May 22 (Bloomberg BusinessWeek) -- For more than a decade, Blue Microphones focused on a rarefied market. The Westlake Village (Calif.) audio equipment manufacturer made expensive analog microphones for professional recording studios and renowned artists such as Bruce Springsteen, Coldplay, and Jay-Z.
Then, in 2005, it introduced a retro-looking digital microphone for $99, about one-third the price of its analog models, hoping to appeal to musicians editing and distributing their songs themselves. The new microphone’s big breakthrough: its USB plug.
Being able to connect to a computer’s USB port meant users didn’t have to rely on built-in mics, which aren’t designed for recording. Without advertising, word of mouth exploded, and Blue Microphones released a similar model for $150. The microphones, available at Apple stores, Best Buy, and other retailers, have helped drive the total number of devices sold to 750,000, says John Maier, Blue’s chief executive officer and a 20-year veteran of the music hardware industry. Sales remain strong as “the way people communicate and create content becomes more and more democratized,” he says.
To maintain growth, the 38-employee company is trying to distinguish its popular digital consumer microphones, called the Snowball and the Yeti, from about 40 others unveiled over the past three years by competitors such as AKG, Sennheiser, Shure, and Samson Technologies. Samson last year introduced three mics with similar retro aesthetics and playful names: the Meteor Mic, the GoMic, and the G-Track. “Kudos to them,” says Maier. “They didn’t copy us directly, but they saw what was going on.”
This summer, Blue Microphones plans to introduce the Tiki, the first USB mic with software that mimics human hearing. The idea is to make it easier to hear people talking during conversations on Skype and Apple’s FaceTime. For them, “built-in mics and speaker systems on laptops and desktops increasingly don’t seem to fit the bill,” says Deloitte’s U.S. technology, media, and telecommunications leader Eric Openshaw. External “mic alternatives seem to be a better proposition for many,” he says.
Rather than build a “dumb mic” that can’t determine what is human voice and what isn’t, and write software for a computer to control it, Maier says his engineers used artificial intelligence to distinguish human sound from background noise. That means it won’t record typing or traffic, for example. Another first: When the user stops speaking or singing, the mic mutes itself. When the user resumes talking, the mic transmits audio within 20 milliseconds, a gap so small most humans can’t recognize it, so it doesn’t cause lags or pauses the way other microphones do, which can result in voice overlap and interruptions.
At this year’s International Consumer Electronics Show, a handful of brands came by asking about using Tiki for built-ins for cars and computers, says Maier. Blue Microphones may for the first time license its technology, he says, aping Intel’s lucrative “Intel Inside” campaign to build awareness of its brand with “Blue Mic Tech Inside” labels on the equipment.
Blue Microphones is also trying to crank up sales in foreign markets by establishing individual partnerships with distributors in Europe and Asia rather than one main distributor, with which Maier says it parted ways this March. Last year, Blue’s international business increased 38 percent, and revenue hit $19.5 million, says Maier. This year he estimates about $27 million in revenue, with about 20 percent from overseas sales.
The expansion from steady, small manufacturer to growth venture isn’t a fluke. In 2008 the Transom Capital Group, a private equity firm launched by former McKinsey consultants, bought a majority stake in Blue Microphones. It rebuilt the manufacturer’s supply chain in China and the U.S., put a new accounting system in place, and broadened marketing strategy. “When I arrived, the company couldn’t produce enough product to fill demand,” says Russ Roenick, a Transom managing partner who acted as Blue’s CEO until it hired Maier. Roenick pushed through the changes because “we didn’t want to collapse under the weight of our own growth.”
Of course, its growth is dependent to a large extent on the behemoths making computers and other devices with internal microphones that their customers find lacking. If Apple, for example, introduces a new laptop with a better mic, or “changes something, like a connector … we do have to move fast,” says Maier, “but so do our competitors.”
He’s pushing to keep Blue Microphones agile. Since its inception, the company has built all its professional equipment at its California factory and used contract manufacturers in Shanghai and Shenzhen for its consumer models. Maier says he has recently been looking for alternatives, including making its consumer lines in California. “We’re great at hand-built, custom high-end [manufacturing], but not at mass manufacturing,” he says. “We bolster and reinvest where we’re strong—product development and marketing. We find partners to help us with manufacturing and logistics.”