You don't become the sea of Sonos for eight years uh overnight.

Yeah.

So I really think it goes back to the early days and I had a lot of formative experiences in team sports where I really learned the lessons of leadership.

And I often tell people that's what I kind of employ every single day is, you know, you learn how to get along with your teammates and your colleagues, difficult, sometimes challenging times, you're kind of working towards a goal and then I had the opportunity to be captain, eventually be a coach of some teams and you learn how to kind of bring it all together and get people on the same page.

And what did you play?

I played uh basketball, volleyball.

I was from, I'm from Canada.

So hockey a little bit, I played soccer.

I pretty much played every team sport that you could and I played all the way through university, uh volleyball actually.

And so I, I've played at a high level, I've coached at a pretty high level as well.

Uh And you, you have to be able to figure out how to bring people together towards a common goal.

And I've really, I feel very fortunate because I've been able to kind of marry that with something else that I'm very passionate about, which is technology because in second grade, the elementary school that I was at was lucky enough to get a Commodore pet computer and I fell in love.

I remember that.

I mean, you're a little old to me.

Not but not much.

But I remember that Commodore came in like it was like the black screen, it was like green, green text.

Like, what the hell is this huge?

I mean, people would be laughing at us to see if we were using it today, but it was so amazing to me and just the promise and the potential of technology and so kind of mirroring those two things.

Uh along the way, I just had the opportunity to start at Blackberry when there were 100 and 50 people.

There was no Blackberry.

And what I found there is, it's very similar to being on a team and trying to figure out how you're going to be successful.

Compete.

Often, we were the underdog in team sports.

We were clearly the underdog being a small Canadian company that was trying to take on the world and invent the smartphone.

Well, it ruled the world for a moment.

I want to get into a little bit of that at some point.

So, and then I had the opportunity to, you know, lead teams at work and kind of take those things on and it just, it had many of the same kind of, uh, traits that, you know, uh being on a sports team does.

And so I feel like all of that, uh, serves me very well every single day because this is all about us coming together and ideally being able to achieve something that no one thought was possible.

Um But as a group, have you had the time to reflect on your tech upbringing?

Like, were you picking apart headphones as a kid in your room and like looking at the inside of what it was Walkman, right?

Like walking back in the day, like, how crazy were you all with some of the stuff, you know, some computer science and electronics courses along the way, uh you know, and, and playing with the physical, but as well, some of the software that was coming out at that time.

So subscribing to byte and Compute magazine uh starting when, when bulletin board services came along doing that and actually doing very first, I think uh you know, it was elementary school still where uh I was on the forefront of joining a Fantasy Hockey league and we would pick different players and do these things.

And I actually for a while was the administrator of a Fantasy Hockey league and we put the scores in and, you know, every day and all this.

And then my parents were like, you can't be doing, we're really, we're really dating ourselves.

Like, when did this happen when we, like, when did we become like the old veterans in the room?

We're not, right.

So you're at your, your first job was at IBM.

So, yeah.

So actually between my 3rd and 4th year of university, uh I did an internship at IBM and I got to work on the thinkpad brand team.

So mobile computing, but at that time, very breakthrough, very different, right?

So the idea of taking a computer, mobile was something that was new and I fell in love with it.

Uh I thought it was a great product, loved the organization and really thought this is a place where I can learn business, I can learn leadership and I could grow as a leader.

And so I thought I would return.

But when I went back for my final year of school, this little company in Waterloo Ontario, Canada was looking for somebody to come in and do product marketing.

And I got to meet uh Jim and Mike, the co CEO s of uh rim at the time.

And uh I could tell something special was happening there.

It was a small group of kind of renegades that was putting something together.

And so I was like, OK, I'm gonna take this uh take this chance and this opportunity to try and build something here in Canada.

And I really thought, you know, I would go to IBM for a few years.

Then I would go start my own company.

It's hard to leave IBM.

I mean, the checks are good.

It's IBM.

Like, why not?

I'm going to learn a ton, but I could see an opportunity to kind of accelerate that and kind of go hands on right away.

