On the 28th May 2014, Apple announced the acquisition of Beats by Dre for $3b primarily in cash (with $400m in Apple stocks). The news, as you’d expect has been met with mixed reaction from the public and analysts alike. It does drive us to ask the all-important ‘why’ question. Why would a company like Apple make its largest acquisition in the company’s history (by a long way) for Beats?
A bit about Beats
Just a few years ago, spending $300 on headphones was reserved only for the elite, the producers and the fanatics. Today, the category is one of the fastest growing and owned predominantly by yep, you guessed it, ‘Beats by Dre’. Beats reportedly commands 2/3 of the luxury headphone market ($100 or more) and at only 6 years old. For an electronics company, this is significant market share growth. But to say Beats offers the highest quality sound in the market isn’t true – in fact there are better quality options available and Beats offers nothing proprietary or unique. Without significant technology capital to acquire, the why question still remains. Why did Apple buy them?
Firstly, how did they grow?
The product has been somewhat praised for it’s sound quality though not to the extent that the price tags would usually demand. What ‘Beats by Dre did so well was create a desirable brand within the space.
Being seen with Beats by Dre was almost as powerful as having them. Being seen with them said something about you, your lifestyle, your values and about how seriously you took music. Beats by Dre left the electronics space and entered the fashion space, and therein the success was born, as a fashion accessory brand.
Beats continued to evolve, moving into music stream subscription, audio systems for cars, computers and smart phones (via HTC) and in Bluetooth speakers. The brand is on the rise and has a lot of swagger in the space.
Why Apple, Why?
Apple cares about music, there’s no doubt. Music resurrected them back into stardom, it continues to be a profitable business stream for them (though dropping iTunes sales are concerning) and there’s no doubt in their mind that the future of the company is dependant on what they do in the music space.
Staying at the top is never easy and Apple must continue to fight off the growing streaming market, and aggressive challenging competitors from all sides. When you turn over $170b (Revenue, 2013) in an industry dominated by ‘cool’, it’s important that you stay cool and Apple is no doubt concerned they are losing their edge, especially after the loss of Steve Jobs.
Apple needs the right people on the team. People who have proven results, who have creative ideas and of course can help lift the brand to the stage of swagger it once had. For that reason, leaders Dre and Jimmy Lovine of Beats are just what the doctor ordered.
Loving has produced for Springsteen and Lennon. He has deep ties into the industry and is known for his creative and marketing genius, as displayed in the rise of Beats. Dre has a connection to pop culture and a fan base of supporters.
Could it be conceivable that they did it for the intellectual property in the minds of these leaders?Could it be conceivable that the product itself, the streaming service and the technology though still valuable came second to the people?
It may feel like a stretch but I suppose that $3b for Apple may be the price they feel they have to pay for swagger. Well interestingly enough, the deal demands that Dre and Lovine joining the Apple board of executives. They want to keep them around, and that makes sense to me.
I think what those 2 can do for an organisation that needs a shake up will be very interesting to observe if they’re given the autonomy they had at Beats. Watch this space.