It’s official says Brian X. Chen, reporting for the NY Times: Apple, ending weeks-long speculation on the deal, says today that they’re buying Beats for $3 billion. While a little bit less than the $3.2 billion I reported back on May 8th, this is still a huge deal for both companies, and Apple’s largest acquisition since they bought NeXT computer, bringing Steve Jobs back to the company he founded, for $400 million in 1997.
With all the speculation coming to an end, it’s time to examine the question many are still asking: Why did Apple buy Beats anyway? Here are my top 5 reasons I think this acquisition makes sense for both companies.
— Tim Cook (@tim_cook) May 28, 2014
1. Jimmy Iovine, the next Steve Jobs?
Early on I remember meeting with Jimmy Iovine at a NYC hotel when I was prepping for the Beats Fall 2010 product release at the Best Buy theatre. Even then, he had a vision of turning Beats into an aspirational, luxury brand! With Apple’s purchase of the company, it has all but cemented Jimmy’s early vision of what the headphone company could become. Now, Jimmy will be bringing his outlook to Apple, a company that lost their own visionary leadership when Steve Jobs passed away in 2011.
Jimmy Iovine won’t literally be the next Steve Jobs. Tim Cook is still running Apple and there won’t be much of a shakeup at the top of Apple after this acquisition goes through. But there’s no denying that Cook, on his best days, has only a fraction of the charm, charisma and power that Steve Jobs did. Cook is a businessman, an insanely successful one at that, who is best known for making Apple’s supply chain more efficient. I’m sure Apple’s shareholders appreciate that but it’s so boooooring!
Meanwhile, if Apple is looking to break new ground with products in new markets, like wearables and a long-rumored Apple TV strategy that is supposed to disrupt the entire cable industry, they’re going to need someone with the same savvy and power that Jobs once had to make those deals happen. With Iovine’s long and successful career in the media, who better could they have hoped to find? This could be a huge game changer for the company as they move into new markets.
2. Streaming Music
It’s not news that iTunes revenue is down lately—more and more people have stopped buying albums and are instead subscribing to services like Spotify and Pandora to fill their music needs. While Apple has two key technologies in place, iTunes match to get your entire iTunes collection on your iPhone or iPad, and iTunes radio which is basically a Pandora alternative, they don’t have a compelling answer to services like Spotify and Rdio which offer huge catalogs of music on-demand.
Beats, meanwhile, recently launched their streaming service, called Beats Music. While the word on the street is that Beats haven’t gotten the subscriber numbers they’ve hoped for, with Apple’s resources combined with Dre and Iovine’s smarts, you have to assume they’ll figure this out and create a music service everyone and their mother will be rushing to sign up for!
3. Apple wanted the headphones, of course!
Okay so the technology and the talent is a big part of the acquisition, but let’s not forget where Beats makes all their money—headphones! Much like Apple makes their money by selling premium products at premium prices, Beats have consistently made their money convincing people to spend more to get the best possible experience for their music. Having an iPhone or iPod and a huge music collection is one thing, but when you want to enjoy those tunes at your desk or while on-the-go, a great set of cans is a must.
I mean, you still remember that perfectly timed Richard Sherman x Beats by Dre ad from earlier this year, right? In the music space, what other company has a brand and image anywhere near as powerful as Beats audio? Nobody even comes close.
4. It was time for Apple to make a statement
Apple has an absurd amount of money in the bank. Business Insider reported last month they have more cash on hand than dozens of different countries. They have more cash on hand than Canada and Google combined! That’s just crazy.
But Apple has never manage to make a big acquisition! Yes, they’ve made tons of smaller acquisitions that strategically have been the right move for them time and time again. But who has ever heard of PrimeSense or BroadMap or AlgoTrim? These companies, while each worth a few hundred million a piece, may have helped Apple with key technologies but they didn’t make a dent in Apple’s bank account. It was time for them to take a risk and make a big buy, and this is far and away the most interesting move Apple has made in years!
5. Apple didn’t forget about Dre
When Dre, then a member of the notorious NWA, released their hit single “F— tha Police” in 1988, who would’ve imagined that same guy would one day be an employee of the world’s most valuable brands?
Things have really changed in the two and half decades since!!!
According to Brian Chen, Apple isn’t just getting Iovine, the the tech and the headphones in the deal—Dre will be joining the company to “work under Eddy Cue, Apple’s executive in charge of Internet services.”
It’s undeniable Apple is assembling an all-star cast, with Dre and Iovine joining other recent high-profile hires like Angela Ahrendts (from Burberry) and Paul Deneve (from Yves Saint Laurent). I can’t wait to see what this new collaboration leads to!