Why would Apple buy Beats?

Why would Apple buy Beats?

Summary: The rumor that Apple may buy Beats, the fast growing audio accessories firm, has excited a lot of negative comment, based partly on race. But it makes good sense from multiple Apple exec perspectives. Here's why.

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The analyst community has generally reacted with shock and horror at the thought of $3.2 billion for Beats - more so than when Facebook splashed out $19B for profitless WhatsApp. The dismay centers on several areas, including cost, marketing, design, quality, branding, personnel and - nudge, nudge - demographic.

Let's take each in turn.

Cost. Gasp! Apple's Largest Ever acquisition! $3.2B is small change. The company is minting money every quarter.

Marketing. Apple's stores are incredibly successful, but let's face it, without new products they could go south pretty fast. Beats adds relevant products and young consumer cool to a slowing retail channel. Angela Ahrendts undoubtedly voted for it.

Design. Jony Ive would never approve! Actually, he would, the guy who hired him at Apple leads Beats design. There's room for more than one design esthetic at Apple and he did, after all, sign off on the various multi-color iPods and the original iMac.

Quality. Audiophiles don't like Beats because of its bass-heavy sound. But Beats dominates the over-$100 headphone market, so maybe audiophiles can be ignored - again - by consumers who like their music their way.

Branding. Two strong brands! Integration nightmare! Apple is one of the top global brands, an icon with a fabulously successful retail channel. Easy. Beats by Apple. There. Done.

Personnel. Beat's Jimmy Iovine is, by all reports, highly respected. Why would he stay at Apple? Here's the carrot: "Jimmy, since Steve left we've needed somebody to bridge Silicon Valley and Hollywood. Take your game up several notches? Big shoes to fill, dude. Like, the biggest." Potential CEO? Who could resist?

Demographic. Beats appeals to an urban, somewhat-more-black demographic than Apple's affluent white techno-hipster core - and that makes some analysts nervous. But America is getting less white and, internationally, Beats is a cool brand. Expanding Apple's demographic is a Good Thing.

The Storage Bits take
All this is not to say that the acquisition couldn't fail. It could, easily. But failure would be a blip, not a disaster, for Apple.

Looking at it from the Apple exec suite, it’s a small bet with potentially huge benefits. Financially it could pay for itself in 2 years in higher sales. The rest is gravy.

And way better than doing nothing.

Comments welcome, as always. If you're a Beats headphone fan, please explain why. I don't get it.

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42 comments
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  • Second rate sound quality at first rate sticker shock?

    And if society went with highest quality instead of what's most/best-marketed, the world would be a better place. Ubiquity does not equate to quality, mass market or otherwise.

    So, yeah, in terms of quality, many people will readily overlook Beats and rightly so.

    And we are customers, not consumers. We use our money as a voice, if there is no other voice we have. Consumers just sit there and blindly accept what they are told and what they are said to need, and are ignored by the company when problems occur.
    HypnoToad72
    • iBeat

      I my opinion it is not about market share or sound quality or anything else. It is about the name. If you wanted to build a head phone with an iPod built in what would you call it, iHead. It just does not sound right and is really open for a lot jokes. iBeat, now that sounds right. It may still be open to some jokes but not as bad as iHead. For iBeat, it is just a bonus that it is tied to a popular brand to begin with.
      MichaelInMA
      • Also, think Wearable Computing.

        Apple bought Beats for the brand name. You wear a headphone, right?

        :)
        pc_techs_ct@...
    • We may be customers...

      ... but, a majority of people out there are not.

      While many people out there will tell you how bad Beats are, only some of us can actually justify why.

      To most people, the popular "it sounds bad compared to the competition" isn't a valid reasoning.

      In my opinion, Beats aren't bad, but they're not good either.

      For most of their products, the bass is horribly overpowering and unclean, drowning out the higher ranges.

      But this doesn't matter to most people.

      Because of marketing, most people see good sound as "strong bass", disregarding everything else.

      I am a fan of strong highs (treble) for example, but the average consumer wouldn't pay attention or understand any of that.

      If anything, the concept that overpowered bass is good probably stems from fact that you can feel it rumble against your head, and people take it as a sign that the headphones "must be good".
      ForeverCookie
      • Or it boils down to different tastes.

