In the last twelve months, Jawbone, a 12-year-old, San Francisco-based company best known for its elegant Bluetooth headsets, has raised an astonishing $159 million, including $40 million just weeks ago from J.P. Morgan Asset Management, Kleiner Perkins Caufield & Byers, Deutsche Telekom, and Russian investor Yuri Milner.
While the company didn’t disclose the valuation of its latest round, the Wall Street Journal reported that Jawbone’s valuation last summer had reached $1.5 billion — twice what it was just five months earlier, when Andreessen Horowitz poured $49 million into the company.
One might think that people connected to Jawbone would be eager to sing its praises. But two board members whom I approached – Sequoia’s Roelof Botha and Khosla Ventures’ David Weiden – declined to answer my questions about the company, including whether Sequoia and Khosla Ventures invested in any of Jawbone’s three financing rounds last year. (Reports suggest the firms — which provided Jawbone with the $50 million it raised in all its previous years — did not.) Meanwhile, Jawbone’s press representative said that CEO Hosain Rahman was too busy to comment.
No doubt there are reasons to be optimistic about Jawbone, a “mobile lifestyle” company that has expanded beyond producing Bluetooth headsets in recent years. In November 2010, Jawbone introduced a sleek, $200 wireless speaker and speakerphone called Jambox that’s proven highly popular. Several weeks ago, Rahman told GigaOm that Jambox was the top-selling portable speaker system in the U.S., a claim that’s hard to verify but which doesn’t seem far-fetched. (Currently, Jambox is Amazon’s third best-selling MP3 player speaker system.)
Still, Jawbone’s efforts to venture beyond Bluetooth headsets haven’t been universally successful. In November, the company released the UP, a $99 wrist band that measures activity and sleep patterns, only to halt production one month later to address numerous software glitches. Thanks to Jawbone’s promise to offer dissatisfied customers a full refund — regardless of whether or not they chose to keep or return the device — the UP may yet succeed. But it’s hard to see the UP taking over the world given the success of the Fitbit, a comparably priced sleep and activity tracker that has gained traction and high marks from users. (Another San Francisco-based company, Fitbit has raised $11 million from VCs over its four-year history.)
And there are other obstacles Jawbone may face in living up to its investors’ expectations. One of them is that “Bluetooth headsets and speakers are very low-margin consumer businesses,” says John Bright, a senior communications analyst with Avondale Partners.
Jawbone also faces stiff competition. In headsets, Jawbone is going head-to-head with publicly traded Plantronics and Denmark-based GN Netcom, maker of Jabra headsets, which collectively control “probably 75 percent of the Bluetooth market share,” says Bright. While they may seem like stodgy incumbents just waiting to be toppled, Bright argues that their leadership position in the office environment gives them more flexibility in marketing products to consumers than the comparatively underfinanced Jawbone can afford.
Meanwhile, in the speaker market, Jawbone’s Jambox must do battle with the likes of Bose, Altec Lansing, Logitech, and even Apple. “It’s a hypercompetitive market,” says Bright, who said Logitech is “probably better on distribution and cost structure than Jawbone. It’s a hard game to play,” he adds.
Sam Hamadeh, founder of the New York-based research firm PrivCo, is more optimistic about Jawbone’s ability to compete with its mobile products. “A year ago,” says Hamadeh, “you didn’t see a lot of people willing to pay up to $200 for a headset, but companies like Jawbone are sort of making their own market right now, with people proving they are willing to pay a premium for what they perceive to be a quality product. I see it here in our offices.”
Hamadeh also thinks Jawbone is smart to position itself as a “premium premium” company versus a “premium lower end” company like Skullcandy, a publicly traded maker of popular headphones, ear buds and headsets whose stock has slid precipitously since its July IPO. (Skullcandy’s problem, says Hamadeh, is its difficulty in upselling its customers, who are now accustomed to a certain price band.)
Still, Hamadeh “can’t think of a good public company comp” for Jawbone, ”which may tell you about whether or not it makes sense to be an independent public company at this point.” Both Bose as well as high-performance headphone maker Beats Electronics remain privately held, though Beats received a $300 million majority investment from HTC in August. (HTC is now incorporating the Beats sound system into its phones.)
Partly, Jawbone’s competitors may be eschewing the public markets because “items like speakers and headphones are trend-driven,” says Hamadeh. But Hamadeh also doesn’t see a lot of good M&A options. Many potential acquirers – which likely include Sony, Panasonic, Bose and even Apple – have similar product lines, which raises questions about how much they’d pay to add Jawbone’s devices to their roster.
As Hamadeh puts it, “Jawbone is executing really well, but it doesn’t have an exit strategy … The company is kind of in a pickle in terms of where do they go from here.”