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Gamers are beset with offers to buy gaming headsets from 20 companies. But headset maker Turtle Beach has managed to come out on top, with 42 percent market share in the U.S., according to market researcher NPD. Turtle Beach has more share than its top three rivals combined.
That’s an enviable position to have, considering the San Diego, Calif.-based company’s cross-town rival, Mad Catz, just filed for bankruptcy protection. Turtle Beach has been making computer sound products since 1991 and it has been making gaming headsets since 2005.
Headsets seem like a commodity market. But Juergen Stark, CEO of Turtle Beach, said it is far from that, as gamers have discerning tastes and an eye for quality. Turtle Beach got to its position through technical mastery, rather than just clever marketing.
And Turtle Beach is trying to stay ahead through innovation. It launched its first VR audio headset last year, and it also sponsored an esports team for the first time. It also has a habit of beating others to market, like launching the first Xbox One-compatible headset back in 2014.
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I talked with Stark about the gaming headset market and the opportunities in esports. Here’s an edited transcript of our interview.
GB: What’s your history at the company?
Juergen Stark: I joined Turtle Beach in September of 2012. Before that I was the chief operating officer of Motorola’s $9 billion mobile business. I’ve always been a big tech guy, a gadget guy. I love consumer electronics. I joined Turtle Beach because of the brand reputation with consumers, and the fact that the company had staked out this product portfolio and reputation in the segment.
During the interview process, I remember someone mentioning that gamers in those days would tell each other that they got Turtle Beached. Somebody using a Turtle Beach headset was killing everyone else because they had a better audio experience. I remember that quote, because it was like Kleenex or something. You have such a strong brand that people use it to designate having a competitive advantage.
The console transition happened just after that, to PlayStation 4 and Xbox One. That’s made for an interesting set of years here. We’ve completely changed over our portfolio for the new consoles. In 2016 we were all the way finished with that. It’s been an interesting ride.
GB: Leading a market for gamers is an interesting issue. It seems to have a lot to do with taste, with perceptions of coolness, on top of functionality. It’s not all about the technology. Perception of the brand matters as well.
Stark: That’s true. But one of the things I liked at the time I was being hired by the company, which I think is still true today, is that the brand was built by great products. There are companies with that kind of history, and there are other companies where the brand is built by clever marketing. That’s not us. It doesn’t mean we don’t do marketing and brand-building stuff, but if you ask our customers and people in the industry—when I joined the marketing department was tiny. It’s still pretty small. We put all our effort into our products.
My view is that if you deliver great products that give people a level of innovation, that look nice, that have a strong design, and give people a better gaming experience, that’s built the Turtle Beach brand over time. That’s still what we stand for.
GB: You guys are number one by a long shot in the U.S., according to NPD?
Stark: We have 42 percent market share in the U.S., more than the next three players combined. We’re at 47 percent in the U.K. and pretty strong in the rest of Europe. In the core markets where we play, we’re by far the leader. We slightly grew our share last year in both those markets. It’s hard to grow share when you have as much as we already do.
In some ways I don’t even like talking about market share this way, because it’s kind of an economic measure for us. What matters is that we’ve got more gamers using our headsets and having a better gaming experience than anybody else, by far. If you come back to our core mission, it’s to deliver great products with innovations that other people don’t have, and that give people both a more immersive gaming experience and a competitive advantage. Market share is the outcome of that.
GB: I don’t write about headsets every day, and there are some things I don’t understand about the market. It seems like a commodity market. Headsets have been around a long time. Have they changed that dramatically over the years? How can one company have such a lead in what seems like a commodity market?
Stark: It’s interesting that you mention that, because when we do investor meetings and things like that, that’s the most common view. People tend to look at gaming headsets the way they look at stereo headphones for listening to music.
Stereo headphones and so on are plastic, wires, and speakers. That’s all. A gaming headset isn’t like that. A mid-tier headset from us, a $159 headset, has really high quality, uncompressed wireless audio. It has a Bluetooth radio to connect to your cell phone. It has digital signal processing, which music headphones don’t have, to do things like make footsteps louder. We have a thing called “superhuman hearing” in our mid-tier wireless product, which uses very sophisticated audio processing chips that will detect low-volume sounds – footsteps and things like that – make them louder, and put them back in the gaming audio that plays through the headphones.
Our headphones are very much not commoditized, because every single year—we call it “best, first, only” here. We want to deliver the first set of capabilities, the best set of capabilities, or be the only one that has a set of capabilities. One thing I’m proud of over the last three years with the console transition, we’ve relaunched a whole new portfolio for Xbox One and PS4. While the rest of the industry has just taken the products they’ve had and converted them to work on consoles, we’ve launched a whole new set of products and innovations along the way.
A couple of quick examples. We were first to market with fully wireless Xbox One headsets. We were almost a year ahead of everyone else in the market, being able to wirelessly connect to Xbox One. Other companies claimed that their headsets were wireless, going back to 2014 and 2015, but you needed a cable from the headset to the controller. That’s crazy, by the way. That’s not a wireless headset. Wireless should mean there are no wires, right?
