Some theories on why Apple would want to buy Beats

By , May 11, 2014

Paris Hotel

Since word got out last Thursday that Apple is in the final stages of purchasing Beats Electronics, it seems like everyone and their dog has written an op-ed on why Tim Cook and company would want to spend $3 billion on the headphone-maker.

While I normally love playing armchair analyst on topics like this, I’ve decided this time not to add to the noise. Instead, I’ve rounded up a handful of some of the better theories I’ve seen around the web on why an Apple-Beats deal makes any sense…

First, for a little context, the Financial Times reported last Thursday that Apple is very close to reaching a deal with Beats to acquire the company for $3.2 billion. It hasn’t been confirmed by either side yet, but several outlets have echoed the news.

The story caught everyone off guard, for a few reasons. For one, Apple hasn’t ever made an acquisition of this magnitude—it typically buys smaller companies. And two, few people valued Beats Electronics above $3 billion. So everyone is asking: why?

The Wall Street Journal’s Hannah Karp thinks it’s all about Beats Music. She says that Apple has been extremely reluctant to do a streaming music service, but with growing pressure from record labels and declining iTunes sales, it finally had to give in.

Some executives said they were surprised at Apple’s reluctance to take the plunge into subscription streaming earlier. Until now, the company’s decision to stay on the sidelines has been reminiscent of record companies’ resistance to downloading as music fans began sharing files on Napster and other such online platforms 15 years ago.

Recode’s Peter Kafka also believes Apple is interested in Beats Music, in the long term, but in the short term he really likes their hardware business. He points out that Beats has, for years, sold premium electronics in high volume—right up Apple’s alley.

The best way to think about Beats, for now, is as two separate deals. In one, Apple gets an electronics maker that has trained lots of people to spend money on headphones with high price tags, even though some audiophiles don’t think highly of them. Industry sources peg Beats’ electronics sales at more than $1 billion a year.

Marrying that business with Apple’s established design and product operation, overseen by Jonathan Ive, could give Apple a new series of product lines and/or new channels to push out new products like the rumored iWatch.

The iWatch is another popular factor brought up in Beats buyout theories. I particularly liked The Verge’s Sean Hollister’s take on the subject, as he opines that Beats could be the last key piece Apple needs to bring its high profile wearable to market.

What Apple needs to make a wearable product successful isn’t just superb technology, or fantastic manufacturing and distribution. The company’s core strengths aren’t enough. It would need the iWatch to be seen as a fashionable luxury product, one worn by influencers. Beats has those in spades. The streaming music deals may not transfer, but Apple could retain the celebrity cachet.

While Beats may not be as universally popular as Apple itself, it could do what one of the world’s most profitable companies might not risk on its own: convince people that a potentially controversial, optional piece of technology is worth spending top dollar to purchase. $3.2 billion may be a small sum when you consider the price of failure. My hunch is that if Apple is buying Beats, it’s because Apple is ready to announce the iWatch. It just needs Dr. Dre and Jimmy Iovine to wear one. 

Speaking of Dre and Iovine, they are both rumored to be taking on senior roles at Apple following the Beats deal. While I don’t think for a second that these guys are worth $3 billion alone, it’s important to know the kinds of things they bring to the table.

Most of you probably know who Dr. Dre is. The rapper/producer has been involved in hundreds of hit records over the years, and is a major influence in music and other entertainment industries. And as for Jimmy Iovine, here is Buzzfeed’s Peter Lauria:

In recent years, Iovine, a lanky figure who often sports a baseball cap, has decreased his involvement at the labels he oversees in favor of more entrepreneurial activities. He was one of the first industry executives to anticipate the download business’s decline and advocate for subscription and streaming services as music’s future. According to the source, Apple is buying Beats in part to bring Iovine on board to “revamp and run its whole music strategy.” [...]

In terms of persona, Iovine and Apple CEO Tim Cook couldn’t be more different. Cook is precise, measured, financially risk averse (except for the Beats deal, apparently), low-key, and soft-spoken. Iovine is none of those things. He is, in fact, almost precisely the opposite. Bred in Brooklyn, Iovine is streetwise, loud, and a creative risk-taker. He is, dare we say it, very much a Jobs-like character.

It’s worth mentioning again that the acquisition has not been confirmed by either company, but many believe that it could be announced as soon as this week. Perhaps then, we will finally get some insight into why Apple would value Beats so highly.

The Cupertino company doesn’t typically comment on buyouts, outside of its boiler plate statement ‘Apple buys smaller tech companies from time to time…’ But with this deal rumored to be worth $3.2 billion, it would certainly be expected to elaborate.

  • Share:
  • Follow:
  • Virus

    Beats turned garbage when they dropped from Monster

    • Eikast

      Monster itself is garbage. I just hope that Apple will make the beats better in terms of sound.

    • Osama Muhammed

      the point of buying it is free commercial ads :D, even my least local TV channel was talking about it

  • http://hashuumi.tumblr.com/ Hisham

    I don’t know why, but this doesn’t seem the right step in the right direction…

    • Jovani Hernandez

      Like you would know what are the proper steps for a successful company as apple

      • Chun-Li aka ThunderThighs

        Exactly. I hate when people say like they know what’s wrong and right when they have no knowledge in that field.