Uh And there weren't a lot of start ups in Canada.

So this was an opportunity to get in on the ground floor, which was really exciting.

What is it like to, to be on the ground floor of a juggernaut?

Uh You were at what research in motion A K blackberry?

What?

14 years?

So you saw literally the start of this and close to the end of it.

What was it like those like those first couple of years when like the whole world is using a blackberry?

Well, I wasn't, it wasn't quite like that.

So this is the funny thing is that in hindsight, you know, you think about these things and you're like, wow, that was amazing.

You know, we had 80 million daily active users at one point.

Uh I think we had a $80 billion market cap at one point, right?

But at this point, we're, you know, I think sub billion dollar market cap, you know, we're, we're just trying to squeeze out every pager, we're doing pagers at this point that we can and trying to share our vision with the world.

So it was fun.

One of the first things that I ended up doing was coming here to New York and introducing Blackberry to the banks brokerages here.

And very quickly, you could see that it was going to be extremely popular with people here because you know the information and how quickly you could move information back and forth was everything.

So you could be connected as you were going to lunch or going to go even to, you know, a kids' event or something like that.

But what I would do just so you understand, like the early days of a start up is I would go and physically install software on the computer for uh let's say a managing director at an investment bank and also their secretary so that the two of them could communicate and once the two of them could communicate, they absolutely loved it because they both became more efficient.

They could always get a hold of each other.

Then they would start to tell everybody else inside the company.

So you were the one responsible for making blackberry popular on Wall Street.

I mean, you were the guy.

I did the 1st, 1st big deal, which our first big deal was uh with Merrill Lynch for 1000 Blackberries.

And I think our stock price on that day went up 50% or something crazy.

I was in Blackberry was black.

It was incredible.

And then did the next biggest one which at that time was 5000 blackberries to uh citigroup's all, Miss Smith Barney.

So yeah.

Uh pager.

Fun fact.

Uh we'll keep the age thing going on.

143 on the pager meant I like, you know, sorry, my ex-girlfriend at the time got me a pager.

She paid the bill like, I'm like, wow, this is crazy.

I was like 17 and they put like 143.

I'm like, what the hell does that mean?

I mean, I love you.

Like, I don't know, it's kind of cool.

But I think the one thing I would say is that you never, when you're in it, you never really understand like I if it's a juggernaut or not because you are trying to make progress and you're trying to, you know, when you're in it, you're trying to just make it work, right?

And you're trying to bring this thing out and you're working so hard.

And what I remember is everybody working so hard to bring it to the world and everybody being so passionate about building something great and just the sense of teamwork around all of that uh was absolutely incredible.

But, but again, it was meant there was a point where myself and I think it was three or four of our interns went all across the United States and physically updated pagers because there was a daylight savings time bug.

So we had to go physically update about 10,000 pagers that were in warehouses all across the United States, variety of back alleys and different places that had these units, we would go in, plug them in the computer, update them and do it.

And so I also think oftentimes it's viewed as very glorious of these things, but in getting, you know, into the details that we just do what it takes to make sure that this is going to be successful.

And that's what I love.

I love that aspect and we have it at Sonos of just getting in there to make sure that it's going to happen.

And I love working with a group of people that care more about what it is that they're building because these things are really hard to build.

And so it was absolutely exciting.

I got a chance to uh you know, sell the first blackberries to Wall Street.

I had a chance to open Asia Pacific for Blackberries.

Well, and bring it to all the countries of Asia Pacific and then go and lead our Europe, Middle East Africa uh business as well.

And so I had a chance to work in, I think, over 100 and 60 different countries around blackberry.

And so it was an amazing experience to be able to see that and get to work with a variety of people from all walks of life, which was amazing.

I just want the record to show that I and my brother Gary really like the storm when it came out.

Uh There was just something kind of cool about it.

It was like square and you press the storm for you.

Younger folks out there was a Blackberry's initial smartphone, you press down, it made a cool like tapping noise like it was, it was the thing, I mean, maybe it didn't land that.