We delivered the first headsets of any type – not even just gaming headsets – with DTS Headphone:X surround sound. That’s better surround than Dolby. In particular, it adds a height dimension to the audio, so you can do a better job hearing if audio is coming from above or below. We had the first gaming headsets in any category with noise cancelling, and the first headsets with magnetic charging. I could go on and on. But for Xbox and PlayStation, every year we deliver something that no one else has. All of them are associated with giving people more immersive gaming and competitive advantages.
If you look at last year, we had already launched our Xbox One and PlayStation portfolio. The “first” and “only” innovations from us were the stream mic – the first streaming microphone you can plug into a console and be up and streaming—no other mic does that, by the way. You have to run the audio through your PC next to your Xbox. We delivered the first headset designed specifically for VR, with our 350VR headset. And we did the Elite Pro headset and tournament audio controller. The Elite Pro is a passive headset. It has no electronics in it, because it’s for esports tournaments, but it has a level of innovation that I don’t think anyone has delivered before.
We did a year and a half of research on what esports competitors and hardcore gamers were looking for. It’s the first headset with an adjustable tension setting to make it tighter or looser. It’s the first headset with a relief system for glasses. It’s the first gaming headset to have three types of materials in the ear cup, including a cooling gel to provide great audio, but keep the humidity and temperature down inside your ears.
GB: What’s different about game audio and game visuals as far as how people appreciate it, compared to music and movies? Would you say that there’s a mainstream market, a gamer market, and then an emerging esports market? Who cares enough about audio quality in order to pay extra for a headset?
Stark: About 30 percent of the market is sub-$50 retail price. That’s the entry level market. We can’t put a lot of innovation into that segment, because of the price point. How we differentiate there, and I think this does make a difference to consumers, is with good quality audio. Typically we have bigger and better speakers than our competitors, as well as good quality construction. People throw these headsets around. They sit on them and step on them.
Our Recon series – the brand for sub-$50 price point headsets – has taken a ton of share. We dominate that market by delivering better audio, and I think that matters to people, even entry-level gamers. There are lots of audio cues in multiplayer games that you may or may not pick up, depending on the quality of your headset. Even at the lowest price point, we make sure the audio quality is really good. I’d argue that it’s far better than higher-price-point music headphones.
Above $100 is roughly 25-30 percent of the market. That’s where you have a lot of room to innovate. The level of audio quality, the mic, the wireless audio, is important to people. Our esports headset, the Elite Pro, has exceptional audio quality, so gamers can pick up every single audio cue. The pros will tell you that makes a big difference in the game. You look at the screen, but there’s a lot of stuff happening that’s not tied to the visuals right in front of you. It’s happened off the screen, right or left or behind you. If you have a good pair of headphones you can pick that up.
The mic has to be good, too. If you combine the Elite Pro with the tournament audio controller and the upgraded mic, you can be in a really noisy room and it will pick up your voice without picking up any of the noise around you. That’s a feature of the tournament audio controller.
Then, in the middle, $50-99, is about 40 percent of the market. There you have room to add capabilities like superhuman hearing and amplified audio, where you can adjust the audio, add bass boost, things like that. That’s what people pay for in that segment.
If you contrast that to stereo headphones, from the lowest price point to the highest price point, other than adding noise cancellation as you move up, there’s not a set of features that comes into play as you move up the price curve. It’s pretty much all speakers, wires, and plastic.
GB: You guys sponsored an esports team for the first team last year. What’s the demand like in that particular segment? What’s the thinking behind going in and sponsoring a team?
Stark: We actually sponsor two of the best teams in the world. But they had to pick us. When we had the first meetings with them—everybody knows the Turtle Beach brand. But their initial feeling was, “well, we don’t know what you offer for professionals like us.” We showed them, well before we released it to market, the Elite Pro headset. Both teams said, “This is the best headset we’ve ever used.” That headset caused them to essentially pick us. We sponsor them, but they have lots of people chasing them. At the end of the day they’re only going to use gear, the core tools of their trade, if they feel like they can win with it. That headset swung those teams from simply knowing of us to wanting to work with us directly.
It’s been a great partnership. The segment is not huge, the highest end of the market, but obviously those guys bring a lot of credibility. They have a lot of fans. A lot of people, if they see OpTic—with our headsets they won their next three tournaments or something like that. There are millions of gamers who see that and they want to have a piece of it. Even if they only buy a $49 headset, they want one that’s got the same quality level that the pros play with.
GB: Is there a lot of competition at that level?
Stark: Not a lot of companies have the capability to make headsets that would be in consideration for these guys. In some ways there’s probably less competition. The requirements are much higher. These guys are playing seven, eight, nine hours a day. They want something comfortable, with great audio and mic performance.
Prior to us launching the Elite Pro, there really hadn’t been a gaming headset specifically for the latest generation of esports pros. A few companies have re-released essentially the same headset each year. When we put the Elite Pro out, it was such a step forward for esports that it changed the landscape for what pros should expect from a headset moving forward.
