Apple + Beats. I don’t get it…


Sorry… I know the t’interweb is full of this already, but the thing is, I just don’t get why Apple would want to spend $3.2 billion on Beats.  I know there are articles all over the place saying its the best idea since the iPad, but I don’t buy it.

As far as I can see Beats has three assets Apple might want:  the brand, the hardware and the Beats Music streaming service.

The Brand

Now this is the only one of the three that could see having anything like that sort of value.  Beats is ALL brand, Dre and Lovine have done an amazing job building up a brand from scratch that for many has the same sort of kudos as Apple.  So there’s no argument from me that few organisation have a brand as strong as Beats… but Apple’s brand is almost certainly stronger… so does Beats give the Apple brand anything?  I’m sure there are some demographics where Beats might be up there with Apple, but I’m guess there won’t be many (any?) where its stronger.  In fact I’d argue that in some areas it may detract from Apple.

The Hardware

Lets be honest… Beats headphones aren’t great… sure they look cool but they sound horrible.  Say what you want about Apple as an organisation, but their products are consistently excellent, why would they want a range of products that, well, isn’t?

Maybe I’m old fashioned and in reality function no longer matters along side form, but I hope that’s not the case.

Of course beats products do have one very attractive feature – profit margins.  These things are a cash generating machine, headphones that sell for hundreds cost a fraction of that to make.  But again, Apple is already a cash generating machine, so why?

The Service

Apple helped change the way people consume music, and got rich from that change, but in my view they haven’t kept up.   iTunes was a game changer, the shear convenience of downloading music, and even paying for that, wasn’t a new thing, but Apple wrapped the whole it in an end to end service that people loved.  But people didn’t stop there.  Having already broken through the mental barrier of paying for a music track that was just 1’s and 0’s with no physical item to touch, people soon started to see the benefit of streaming services – why own the track at all with you can just stream any track you want to hear at any time?

Companies like Spotify have seen massive growth but Apple has been very late to the game.  iTunes Radio isn’t available in most markets and Apple are playing catchup in a field they should be dominating.  Could this be why Beats is worth the cash?

It could well be, certainly Beats Music has seen decent growth but its still a small player, tiny compared to iTunes and even Spotify.  Maybe Beats has a wider range of streaming licensing deals that Apple?  How those would novate to Apple following the purchase I don’t know.  I suspect that if Apple was interested in Beats Music for that reason it would only be because the record companies didn’t want apple to have those agreements in the first place (if I was them I’d be scared of Apple getting too big too).  If that was the case I would imagine there would be get out clauses that would be exercised fairly quickly.

So yeah… I don’t get it.  Unless you’re Dr Dre or Jimmy Lovine I’m not sure who wins from Apple paying $3.2 billion for beats.  Other companies sure, but for me Apple don’t need them.   But hey, I’m no expert and I’m sure I’ll be proved wrong!

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