Yesterday, the Financial Times reported that Apple is finalizing an expensive, $3.2 billion purchase of Beats Electronics. Here’s why this is a really bad idea.
(1) People buy Apple because it’s Apple. Not something else.
This isn’t a brand relationship to be messed with. Apple stands for innovation, elegance, and very high quality products that work. Beats stands for deep bass, hip-hop culture, and celebrity flash.
Those are two completely different brand profiles with completely different consumer relationships. They shouldn’t be combined.
(2) Beats headphones aren’t that great.
They’re just the most hip and fashionable. Apple is hip too, but they’re also the best.
(3) Beats Music isn’t proven at all.
Beats thinks a novel approach will beat Spotify. But that’s speculation, and it’s not clear that anyone wants a novel approach to their streaming service.
Is that worth billions?
(4) Beats Music doesn’t fit into iTunes at all.
You’ve used iTunes. Have you used Beats? They’re completely different applications, and it’s difficult to imagine Beats existing in iTunes, at all.
Oil is over there. Water is over here. Let them exist, separately.
(5) You could also buy Spotify.
Spotify has 30 million users; Beats has a Super Bowl ad and some puffed-up numbers. And not only does Spotify fit better into the iTunes architecture, it represents a much better fit into Apple’s brand and culture.
Just like Beats, it’s also available for a few billion.
(6) Apple doesn’t need to dominate music anymore.
Apple revolutionized and then dominated music for more than a decade. But that made sense when music drove massive sales of high-priced iPods. Now, people will buy iPhones whether or not Apple is making the leading music app.
(7) Steve Jobs made Apple a winner by doing fewer things better.
Apple used to make printers. They don’t do that anymore. And they’ve never diluted their brand like this, or brought in someone else to make stuff for them.
“I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.”
Steve Jobs.
I’m assuming the plan is to eventually, or over the course of the next few years, redesign/merge Beats into iTunes, and become Apple’s streaming service. I mean, Apple’s got those 800M CC numbers ready to get charged $8 or whatever but there’s probably still significant value in the iTunes store. Streaming isn’t catching on fast enough to just get rid of it now.
Let’s speculate here:
1. Has Jimmy been a visionary to the music industry since ‘Born to Run’? How long did Jimmy know Jobs? What acess/knowledge did Apple gain to make iTunes successful? Music sold hardware. That relationship still stands today. The sucking sound is the Silicon Valley Venture Capitalists exploiting the content creators.
2. We know what access Beats will gain from this relationship, but what access will Apple gain?
3. Who are the middle men that will benefit from this relationship?
I wonder how fast Ian Rogers can burn through $3.2 billion.
Sounds like you have some issues with culture integration. This article has very little foundation. Take a minute to step back and reflect on your perspective. Have a good one.
I think Paul’s point about different cultures is very legit. Purchasing Beats would represent a certain retreat: chasing the lowest common denominator at the expense of quality. Beats Headphones is a successful product but a large part of the appeal stems from Dr Dre’s ownership: for how long will the headphones have that hip-hop cachet when kids know it’s no longer owned by Dr Dre? Even today, how many college kids proudly sport Beats headphones? Would a dialed-in college kid wear Beats headphones around their neck at Coachella? I think the brand has peaked, and some people at Apple are grossly overestimating the cool factor of Beats.
Which brings us to streaming . . . but why would Apple want to undermine the iTunes store with a competing platform? Unless a streaming option becomes part of/integrated into iTunes — but does Apple need to spend $3.2B to accomplish that?
Is that Steve Jobs in the haven coping with headache caused by the news?!
Ha, well he is lauded as Jesus in many circles. And, maybe in the mainstream as well.
This purchase seems like an admission by Apple that the download to streaming transition is inevitable, and that they got too far behind on streaming to build it up / market it from scratch. Disappointed with this news. Given Apple’s reputation for (1) innovation and (2) generally speaking, fairness to labels, my hope was that they would create something totally on their own and not just re-brand something that already exists. Feels like this acquisition is being made out of desperation, or resignation. And agreed, Paul – they are buying the wrong service. Actually, Rdio feels more Apple to me in terms of look / feel, but Spotify is the best choice.
This just sounds like a really bad sales pitch for apple and your hating on beats..
Waste of my fkn time
“Apple is hip too, but they’re also the best.”
Opinions differ!
