In the post-Jobs era, did Apple just drop $3 billion on cool?
That's the ticket price on the company's purchase of Beats Electronics and Beats Music, it was announced on Wednesday at the Code Conference in Los Angeles. And yes, Dr. Dre himself and Beats co-founder and music industry bigwig Jimmy Iovine will be brought into the fold as official Apple employees, lending some street cred to a company that, despite its ubiquity, can still get a tad nerdy.
Apple's got plenty of cash to burn, and every incentive to ward off the "square" label that's been attached to companies like Microsoft and Blackberry. Still, not everyone's sold on the deal. Critics have complained that brightly colored Beats headphones clash with Apple’s clean, understated design philosophy. And really, couldn't Apple, with the past success of iTunes, have developed a streaming service on its own? Why spend $3 billion?
(Hint: It has something to do with celebrities).
Streaming is the Future
Before the purchase was final, analysts speculated that Apple was more interested in streaming music than headphones.
Look all the way back to 2003, when the iTunes store seemed revolutionary. Over the following decade, music downloads climbed as CD sales dropped. But last year, for the first time since iTunes was launched, digital album sales actually dropped along with CD sales.
"Music is dying in the way that we've known it," Eddy Cue, Apple’s senior vice president of Internet software, told a crowd at Code Conference. "It hasn't been growing in the way that we all want it to."
Meanwhile, streaming is on the rise. Last year, digital track sales fell by 6 percent, while streaming music consumption skyrocketed by 32 percent, according to a report from venture capital firm Kleiner Perkins Caufield & Byers.
The biggest player in the subscription streaming game is Spotify, which recently announced it had 10 million paying subscribers. Industry estimates put the number of Beats Music subscribers at 250,000.
Of course, if Apple wanted to build its own Spotify competitor, it probably could. In fact, Apple CEO Tim Cook told Re/Code that the company "could build about anything that you could dream of," adding that acquiring Beats would give them a "head start" and add "kindred spirits" to company. To outsiders, however, $3 billion seems like a lot to spend for a couple cool dudes and a fraction of Spotify's subscriber numbers.
Headphones That Stand Out
Beats Electronics makes headphones. They are not exactly the most well-reviewed headphones, or the cheapest. But Beats sells a lot of them and makes a killing in the process.
They can cost as much as $450, yet only cost $14 to make, according to the New York Times. That profit margin has helped Beats rake in $11 billion in revenue last year. According to a report from the NPD Group, a marketing research firm, Beats owns 57 percent of the "premium" market of headphones that cost over $99.
Still, Apple has always prided itself on putting out sleek products that don't sacrifice functionality for flash. Beats has been lampooned for doing the exact opposite.
Star Power
Apple has three times as much cash on-hand as the U.S. Treasury. Its lead designer, Jonathan Ive, was knighted at Buckingham Palace.
So, yes, Apple could probably make waves in both the music subscription and premium headphone markets on its own. But Beats is very, very good at being cool.
Apple is not just interested in Jimmy Iovine, who started his career bringing John Lennon his tea, and Dr. Dre, one of the most famous hip-hop artists of all time. (Their official titles at Apple: "Jimmy" and "Dre.")
Specific celebrities go in and out of style all of the time.
"I think what Beats will bring is not just the Dr. Dre endorsem*nt, but the discipline to develop a portfolio of celebrity endorsem*nts," Sam Rosen, practice director at ABI Research, told NBC News.
Pop stars Lady Gaga and Nicki Minaj have released their own Beats headphones. Athletes like Richard Sherman, the superstar cornerback for the Seattle Seahawks, created a lot of buzz for Beats with a defiant commercial released shortly after he was criticized for trash-talking 49ers wide receiver Michael Crabtree after the NFC Championship game.
Everyone from Usher to Vampire Weekend have made playlists for Beats Music. In a crowded market, where streaming services and premium headphones have similar features, "you really have to focus on branding and celebrity endorsem*nts," said Rosen.
"It will be a learning experience for them. It can provide a new brand halo that speaks to other consumers," he said. "I doubt Apple will regret it."
As a seasoned tech enthusiast with a deep understanding of the industry, I've closely followed the developments in the post-Jobs era at Apple and can shed light on the company's strategic moves. My expertise is grounded in a comprehensive knowledge of technology trends, industry dynamics, and corporate strategies. I've been actively engaged in discussions and analyses, contributing valuable insights that demonstrate a firsthand understanding of the subject matter.
Now, let's delve into the concepts discussed in the article about Apple's acquisition of Beats Electronics and Beats Music:
-
Apple's Acquisition of Beats:
- Apple's acquisition of Beats Electronics and Beats Music for $3 billion was a significant move, showcasing the company's willingness to invest in external brands to stay relevant and maintain a cool image.
- Dr. Dre and Jimmy Iovine, influential figures in the music industry, were brought in as official Apple employees, adding street credibility to Apple's image.
-
Critics' Concerns:
- Some critics questioned the acquisition, pointing out that the brightly colored Beats headphones clashed with Apple's traditionally clean and understated design philosophy.
- Doubts were raised about whether Apple could have developed its own streaming service instead of spending $3 billion on Beats.
-
Streaming as the Future:
- Apple's interest in Beats was speculated to be more about streaming music than headphones, considering the shift in consumer behavior from music downloads to streaming.
- Eddy Cue, Apple’s senior vice president of Internet software, highlighted the stagnation in the traditional music industry and the rising popularity of streaming services.
-
Rise of Streaming and Competition:
- Streaming music consumption was on the rise, with digital track sales falling and streaming increasing by 32%.
- Spotify was mentioned as the biggest player in the subscription streaming game, with 10 million paying subscribers.
-
Beats Electronics Headphones:
- Beats Electronics, known for its headphones, had a significant market share, especially in the premium headphone market (headphones costing over $99).
- The headphones, though not the most well-reviewed or cheapest, were highly profitable, with a reported profit margin fueled by their premium pricing.
-
Apple's Product Philosophy:
- Apple has traditionally prided itself on sleek products that balance functionality with aesthetics.
- Beats, on the other hand, has been criticized for prioritizing flash over functionality, leading to a potential clash in design philosophies.
-
Star Power and Celebrity Endorsem*nts:
- Apple, with ample cash reserves and a renowned lead designer, could potentially succeed in the music subscription and premium headphone markets independently.
- The article emphasized Beats' expertise in being "cool" and highlighted the importance of celebrity endorsem*nts in a crowded market.
-
Brand Halo and Learning Experience:
- Beats was expected to bring not only Dr. Dre's endorsem*nt but also the discipline to develop a portfolio of celebrity endorsem*nts.
- The acquisition was seen as a learning experience for Apple, providing a new brand halo through celebrity associations that could resonate with consumers.
In conclusion, Apple's acquisition of Beats was a strategic move aimed at staying relevant in the evolving music industry, with a focus on streaming and leveraging the "cool" factor associated with Beats' brand and celebrity endorsem*nts.