It was.

Well, that was well said.

So I wanted, we're gonna talk about Sonos, but the day, the day the iphone got announced as someone that like you're in the trenches, you're updating software and Blackberries, Wall Street is using this thing.

Like, what was that day?

Like, do you remember it or you're like, I had no idea what I was doing.

No, I, I definitely remember it.

Uh And I think there, you know, there's different characterizations that happened uh around like what happens, but definitely we paid attention to what was happening in the industry.

And I think at that point, um it was kind of exciting in a way.

Um But we also saw that we had some strengths right around our keyboard, uh the way we use data and some of those things.

But what we hadn't done was really contemplate a future where they were going to become more like computers, right?

And the touch screen and some of those things.

And Mike, one of our co founders and co CEO had been very focused on making sure that we didn't use too much data on the wireless networks.

And so he didn't have an appreciation for how much the wireless networks like the AT&T and Verizon wanted to be putting video and internet traffic over those networks and were willing to invest in those networks.

And so, you know, so we were focused on more text and data and some of these things and then really it moved to more internet video music, some of these things.

And so at first, and you can see this in blackberry results and stock price.

It was a good thing for the first year, year and a half as we were really neck and neck.

But then over time, obviously, we didn't continue to innovate and we didn't continue to build on what made Blackberry special.

So, Storm was a great example of responding because Verizon was willing to write us a big check because they want to respond to AT&T and the iphone and we really compromised a number of products, you know, experience principles, I would say with that product.

Well, Storm Storm fan here, I still remember using it worked fine for me.

I just want to let the record show.

I'm not just telling you that because you're sitting next to me, Patrick fence.

So really if you're watching opening bid on our streaming platforms, we're heading for a quick break.

Everyone else, stay with us.

We are still rocking our 24 minutes for opening bid as usual.

Let's talk some sonos because during the pandemic we talked to you throughout the pandemic and there was just this explosion in people who live in their homes more than they were before.

They're recognizing like the speck of dirt they have in their rug and the dust they have in their cabinets.

But it was kind of good for your business.

At the end of the day, it got more speakers into people's homes.

What is the state of stono now that we are beyond the pandemic?

Yeah.

So, I mean, it was to think about that time was we really had thrown out our playbook and we said, you know, we're going to focus on making sure that we take care of our people and that we use this as an opportunity to bring joy to people that are stuck at home.

And so we saw absolutely explosive sales over that period of time.

And what in hindsight, we now know is that that brought forward some demand as well.

So in the categories that we play speakers and sound bars today and amps, we've really seen two years of double digit declines in the categories.

Now, the good news is is that because of our brand and product portfolio, we've been able to hold our own and gain share in some situations in this.

But it's been incredible because the industry, what we've seen is from a lot of industry players is 30 40% discounts.

And that's not the game we play, we build premium products.

I've never seen your stuff on sale.

I mean, maybe I'm missing the sale and you're not just letting me know.

I, I told you I have 12 of your speakers in my house.

I think in my total life I have 24 now, uh, in various locations.

But, I mean, they're never on sale.

Well, they're never on sale.

They sometimes at the holiday period they send me the so, but, but I think the thing is, is that we've been able to use, like because of the strength of our brand and product portfolio, we've held up pretty well.

But it's been a, you know, a tough couple of years in terms of the industry, which is also reflective of the broader kind of home goods industry and every that we've seen there.

So we've the one thing that I had said though about two years ago now is we were going to continue to invest in innovation because often what will happen is companies will pull back in times like that.

We decided to continue to proceed and invest in some new categories, which we're very excited for people to experience.

And yes, we are still not going to do the unboxing yet.

We have some time.

I have to make sure you see my face.

Yes.

So this is a new unannounced product or soon coming product from Sonos.

So now that we are beyond the pandemic, what are people's homes look like?

How many speakers I know that's dead to point that you guys track how many speakers people have on average in the house.

And, and what is the next I guess upgrade cycle look like?

So, so, you know, now we're in over 15 million homes, the average home has about three speakers and that continues to grow.