        Personally, I don't like the over strong base of Beats but my nephew loved it. There are many that think "original reproduction" or intent is all that matters and anything that does not pursue that is junk.

        I think it boils down to personal taste and trying to separate "consumer" VS "customer" is the most elitist claptrap I have read in some time.
        Bruizer
      • Really?

        Or maybe today's pop is bass heavy? Is this really such a hard concept to grasp? Lol.
        TANIUM
        • re: Or maybe today's pop is bass heavy? Is this really such a hard concept

          "Or maybe today's pop is bass heavy? Is this really such a hard concept to grasp? Lol."

          And if you play bass heavy program material on phones that already accentuate the bass -- guess what you get?

          Or is THAT too hard a concept for YOU to manage?
          ks2problema
    • But Apple will improve the quality

      Apple = Design

      This is not rocket science, people. It is about Wearable Computing and Brand Recognition.

      If someone is willing to walk around all day with headphones on, they are a prime candidate for other items to *wear*.
      pc_techs_ct@...
  • Risky

    Sure, it fits the high profit margins we've been used to see with Apple products. And like you said, it could be made profitable fairly quickly.

    Meanwhile, the premium-priced headphones market is a fashion trend that will go south. Inevitably.
    TheCyberKnight
  • Translation: The democracy of the consumer

    is awesome. Until they vote the way I don't like, then they're a bunch of stupid idiots.
    baggins_z
    • I love that.

      Perfect for a tweet.
      Bruizer
  • Amazing

    that "ananlysts" think apple spending 3.2B of their estimated 150B nest egg, for a profitable company is a risk. I honestly don't get the hate for Beats. Are there better sounding headphones/earbuds? I suppose so ( I don't claim to be an expert on headphones), but so what? People buy what they want, and I don't see anything wrong with that.
    Low_tech
    • Compare that to whatsapp

      My head is spinning.
      Apple paid 3.2B for headphone company and that is not bad nowadays when you compare that to Facebook's 19B for not profitable chat app company.
      At the time I thought that Microsoft went bonkers by acquiring Skype for 7B. Now it looks like Microsoft bought company for peanuts.
      paul2011
  • Even if the "premium priced headphones market" is a trend...

    ...Apple is probably looking far beyond the headphones themselves and more into the co-branding that is possible by leading consumers to believe that they've "integrated beats sound" into their languishing Macbook lines. The only problem I see with that is that at least for a little while, they'd be sharing shelf space with other less premium brands doing the same like HP.

    Of course this could all take years to fully go into effect the way Apple wants it to, they could sit on the technology, abandon the headphones themselves, extract certain parts... whatever it is Apple "does" when they do what they want to do. So that may not be an issue by the time their strategy is complete.

    A strange acquisition that is surely making old Steve roll over in his grave and had us all scratching our heads and letting out collective expletives when we first heard about it, but not a completely out of line one I guess.
    Playdrv4me
  • Because Tim Cook Is Incompetent!

    This guy is messing up with both hands.

    He reminds me of the MS Corporation... he can't seem to do anything right.

    He's the worst CEO Apple ever had. In fact, he's not even a CEO, he is Apple's babysitter.

    They could've hired a rhesus monkey if all they were going to do for the next 5-years is itterative updates.
    orandy
    • Worse than Gil Amelio?

      Please.

      Robin
      R Harris
    • Was your entire post was to find a way to

      malign MS? (I ask because you placed that in there when it had no bearing on the story)

      I'm really just curious about you obsession against successful companies, where you feel the need to ridicule them, day after day, and for what? What insecurity or failure are you trying to hide?
      William.Farrel
    • No, I can name three worse Apple CEOs:

      John Scully, Michael Spindler, Gil Amelio
      romad@...
  • Hipster meets hip hop...

    The union may disappoint a few Apple "purists" (you know, the "Steve Jobs never would've done this" crowd)... but to most consumers, it will probably be net plus. Apple's cachet has kind of been fading a bit the last few years, so linking it with Beats might bring a little sexy back to the brand... or, at least, pull in a different demographic.

    Would Steve Jobs have gone for this? Probably not. But the world has changed since Jobs, and Apple has to change too. If it doesn't work out, they can always just sell it off anyway (which is probably what will happen eventually--keep the music service, sell the headphone business).
    cybersaurusrex
  • Not a Beats fan ...

    ... I prefer the more airy Bose sound.
    theNewDanger