It has been a real Dre Day, although it is not February 18th.
After long rumor mill, it is finally official. Apple acquired Beats headphones. The deal has cause quite a lot of buzz around the globe, but I think the deal makes sense from many perspectives:
1. Beats is a good buy.
Buying Beats is not a speculation. Apple is buying a company, who is dominating premium headphones market with over 51% market share (some estimates have it even higher). As Beats is private company there is no public revenue numbers, but there are estimates of 1B of revenue with probably quite high profit margin. Buying 1 billion business for 3 billion is not a long-shot (like WhatsApp acquisition, which had significantly higher price tag) it is pure mathematics. You are buying market leader with an already established business and fast growth.
2. Beats gives Apple a headstart with music streaming service.
Yes, Apple could build their own streaming service, no one doubts that. Having Beats streaming service gives them great launchpad to go into a territory they have neglected. And I would not also worry about negotiating about the rights again. Apple has been quite effective in doing that in the past. Apple CEO Tim Cook stressed the importance of music in the recent interview:
This is all about music, and we’ve always viewed that music was key to society and culture. Music’s always been at the heart of Apple. It’s deep in our DNA. We’ve sold Macs to musicians since the beginning of Macs. And we accelerated the music industry with the digital music revolution with the iPod and the iTunes music store.
When we talk about Apple today, the music has not been on the focus compared to the heyday of iPod & iTunes. This deal makes Apple´s music offering again interesting. The future of music is streaming (although as an avid record collector, the future and past will forever be on vinyl) and that is something where the almighty Steve Jobs was wrong. This acquisition enables Apple to get on the parity with competitors and on the other hand provides Beats Music immediate increase in interest. It is probably no coincidence that Tim Cook mentioned Beats Music as the streaming service which has “gotten it right”.
3. Beats will be an important part of the Apple´s wearable tech puzzle.
You seldom buy companies because of their current state, but because of the current potential. That is where I think this gets really interesting and I am quite sure that Apple will be having some tricks on the sleeves and not just concentrating on music with this acquisition.
iWatch has been rumored for a while. It will probably arrive when you least expect it. It is certain that Apple will enter to the wearables and they will probably do it right as well. Although the wearables have not yet really taken off, believe me eventually they will. We overestimate technological disruption on a short-term and underestimate it on a long-term. Apple has also been massively successful in fulfilling needs of the people, they do not even realize they have.
Beats headphones have been one of the best examples of wearable tech, because they have really nailed the lifestyle aspect. Sound quality is one thing, but you really want to be seen with your Beats headphones. This is something the first wearables have not really grasped. When wearable tech looks ugly only the geekiest early adopters will wear them. And no offence to geeks but they do not start trends. Wearable technology is even more fashion than technology.
Apple has definitely understood this as they have also been recruiting fashion specialists from YSL and Burberry. I don´t believe that is an isolated strategy from the Beats acquisition.
4. Buying beats is getting the right talent
You are hiring Dr. Dre, one of the most legendary music producers ever and Jimmy Iovine, who knows the ins and outs of the music business. Iovine has been also key partner with Apple during the launch iTunes Store. Both are visionaries and can definitely help Apple to shape the future of music and wearable offering. Will they fit in Apple corporate culture? Who knows, but at least you could not hire more capable talent to help you in your future endeavors.
Also I do not really get the talk about how uncharacteristic this acquisition is for Apple.
Yes, they are usually buying smaller and more obscure companies (at least for mainstream audience). Nevertheless they are buying companies.
If you have loaded cash reserves, I don´t understand why you should withdraw from buying other companies. If it makes sense and in this case it does.
Necessary part of evolution of a company is to know when to do something surprising. This was surprising move (initially, not necessarily today because it pretty much just confirmed the rumors), which showcases that Apple does not sway away from being bold.
So put on “The Chronic” on your turntable or your favorite streaming service and:
— Beats By Dre (@beatsbydre) May 28, 2014