1. Ear Today,
Phone Tomorrow
How does Plantronics dominate the headset market? It's
about finding the right fit. BY DANIEL D E L RE
W
alter Elly, a software developer in Tampa, Fla., used to store separate
headsets for his cell phone and iPod in a backpack, but the wires often
became tangled. So when he came across the Plantronics MX-IOOs, a
headset that connects to both iPods and cell phones, he was overjoyed.
"It's such a simple thing, but no other manufacturer was paying attention," he says.
Common wisdom says that for stuff as straightforward as electronics peripherals,
it's hard to differentiate on attributes other than price. Yet Plantronics headsets like the
Bluetooth-compatible Explorer 320 for mobile phones and the CS50 for office use
have become must-have gadgets. Publicly traded Plantronics had a rough first quarter,
with its stock trading near its 52-week low largely because European headset use grew
more slowly than expected, according to company reports. Nevertheless, by investing
in ergonomics, wireless technology, and sound quality, Plantronics is still dominating its
market segment. Based in Santa Cruz, Calif, the company spends nearly 10 cents of every
revenue dollar—roughly twice as much as its closest competitor, GN Netcom—on re-
search and development, resulting in a leading 39 percent share of professional-use head-
set sales and an above-industry-average 21 percent operating margin. "Some investors
expect that headsets would be completely commoditized," says Robert Tango, VP for
equity research at Lazard Capital Markets. "But the level of audio expertise, along with
the quality of the designs, has proven very effective for Plantronics."
AURAL FIXATION Kannappan
has grown Plantronics sales 18
percent annually by investing
heavily in R&D.
Necessity was the mother of
the company's innovation-led
strategy. Founded in 1961 by
NASA engineer Keith Larkin,
Plantronics got its start supply-
ing headsets for air traffic con-
trollers, military operators, and
astronauts. (No discussion of
Plantronics would be complete
without mentioning that Neil
Armstrong delivered his "one
small step for man" transmission
through one of its headsets) Lat-
er, the company took advantage
of growing demand from tele-
marketers and phone-based cus-
tomer service operations.
But in 2002, CEO Ken Kan-
nappan started hearing static.
Layoffs at corporate call cen-
311 ters—which by then accounted
for roughly 80 percent of Plan-
tronics's business—squeezed
revenue 20 percent to $311 million. Earn-
ings tumbled 50 percent. Faced with this
shortfall in business-to-business demand,
Kannappan had to find a new avenue for
growth. Luckily, the timing couldn't have
been better. With cell phones and video-
games finding their way into the heart of
mainstream society, Plantronics could aim
at a burgeoning new class of headset-hungry
consumers. But first it would have to find
a way to make them take notice.
Headsets That Go Vroom
KANNAPPAN'S PLAN TO WIN THE HEARTS
and ears of this new market started with the
hiring of Darrin Caddes, a former BMW
motorcycle designer, as VP for corporate
design. Paralyzed from the waist down
after a motorcycle accident, Caddes was
6 4 BUSINESS 2.0 OCTOBER 200S

2. WHAT WORKS
From Moon Walk to Mobile Talk
1960s
SPENCOM
Carried Neil
Armstrong's
"one small step
for man" trans-
mission from the
lunar surface.
1980s
LITESET
Comfortable
over-the-ear
alternative to
traditional
over-the-head
models.
2000s
VOYAGER 510
Wireless
headset with
collapsible
earpiece and
Bluetooth
technology.
J
adjusting to life in a wheelchair when
Plantronics called. "A headset became a ne-
cessity for me," he says, "so I developed an
appreciation for them." Caddes sees motor-
bikes as extensions of the body and thinks
about headsets the same way. "Both should
make you feel better, faster, stronger," he says.
Before brainstorming new designs, Cad-
des's team videotapes headset-wearing vol-
unteers as they go about their everyday lives.
This approach uncovers patterns that would
not emerge from interviews or focus groups.
For example, Caddes says, "when someone
has a cell phone in one hand and a headset
in the other, how do they open a door? Do
they put the headset in their pocket, or un-
der their arm?" Asking such questions led to
a collapsible earpiece and a belt-clip pouch
for the new $99 Voyager 510, a wireless,
Bluetooth-enabled headset that has cus-
tomers raving about its superior fit. On oth-
er models, Plantronics has installed retrac-
tors to prevent cords from getting caught
on doorknobs and zippers.
Superior sound quality is another way
Plantronics keeps its edge. Experimentation
with digital systems, for example, helped the
company develop microphones so sensitive
that they need not extend further than the
cheekbone. Testing in a soundproof cham-
ber allowed Plantronics engineers to prove
how well the device picks up a user's voice
and differentiates between consonants and
vowels. The Plantronics M3500, a $140 head-
set that uses the new microphone, debuted in
January 2004 and has been a hot seller, ac-
cording to Plantronics's distributors. " I get a
lot of feedback from customers saying the
voice pickup and sound quality is excellent,"
says Bryan Cohen, senior telephony engi-
neer for tech retailer CDW
Resellers also say consumers notice the
comfort of Plantronics headsets. The com-
pany tests prototypes on its "wall of ears"—
100 or so silicone molds, modeled mostly
from employees. If a prototype fits 80 per-
cent of the ears on the wall, it's ready for test-
ing on people. CDW's Cohen says such at-
tention to design is what makes Plantronics's
newest products—especially wireless head-
sets that automatically switch between Blue-
tooth-enabled office phones, laptops, and cell
phones—so popular.
Hearing the Call
WHILE CALL CENTERS AND CORPORATE
clients still generated 65 percent of Plantron-
ics's fiscal 2005 sales of $560 million, mo-
bile devices for on-the-go individuals ac-
counted for 22 percent—double their 2001
contribution. Of course, competitors are
also aiming for new ways to connect aural-
ly with consumers. Sony, for instance, is giv-
ing Plantronics a run for its money with a
range of new infrared cordless digital sur-
round-sound headsets, and Motorola has
embedded Bluetooth-enabled headsets in
Burton snowjackets and Oakley sunglasses.
But such wizardry is probably far ahead
of consumer demand. "We're always try-
ing to make sure that we understand our
customers' most important problems,"
Plantronics's Kannappan says. Even if it's
just keeping one's cords untangled. •
Daniel Del Re is afreelance writer Hying in
New Jersey.
Sound Performance
Since focusing on consumer headsets in 2002, Plantronics
has increased profits while keeping the lead in its core market.
Net sales
(in millions)
$600
Net income
(in millions) Market Share of Office
and Call-Center Headsets
(market size = $900 million)
1. Plantronics
2. GN Netcom
31%
3. Others
0 $20
2001 2002 2003 2004 2005
Source: Plantronics Source: RW Baird
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