GB: As far as how you present your brand, how would you compare it to some of the other folks out there? Razer’s branding is fairly clear. They almost seem a little extreme on some points, with their focus on a young, hardcore, largely male consumer. Is that still the profile of the gamer to target? Or does it make sense to go broader than that?
Stark: I think it makes sense to go a lot broader. Our motto, so to speak, is “hear everything, defeat everyone.” Our goal is to provide for all levels of gamers, from entry level to hardcore professional, with the best audio gear that allows them to hear everything with good audio quality and defeat everyone as a result.
We don’t do a lot of blinky lights. We don’t do a lot of gimmicky things. We spend our money on making the headset itself better. In some ways that’s our authentic brand and promise. I think that’s the reputation we have with gamers as well. It’s for everybody – men, women, whoever. We just launched white Recon headsets that are doing great. Not everyone wants a black headset. It’s not necessarily that only women prefer the white one, but there’s demand for something that looks a little different than the classic black headset. We know from our market research that there are a lot of women gamers at all levels. Our goal is to be a good brand for them as well.
GB: How much does customization matter? Different colors, other different customizable features. I just wrote a story about a company doing custom 3D printed sandals, a shoe for every foot. I wonder how far the world is going in that direction. Does it matter in your space?
Stark: It matters a lot, in two areas. For one, the headset needs to fit well on all kinds of people. We focus on adjustability. We make sure that those features work well. Two, people do like to adjust the audio. Once you get a bit above the sub-$50 category, having the ability to add bass boost, make it louder or quieter, or use things like dynamic chat boost, where we make the chat audio volume level go up and down relative to the game audio–that’s a patented Turtle Beach capability, so your ears aren’t getting blasted out by your buddies all the time, but if a grenade goes off in front of you, you still hear everybody. People do like to tweak their audio. You have a lot of capability as you go up. As you go above $150, our Elite 800 series of headphones are highly, highly customizable in terms of audio.
So fit and audio would be the two places where customization matters. We have things like speaker plates, where people can clip on things to the side of the headset. Some people like that. But that area’s not a core part of our business.
GB: How much of the audio field is a solved problem, would you say? Particularly in the kind of 3D audio used in virtual reality.
Stark: Gaming audio is still innovating as time goes by. Object-oriented audio is part of 3D audio, and that’s coming along. That’s going to be pretty cool. In order to do anything with it you need good capabilities in digital signal processing and multi-channel audio. Given that we were a year or two years ahead with DTS Headphone:X, which is better than the Dolby sound algorithm everyone else is using, we feel like we have a pretty good chance to continue to lead on things like 3D audio.
VR is small today, but we think it’s going to be big over time. The same way that the consoles will ship with a low-cost chat communicator, the VR goggles are shipping with decent, but not superb audio. Audio is a big part of having a good VR experience. It’s half of the equation. Eyes and ears have to work together. The 350VR headset was designed to start solving the problem of making sure the audio quality level is as good as possible in the VR experience.
GB: How many employees do you have at this point?
Stark: We have about 150 employees.
GB: As far as advertising, what sorts of campaigns do you usually do? What makes sense for who you’re chasing?
Stark: Starting at the top, we’ve worked with the OpTic and FaZe teams. That obviously has a brand effect from the top down, people watching them wear our headsets. We do a fair amount of social marketing, where we’re just interacting with fans. We focus on fishing where the fish are. You’re not going to see a Turtle Beach commercial on TV, but we do a lot of advertising across traditional places for gaming advertising – Xbox Live, Twitch, other gaming-centric channels where we try to get visibility.
GB: What’s the hardest work you’re focused on right now? What do you tend to throw a lot of engineers toward?
Stark: We’re hard at work on a couple of major new launches later this year. Again, that’s going to set the paradigm, reinvent the capabilities and function sets of headsets in a specific part of the market. Those will be announced at E3. Even just updating the physical ID of our product, you’re going to see some cool, contemporary, great-looking headsets for Xbox, PlayStation, and PC.
We’re starting our efforts in looking at 2018. We have a longer-term road map. Every year we look at what part of the market we’re going to reinvent. It’s usually reinventing off of what did originally. We don’t tend to look at competitors. We tend to look at ourselves – which headsets have been out for a while, which parts of the market are ripe for a redo.
We did that with wired headsets at the low end for holiday 2015. We came out with a level of audio quality and build quality that hadn’t existed in that segment before. That’s the low end of the market, so we’re not putting a ton of features in there, but the innovation is in the build quality and the audio. That attracted a ton of new gamers to headsets in 2016, just based on having the products there. We’re going to do the same thing again, but in a different part of the market, this year.
2015 was lower-end wired. 2016 was the Elite Pro. Again, completely reinventing how a professional looks at a gaming headset. We did a year and a half of market research before we started nearly a year and a half of work on the product. That launch last year was three years in the making. That’s how much effort goes into reinventing something that. We do that every year. We have a road map that goes out a couple of years, and we have a cadence of what part of the market we’ll disrupt with another set of innovations.
Virtual reality and live streaming, these are interesting gaming audio areas for us to continue to explore. Esports isn’t getting any smaller. These are places we’re going to put our focus, but at the same time, we’re not losing focus on other segments as well.
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