So that the interesting thing about the Sonos model is that people get a speaker or two and they add more over time just like you have 24.

Exactly.

And so that's, it's not uncommon because people engage, they enjoy it, they want to put it in another room and we're, we're obviously fueling that as well with product innovation where as we bring out new products, it makes the Sonos system better.

And so we have not seen even from our cohort, our first cohort from 20 years ago, continues to add more Sonos products to their system.

So I think a lot less about upgrades.

We do get that where people will upgrade all the products.

But what I'm proud of is the fact that we have so many people that have had their Sonos products for 1015 years.

And because we do that and their faith in Sonos, they will add other rooms at the end of the day.

And so what we do is try to make it easy for them to add the Rome speaker if they want one for going to the beach or going to the park or the move, if they want something for the backyard, right?

Or arc if they need something for their living room.

So we work on trying to make sure we have products that fit all the different use cases of someone's life and make sure they work really well together is the housing market, The driver of Sonos, you know, we've looked for every macro kind of indicator to see if there's anyone that we can tie a tight correlation to.

There's obviously a logical belief that that would help in times where people are spending more time at home.

We've seen that you can't directly tie it.

But I do believe that, you know, if housing picks up more, we would expect to see that, but you never know with the consumer because consumers will shift their spending to travel and experiences and back to home goods.

So we're always kind of watching that.

What we focus on is what we can control, which is making sure that we're producing great products, trying to innovate and making sure that people can find them in the right places.

You know, we, we talked about in the past how towers and economic conditions impacted a company like Sonos, I'm going to name drop here because it just, it is what it is.

So we had a recent uh ability to talk to President Biden really tremendous honor for, for me and, and the Al finance team, but it was after news on new tariffs, new tariffs and semiconductors against China EVs, you name it.

And on the other hand, you have President Trump floating potential tariffs of 10% across the board.

How would that either policy?

I mean, how does this impact your business?

Well, you and I talked a lot during the previous administration when there were tariffs being put in place and we had had all our production in China subsequently.

What we've done is actually globalize our production.

And so, you know, we still have a team and produce some products in China.

But the products coming to the United States are not made in China, they're made in other parts in Southeast Asia.

And I think you will find that a lot consumer electronics company probably have done that as well.

And so it's not impacted in the same way, but it certainly it has an effect on, I would say innovation and profitability in a way in the sense that if companies have to go spend time on these things, there's a trade off, it takes away from other things.

That's the thing in the lead up to the election as the CEO of Sonos, do you meet with your teams and say, what would the elasticity be if we have to raise prices?

Are those conversations happening now?

Absolutely.

We're always monitoring the situations to understand how it might, what geopolitical factors might impact our business and trying to make sure that we're waiting for that.

But I do think between the previous administration, the tariffs that were introduced the pandemic as well is that everybody has also been working on became more resilient supply chain uh trying to create their company so they can deal with more of these issues.

And so I, I think it's going on inside every company uh across America.

Let's talk a little bit inside of what's in this, what's in this box.

So we're gonna pick this apart.

I'm gonna try, I used to be an analyst for 10 years.

I'm gonna try to do this.

If I, if I was still an analyst, talk to us about the color of this box.

This is not, this is not a white box, right?

This is soft white, so white.

So we just to give you an appreciation for how much work goes into what we do.

You're going to find something inside that box that we took 26 different attempts at in terms of landing the actual color that we want.

This box itself is 75% recycled materials.

It feels, it feels, it's creamy, it does feel has that.

I'm not saying that's a bad thing.

It just, it's nice and it's very light.

And so we're thinking about every aspect of it, how the zipper works, all of these things, how the zipper works.

How does it work with this, this mechanism here to be able to make it easy to actually open it up?

Ok. Don't show them what's inside yet.

All right.

Ok.

So we won't open it just yet.

Ok.

So I think we got the color, we got the zipper, which I didn't realize this nice little thing.

And, uh, why that shape, this is the right shape to be able to house a robust, can I say the product?

Yeah, absolutely.