“Apple doesn’t need to dominate music anymore”
Music is deeply integrated in almost everything Apple does. The disappointment here is not that Apple stays in the market but that it doesn’t have the guts to go all in.
There’s only room for one or two players. As of now, we have iTunes and YouTube. Both have huge catalogues — and both have audio and video. That’s what people want.
Acquiring old fashioned audio-only services like Spotify or Pandora would be as pointless as buying Beats.
Apple would own the entire entertainment market if it bought YouTube instead.
“Apple would own the entire entertainment market if it bought YouTube instead.”
I’m not sure they could spend half their available COH…
who loses?
once again … the artists
All of us armchair QB’s have our opinions, but let’s deal with the obvious first.
Apple is not going to lose a pile of money here (I’m sure they have done their due diligence, this isn’t a FB type investment). Beats is strong enough in the market that they are still making a healthy profit. Taking that money and unwinding it from the rest should be easy.
They, I assume, get Jimmy and Ian for at least a period of time. The bet is that the “curation” bit should help them churn the Itunes catalog to pump up sales on the end and streaming on the other. Either way it leans is a win.
While Apple acted like a more conventional company this time around, the purists really need to come off it. Apple has always begged borrowed and stolen. This is just a more formal way to do it. Remember those mouse things didn’t come from Apple, came from Xerox.
Same can be said for Microsoft, HP, Dell.. etc
FUCK STREAMING!!
Apple are interested primarily in buying Beats Electronics- the headphone makers, not the streaming service of Beats
I’m finding it hard to agree here. The thing is, Apple has undergone a major shift from a computer company to a consumer electronics company and things are done differently in consumer markets.
For a start, one does not dominate consumer markets by having just one brand. For every person who swears by Apple gear there’s at least one person who won’t touch it with a ten-foot pole. This does mean that Apple is doomed to be relegated to a minority share of the market, eventually. It happened with personal computers, it happened with phones and – to the best of my knowledge – with tablets as well.
Apple could develop a “rival” brand, or it can acquire an already successful rival. The sensible thing for them to do now is to keep developing Beats as a way to reach those market segments that the main Apple brand doesn’t. People already embraced Beats, so why not take a cut of that action.
It is possible that we might see some degree of integration between the two and it is also possible that Apple- and Beats-branded products will essentially be the same thing with a different cover. Either way, it doesn’t seem like an obviously dumb move for the fruity firm.
While we’re at it, why not Spotify? I think that should be obvious. Spotify is bleeding cash, they’ve no idea how to turn it around, they are the catalyst for bad feeling on the part of the suppliers of their sole good on offer and – frankly – can’t offer Apple anything it doesn’t have already. The only thing Spotify is good for, as far as Apple is concerned, is its user-base, but we have to wonder whether most of those people don’t already have iTunes accounts. Besides, given how poor Spotify’s performance has been thus far, it’s unlikely that this population is worth very much.
In short, Spotify is a poisonous company and Apple has a good enough understanding of the music market to know this. They aren’t in the data-mining business, so the things Google or Facebook might be interested in don’t really change the assessment.
The best writeup I’ve seen. It’s brand dilution on a massive scale. Apple just threw all of its specialness ad credibility out the window.
Goodbye Apple.
Dre is now the final proof of the old saying:
The only way artists can make money from streaming is to start a streaming service.
Artist’s owning their own streaming service? Right on.
You mean Pandora?
I think he means Pandora. Pandora is the only streaming service where the majority stake is owned by an artist.
You mean a con artist…
I agree, BUY SPOTIFY! Not Beats
I don’t think anybody wants to buy Spotify…
That depends. The future is extremely unpredictable for Spotify. And, this is a company squarely in the confining ‘valuation trap,’ which basically refers to the limited options that extremely over-funded companies face (option 1 is IPO, option 2 is massive sale).
And what if the IPO market isn’t as fluffy in say, 1.5, 2, 2.5 years from now? That means sale. And, Spotify’s investors are apparently itching to sell and make a return (and at some point, any return).
So, perhaps there’s a far more agreeable price to be had in a few years.
Let’s see how this all plays out.
Stop thinking in black and white, it is unnatural.
This whole Beats/ Apple deal raises more questions then justifiably makes anyone sense.
Are they buying it for the brand, product or what it could be?
Is Apple worried about Amazon /consumer electronics/distribution and retail?
