Apple’s Largest Acquisition Ever - An Overpriced Headphone Brand
The answer appears to be profit margins and branding, not audio technology, patents, frustrating Samsung or another Apple pastime.
WHY IT’S NOT ABOUT THE TECH
When I first heard about the acquisition, it did cross my mind that maybe Beats had some secret recipe for audio equipment or design. But that’s not the case. One piece Beats’ business they may be after is its streaming service, which was launched as recently as January. Though going after a streaming service also seems odd because Apple has relationships with record companies that would (potentially) allow them to build a similar service without spending $3.2 Billion on an existing one. Though an actual subscription streaming service (versus Apple’s current a la carte model) is something new to the company, 9to5mac points out Tim Cook and Eddy Cue previously met with Beats’ Jimmy Iovine to discuss streaming music.
Gigaom’s David Card makes a compelling point about how Apple may be uniquely suited to create a very solid streaming service without offering a freemium model like that of Spotify or Pandora.
“While the digital music industry – chiefly Pandora – bemoans the cost of content licensing, the real problem has always been customer acquisition costs. Artists – and labels and publishers – will always have to be paid. The most successful digital subscription model has always been satellite radio, which has a phenomenal conversion rate due in part to free trials bundled with new car purchases. Apple can essentially do the same thing with iPhones and iPads. Digital music services have tried – with carriers, with handsets – but largely failed. Cars are still an open opportunity.”
PLEASE HANG THIS CHART ON YOUR BEATS OWNING FRIEND’S WALL
One reason Apple may be interested outside of tech is the crazy profit margins Beats appears to be pulling. Some estimates have the cost of making beats at as little as $14. Of course, they are then sold for $200. Apple’s no stranger to high profit-margin products, but normally the products its selling at such high margins have a special operating system that is Apple specific or at least a fruit emblazoned on the side. This selling headphones for a high margin thing is a new game for them, but a writer for The Verge says it might not be a bad business to get into.
“Acquiring Beats lets Apple begin selling a range of high-end accessories to its own best-selling devices, earning profit margins that can exceed its own. ... It gives Apple control over a powerful new music brand that has proven especially popular with younger people. And if the Beats brand survives, there would seemingly be a huge opportunity for Apple to grow it globally.”
WHAT MOST OTHER OUTLETS SEEM TO IGNORE
As a part of the deal most outlets are saying Dre and Iovine will join the company. However, almost everyone ignores Dre’s controversial past. I found one mention of it from PC Mag.
“Dr. Dre has been the musical force behind some of the biggest names in hip hop history, including NWA, Snoop Lion (or whatever he is now), Eminem, and 50 Cent. It would be both easy and unfair to cherry-pick inflammatory lyrics from any of these performers and associate them with Dre, and therefore (possibly) Apple. So I won't be doing that.
But you know what wouldn't be completely unfair to bring up? The fact that Dr. Dre beat a woman up in 1991. Not to mention that Dre's ex, rapper Michel'le, also recently alleged that Dre used to beat her when they were together.”
This is why I find it so odd Beats became such a fashion symbol at my university.
My guess is Apple will proceed with the acquisition, and users may benefit heavily from it with a new competitive online streaming service or new wearable hardware that is very well designed.
I just hope they don’t have any Beats-like products. That is, there’s a reason the same people were willing to buy OSX compatible devices and BOSE headphones - both products have a central focus on quality. I’m sure Tim Cook knows what he’s doing, but it wouldn’t hurt Cook and the rest of the board to remain cautious.