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This will be a big year for Logitech (LOGI). Not only does 2006 mark its 25th anniversary but it hopes to make major advances toward becoming the No. 1 maker of digital audio accessories. That's no small goal. Apple Computer (AAPL), Belkin, DLO, Altec Lansing, and hundreds of smaller players are also going after the $500 million-and-growing MP3 accessories pie.
It's a crowded market -- and one with unusually high design standards, because consumer expectations have been set by Apple and its phenomenally popular iPod music player. "Design matters much more than in many consumer-electronics markets," says Jef Holove, director of product marketing for Logitech's Audio Business Unit. So, long before there were any products to design, Holove's team started working with Ziba, the Portland (Ore.) design firm. Ziba was involved in everything from brainstorming product maps to creating the packaging.
Many iPod headsets and speakers are simply "a bad imitation of what the iPod is," says Yves Behar, founder of fuseproject and winner of the National Design Award. Behar thinks Logitech's new products "offer a good departure from more conventional 'me-too' iPod-type products."
BRAND ASPIRATIONS. Logitech has been showered with favorable reviews from popular tech sites like Gizmodo. Better yet, since unveiling a slew of new headsets and speakers in the past six months, "[Logitech has] been picking up share," says Ross Rubin, an analyst with market consultancy NPD Group, "[partly] because [it has] done very well-designed products."
In its latest-reported quarter, ended in September, Logitech's audio-business sales grew 125% year-over-year, says Rob Stone, an analyst with investment bank SG Cowen. The unit will account for 16% of total sales, expected to reach $1.81 billion, in the fiscal year ended in March, up from 10.7% in fiscal 2005, according to investment bank Avandale Partners, which makes a market in Logitech shares.
Perhaps more important, the Ziba partnership has helped Logitech expand into higher-end products. Going forward, "we are absolutely aiming at being a premium brand," says Holove. "We want design cues that suggest that."
Logitech's relationship with Ziba dates back to 2001, the year Logitech decided to transform itself from a PC-peripherals outfit, selling mice and keyboards, to a maker of accessories for everything from gaming consoles to cell phones. Back then, Logitech acquired Labtec, an audio business for which Ziba was already a consultant. The companies have developed an unusually close partnership. On any given day, a dozen Ziba employees are working on projects out of Logitech's offices in nearby Vancouver, Wash., or at Ziba's hip digs, which include a special Logitech studio.
A FEMININE TOUCH. "The main challenge is: How do you differentiate?" explains Omer Kotzer, a creative director at Ziba. No wonder the Logitech studio is filled with competitors' products and prototypes, as well as seemingly unrelated objects, such as Nike (NKE) Presto plastic watches, girls' hair bands, ski goggles, and sunglasses.
When the Ziba team examined competitors' MP3-player headsets before brainstorming its own designs, it realized that many of the existing products were large, brash, and black and silver -- they screamed "male." So Logitech and Ziba decided to focus on products for less-catered-to market segments, like women and teens. For inspiration they looked to accessories, like the watches and hair bands, designed especially for women.
Enter Logitech's Curve headphones line, which hit the market last fall. The headphones' band is made of clear plastic that comes in crystal, graphite, and lime. The plastic is unusually flexible, designed to form-fit most heads and not to mess up long hair. The earbuds come with removable plastic rings, allowing for a snug fit. The cord that leads from the headphones to the MP3 player looks like a fashionable chain.
BEATING EXPECTATIONS. Logitech's Identity headphones, introduced in December, are aimed at teens that want to customize their gadgets. The earbuds, which are attached to a thin flexible band, come with four snap-on earbud plates in solid metallic colors: white, black, orange, and green.
Already, both products, as well as new MP3 wireless speakers Logitech introduced during the holidays, "are doing extremely well vs. our expectations," says Holove. And analysts believe that Logitech's growth this year will be fueled in large part by its MP3-related sales. "It's a big opportunity for [the company]," says Charlie Wolf, an analyst with Needham & Co.
While Logitech still faces formidable competition, it's following a strategy that many rivals don't. "Tech products are infamous for being designed a little bit in a vacuum, in connection to culture and lifestyle," says designer Behar. "For technology companies to go outside is vital."
Kharif is a reporter for BusinessWeek Online in Portland, Ore.
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