Totally.

The Sonos says headphones.

So this is, this gives it the kind of strength but not being too heavy to be able to support the headphones and make sure that they're going to be protected.

And this is like something that you can easily throw in a purse or a backpack as well and just make sure that these are a product that are, you know, going to withstand the next couple of years of use.

So let's, you'll be even more pleased with what's inside.

Ok.

So what's first ever headphones from Sonos off the bat?

Um Patrick, these are really light, like take us through how something like this even gets designed people, I think consumers think, oh, it is another pair of headphones but like this is like real work to get this into the market.

You know, we, we have spent the, the number one product that customers have been asking us for our headphones.

We've heard from tens of thousands of customers that have said, can you please bring everything you've learned your great sound quality, all these things to headphones.

And that's what we've really worked on over the past couple of years.

And so the materials that we've chosen are critical.

But the first thing that I would call out though, it has to be because it's Sonos is sound quality.

So whether you're listening to a spatial audio music track or if you just want to shut out the world with an NC octave noise cancellation, these set a new bar in the industry.

But the second thing I would say, and you, you kind of experience it as you touch it is the comfort and the materials that are here.

So we've used really lightweight materials, we've used memory foam for these ear cups, um that also, you know, come off.

So they need replacing as well and those kind of things.

And so we've made sure to think through how do we provide something that is lightweight and comfortable and you can wear all day.

So it's got 30 hours of battery life even with a NC.

And so you can wear these all day and we've tested with hundreds and hundreds of people from both men and women to make sure that this is something that is going to adapt to their head, their ears and everything.

And so we, we are very proud of what we've been able to achieve, achieve on the comfort front because all day comfort is something that's been missing.

I don't want sweaty earlobes patrick.

This is not going to let me but people, but people also, you know, will feel pain with their rings, with other headphones or the headband will be uncomfortable for wearing for too long.

And we've addressed all of those with what we've built here.

I mean, the Apple Mac messes up my hair because they have that webbing.

So I think my hair will be safe on this one.

Ok?

And you also see that there's an indentation here to make it easy for people to actually know how to put their headphones in here.

But you will also see that there is this magnetic very.

So that helps, that helps proper placement of your headphones, but as well allows you to put a cable inside.

So we provide a USB C cable.

So the US PC charging and also a 3.5 millimeter uh wire.

So that if you want to plug it into an airport on an airplane or into another product, you can actually do that, you know what, you know where I can put my airpods max case uh on my charger in my bag somewhere and I lose it.

So thank you for that.

So I'm gonna go quick around the horn here with some questions that I'm just, I'm just thinking as I'm listening to higher margin product uh about in line with what we build today.

Ok. Is it available for the holiday season?

Uh It is available starting June 5th.

You pre order it today?

Ok. What are pre orders look like we just started?

Ok. All right.

Fair enough now.

And lastly how hard is it to get the components for something like this?

It is in this market where, I mean, look, I mean, supply chain challenges are still real.

Absolutely.

And, and they always are when you're trying to push the envelope on innovation.

And so some of the material choices, we've had some of the plastics, some of the, the stainless steel button that we have here, for instance, uh these are things that we invent, we create and then we need to find suppliers that are willing to do the work.

And so it's a whole process of bringing it together.

It's definitely easier than it was in the pandemic, but it still takes a lot of planning and a lot of co development in order to create all of these parts and get them mass produced price.

Uh These will be 449.

Ok.

Uh How long did it take to, to develop something like this?

So, we've been thinking about it for years and we've had different prototypes as we've gone through it.

But really, you know, over the last two years, we've really honed in on what we thought was the right mix of performance and materials and everything to deliver what we have today and I should tell you um that they also connect to your existing Sonos system.

Ok.

So we have a feature, a unique feature called audio swap, which with the press of a button, you can take the music or TV show that's playing on your arc soundbar and actually transfer it to the Sonos Space headphones.

Thank you for bringing back the headphone case.

Patrick Spence.

I appreciate it.

Thanks for joining opening bid and that's it for us.