Technologically Apple is miles ahead on Beats on wi fi and streaming “Aereo” ?
Is the board on vacation while this deal goes down?
Nobody at Beats is worth 3 billion dollars, nobody .
What happened to ROI ?
A lot to think about or nothing worth thinking about?
If Apple was in it for the technology or the product, they would buy Sennheiser or JBL. The Beats headphones are lifestyle; not quality.
Which is exactly why Apple (who were always a lifestyle company, even when they produced only computers) might be interested in buying Beats for the product.
Sennheiser or JBL are primarily pro brands, with relatively little consumer recognition. They are thus a poor fit for Apple, who could no doubt create a technologically comparable product if they thought it necessary. Creating a household brand – that also happens to be different than the one you already have – is a different story altogether.
In every airport and shopping mall in the world these two brands dominate shelf space. It used to be Sony. A mixed and matched offering from both will be highly compelling to brand councils consumes- especially if music is bundled with the said purchase…
Edit: “conscious consumers” I mean. Stupid spellcheck
Remember when Beats purchased Topspin, is this the same type of buyout…
What isn’t clear is whether the purchase is about the headphones or the streaming service.
Worth noting that if it is indeed for the streaming service then there is not a lot to it. The catalogue and content distribution for Beats is managed by MediaNet (as was MOG) – which essentially leaves a kinda nicely designed application skin and a kid cool brand.
Any designer with imagination and an understanding of the digital music space could have designed the app – see Behance and Dribble for examples. Which leaves the brand.
The Beats brand in the streaming space is far from proven. Lots of advertising $ for (supposedly) little return.
Which, to me at least, seems to point back to the headphones and the broader Beats brand strategy as the driver for the purchase.
I’ll get back in my box……
APPLE + BEATS: Apple should cut all ties and run! Help stop it and sign.
http://www.ipetitions.com/petition/stop-apple-beats-acquisition
The market has clearly communicated that it doesn’t like the idea of a Beats deal with Apple. However, most naysayers and the media have struggled to properly articulate the reasoning for the bearish sentiment.
This is how it should be communicated:
– Beats should be viewed as a fashion company, as they offer very little value-add from a technology perspective. Beats main market are teenagers who currently view the earphones as a “cool” fashion statement. This is the root of the concern, as we all know that fashion statements quickly become “uncool” due to overexposure, boredom, or something more “cool” coming onto the market. It would be fair to say that the best days of the Beats “coolness” are behind it, and the sunset looms as they may soon become “un-cool”. Paying $3.2 billion for a company that will probably fade away into “un-coolness” soon is probably not a wise acquisition. One cannot buy long term “coolness”, as it must be created or earned.
– Apple could relatively easily create a superior headphone product at a fraction of the cost of the Beats acquisition, and Apple products are still very much “cool” and in fashion
– Apple could improve its streaming service for a fraction of the cost of this deal, and Apple subscriptions and profitability would remain leaps and bounds ahead of the Beats service.
On balance, very poor judgement at the top of Apple if this deal actually goes through.
http://www.forbes.com/sites/gordonkelly/2014/05/09/why-apple-has-lost-the-plot-with-3-2-billion-purchase-of-beats-by-dre/?utm_source=feedblitz&utm_medium=FeedBlitzEmail&utm_content=395530&utm_campaign=0
http://blogs.wsj.com/corporate-intelligence/2014/05/09/apple-spend-3-billion-on-beats-lose-5-billion-in-market-cap/?mod=yahoo_hs
http://seekingalpha.com/article/2206943-apple-would-find-it-difficult-to-integrate-beats-electronics
http://www.businessinsider.com/apple-beats-rationale-2014-5
http://www.hypebot.com/hypebot/2014/05/apple-in-talks-to-buy-beats-electronics-32-billion-said-to-be-mostly-for-headphone-business.html
https://www.digitalmusicnews.com/permalink/2014/05/09/7reasonswhyapplebuyingbeatsisbadidea
I’m assuming this is also for an acqui-hire for iTunes to get Jimmy Iovine. The fact of the matter is that digital download sales will continue to drop and streaming will rise. iTunes needs to reinvent its digital music strategy andJimmy Iovine has the connections and vision to create something unique.
Acqui-hire for Iovine
ha-ha, you wouldn’t know quality if it hit you in the face, you make your point about beats, but the same goes for apple. you can get something better for 50% of the price!