  • Vince Reedy

    I think it’s all about the “cool” factor. Having all the NBA players sporting beats headphones and the iwatch. The cameras always catch athletes with their beats headphones on.

    Brilliant marketing for overpriced garbage.

    • Ray Wolf

      Not just NBA players, there’s just so much “Beats” saturation, to add to the already Apple iDevice saturation in the market which is likely being used in conjunction with the headphones.

      I agree 100% that beats headphones are overpriced, but this is definitely opens the doors to one hell of a marketing plan.

      Plus, if Apple were to implement their quality standards with the beats headphones, we could see a more improved product. It’s not like Apple has to spend much time convincing people that “beats are the cool thing to wear”. I see more people wearing them around their neck than actually putting them to use. The fashion appeal is more than the true propose of the hardware.

      • http://www.floridatechno.com Ben Murk

        Yea for one they would need to make the Solo HD $180 flimsy pieces of crap that crack on the headband easily 10x more sturdy and better sounding… Only kids can’t see how much they suck they are so blinded by the ‘wow’ factor spending their whole allowances on these things. Even Nike Jordans are good quality shoes, regardless of the price tag – and you see people buying 100 pairs of these and they have no car! Same thing is happening with these stupid beats headphones except the quality is horrible. Right now they have a wow factor and if Apple buys them and doesn’t turn around with providing a good quality product it will become useless garbage in a few years and they will sell Beats for less than what they got it for. Apple is supposed to be all about attention to detail well buying headphones that are flimsy and sound like shit doesn’t seem like they’re paying attention to much detail there…

  • Jeremy

    Probably not one of the best guesses but maybe also to improve on Apple’s headphones since the iPhone 6 is coming soon? Just a guess.

    • Christian Mejía

      I doubt it maybe iphone 7 because the EarPods did supposedly take 3 years to “perfect”

  • jose carlos

    I knew from the beginning that something like this would happen.Sense the very start of the beats Co.solo launch, all their marketing stragetes have been the same if not close to Apple way of doing things.Even when beats music came out they mentioned something about not competing against apples iTunes all others where competition.Not. exact words but same meaning.

  • Omar Shamma

    If all this means is that I get beats headphones with my new iPhone, then I’m down.

  • Timothy Miley

    Beats hardware is crap, so it’s their software they want, but Cook should have bought Spotify!!!

  • Timothy Miley

    Why does Cook want to associate with these two scammers??? They prey on young ignorance and spend most of the money on marketing!!!

  • George

    Here is a though… they rename beats to ibeats and bundle ibeats with all the iphones from now on. Beats earplugs probably cost fractionally more to manufacture than the current apple ear pods but they sell at 150$ due to the power of their brand. If apple was to bundle ibeats with iphone without adding the extra 150$ to the package suddenly the iphone becomes a more attractive deal and a bargain for many. If the iphone 6 is sold at the usual 650$ range then if you were to buy a beats headphone on top you will be looking at 800$. If at 650$ the iphone 6 comes bundled with ibeats instead of the usual apple earpods, this all of a sudden creates a 150$ bargain price for everyone thinking to buy beats…it will also create a percieved value for money to everyone else who never heard about beats in their life due to the hype behind it…so punders willing to fork out north of 600$ to buy a phone would percieve the iphone as better value for money even from the less expensive top of the line samsung phones. A lot of criticism has been given that apple is buying crappy hardware. Really all apple needs to do to get the full ROI at the 3.5B it will spend, is to simply replace the apple earpods with ibeats and enjoy the marginal increase in iphone sales due to that (a marginal icrease effect can easily achieve a 3.5B increase in iphone sales per quarter or for the first 6 months after the iphone 6 release…and all this attributed just to this little marketing trick of bundling the ibeats percieved value with the iphone … and if these plugs they are as good or better than the current apple earphones then there is no room for the quality criticism )

    • Hyr3m

      So as usual, Apple is banking (or hoping to bank) on people’s ignorance and wannabe-ness… Thanks for the clarification :D

    • http://www.floridatechno.com Ben Murk

      You forget hardly anyone buys iPhones at that price tag. Everyone buys iPhones for a discounted price with their contract, the bulk of their sales. You’re right might make a lot of idiots think this is awesome until they use the beats and realize the Ear Pods are better…

  • mav3rick

    They’re alike, or those are even “better”: selling headphones for $200 it takes less than $20 to produce.

    • Chindavon

      You must be talking about Google Glass. $80 in parts with a $1500 price tag.

  • http://www.floridatechno.com Ben Murk

    Worst headphones EVER. Whatever the reason Apple can muster to buy these headphones isn’t going to sit well with all the thousands of music professionals who buy their laptops for producing music – we aren’t fooled. Those headphones suck balls. Sennheiser HD25s sound better than any Beats headphones and those are not even top of the line Sennheiser headphones, they just Dj club headphones!!!