Why Apple is Buying Beats
(Really.)
I’ve yet to see a compelling explanation for Apple’s three billion dollar acquisition of Beats, which is strange:
- I think the explanation is fairly obvious and supported by Tim Cook’s post-acquisition comments.
- This, then, is my attempt at an explanation.
HEADPHONES AND STREAMING MUSIC
It’s neither of those things.
A lot of people are scratching their noggins about the deal—perhaps triggered by the tickling sensation of the point flying overhead—because, they say 1) Apple could easily cobble together a streaming service that would match the success of Beats and 2) Apple already sells overpriced headphones that aren’t very well regarded by people who regard such things.
The disconnect, then, is that Apple tends to buy things it needs, and Apple doesn’t need headphones or expertise in software creation.
All true-ish, but the fact is that those “not needed” things make a three billion dollar deal safe, because they’ll eventually provide a return on investment even if you set aside the things Apple actually spent three billion dollars on.
Cake, meet icing.
Indeed, here’s Tim Cook mentioning headphones as a bit of an afterthought:
They’ve also built an incredible premium headphone business that’s been tuned by experts and critical ears. We’re fans of that. It’s a reasonable-size business that’s fast-growing.
JIMMY AND DRE
I said earlier today that this deal was 70% Jimmy, 30% Dre, but I think I’d adjust that to a 50/50 proposition.
What need does Apple fulfill by bringing “Jimmy and Dre” into the fold?
Trust and respect.
Other technology firms hire celebrities and give them crazy titles like “VP of Cool” because they want to sway apparently dumb customers via a superficial affiliation. Apple may well manage that as a byproduct of the deal, but that’s not the trust and respect Apple really needs to earn.
“The ugly truth is that there is such a Berlin Wall between Silicon Valley and LA,” Apple Chief Executive Tim Cook told the Wall Street Journal in an interview. “The two don’t respect each other, don’t understand each other.”
Perhaps Steve Jobs gets too much credit for content deals made while he was at the helm, but the fact is Apple is no longer making the deals that were so crucial to their growth from the inception of iTunes through the unveiling of the iPhone.
Consider:
- The next-gen Apple TV seems to be held up because of content deals.
- Publishers hate Amazon — are feuding publicly with Amazon—yet Apple’s iBooks offers no compelling advantage over Amazon’s Kindle as a content ecosytem. (Yes, I realize Apple is wearing a shock collar put in place by the DOJ.)
- Apple’s music offerings have been eclipsed by streaming services.
Jimmy and Dre will offer something that no other company has: Internal credibility that could return Apple to its former status as a deal-making juggernaut. Apple lacks for nothing else that a Beats acquisition could provide.
I’m of the opinion that it’s not practical to become a content production powerhouse, even if its currently fashionable to attempt to do that. (See: Amazon, Yahoo, etc.)
Still, content is king, and “tearing down that wall” is going to be the best way to bridge the content gap, moving forward. Apple was struggling to lift the hammer, so they went ahead and spent three billion dollars to install a VIP entrance and, crucially, doors provide something hammers do not:
An opening you can shut after you walk through it.
Meanwhile, Dre as a full time employee injects Apple back into hip hop culture in a big way. That means sports stars, music videos, cross-over genres, celebrities, fashion, all featuring Apple’s products (whether its under the Beats name or Apple’s) because its once again fashionable to do so.
That’s the idea, anyway.