End to End

The Beats acquisition isn’t about headphones, its about Android.

To make sense of the Beats deal, stop looking at Beats and start looking at Apple: Apple doesn’t care about selling music[1]. Apple doesn’t care about selling headphones[2]. Apple cares about selling phones, tablets and computers.

So why buy a headphone and music company?

To sell more iPhones, iPads and Macbooks.

Apple is at war for the future of computing with Android.

Android is as much an opposing army you fight during the day as a ghost you fight in your dreams. Android has the massive armies of Google and Samsung assembled on the front lines but Android isn’t just a threat materialized, its a shape-shifter; a Microsoft fork, a Facebook phone. Android is everywhere and can become anything, so the threat to Apple can come from anywhere.

But Android’s biggest advantage is its biggest weakness: Things that can be anything are usually many things but seldom the best thing.

Apple thrives by making experiences simple. They stay focused. They create integrated systems. Apple wins by blending hardware and software into one package that just works.

Apple is buying Beats to make streaming work. Well not just work, but work delightfully.

Buying Beats is about giving everyone that purchases an Apple device a bundled, simple, seamless, end to end system for listening to any song in the world easily and instantly right out of the box.

Apple is all about music. Apple owns digital music sales. Apple has had concerts at their product announcements. Music brought Apple out of the ashes.

Listen to Steve Jobs talk about music when he introduced the iPod.

“Why music? Well, we love music. More importantly, music’s a part of everyone’s life. Everyone. Music’s been around forever. It will always be around. And, because it’s a part of everyone’s life, it’s a very large target market. All around the world. It knows no boundaries.”

Apple is working to perfectly meet a universal desire of their users and baking it into every product they sell.

So why buy Beats?

Beats is a special company when it comes to licensing. Licensing is a beast. Even for major players like Google licensing can take years. Many contracts don’t allow for transfer of rights on acquisition. Beats’ deals are probably the same but Beats isn’t just any company. The CEO of Beats works at Universal and reports directly to the CEO. One of the major funders of Beats is the owner of Warner. Even if Sony isn’t involved Jimmy can navigate those waters.

Beats is cool. Apple isn’t just offering access to songs — they are making it cool. Not only is Beats a cool brand, but Beats has the artist involved (and you can bet many many more will be there soon now that Jimmy and Dre are staying at Apple).

Beats music is already great product. Its clean, fast and already works. While Apple understands the need for simple integrated systems, they don’t always execute perfectly and buying a functioning product removes the opportunity for another Maps or .Me disaster.

Apple needs streaming. Google Play is already embedded on many Google Devices. Amazon will have their content front and center on their phone just like they do on the Kindle Fire. Apple, like they have been many times before, is behind on integrating new features into their platforms but they’ve made up for it before.

By buying Beats Apple gets the sexiest product in a universally important space and the ability to bundle it inside every device they sell.

Buying Beats isn’t about selling headphones or selling music: Its about giving their customers an simple, beautiful, integrated customer experience with no risk. Its about bundling every song in the world with every product they sell.

Buying Beats is about beating Android.

[1] iTunes is somewhere around $6B/year. Thats including music, software, movies, apps, everything.

Apple makes 30% of those sales. Maybe they have a great deal and have 15% cc fees. So they make $900M a year top line.

Apple made $10B in profit last quarter.

This isnt about selling music.

Buying a streaming company costs Apple money.

Its actually more cost effective to let Beats grow outside of Apple.

Apple would make 30% of every Beats transaction processed on their platform and they would make 30% of every Spotify transaction and 30% of everyone else.

If they owned them, 80% of revenue would go to the labels.

This is’t about selling music.

[2] Apple makes the best hardware in the world. Apple has the worlds most valuable, desired and important brand.

This isn’t about selling headphones.

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