It hasn’t been 100% confirmed yet, but it is looking incredibly likely that Apple are about to get the chequebook out and splash out $3.2bn for Beats Electronics – the company behind “Beats by Dre” headphones and the Beats Music streaming app. Here’s five reasons they might be willing to pay so much.
1) Streaming Deals?
One thing that everyone seems agreed on is that Apple want a piece of the streaming audio pie. “All you can eat” services like Spotify, Rdio and Beats Music are eating away at iTunes, which still charges on a per-song or per-album basis. Whilst iTunes is still doing rather well, the trend is clear as more people switch to streaming services. And that’s where it might get tricky for Apple, who’s own iTunes Radio service (which is more limited than straight up unlimited streaming) hasn’t really taken off.
Even if you discount the likes of Spotify, look at their competitors: Google have Google Play All Access and Microsoft have Xbox Music. Apple used to be the undisputed King of Audio… but now things aren’t all that clear.
By buying Beats it would be a bit of a shortcut to being able to compete. For a start – they wouldn’t need to negotiate streaming deals with all of the record labels like if they were starting afresh. This could be especially pertinent, as aside from being time consuming, the labels probably aren’t Apple’s biggest fans because of their near-monopolistic behaviour ten years ago.
2) Market Share?
The other advantage of buying Beats is that rather than starting from nothing, Apple are given a significant market share. Though it only launched in January, Beats Music is already on the way to it’s first million users – apparently converting 70% of trial users into paying users. Impressive.
3) Cool Hardware?
Let’s not forget the thing Beats are perhaps best known for: The “Beats by Dre” headphone line, which you’ve probably seen that dick on the bus wearing. Whilst the sound quality itself is said (by audio nerds) to not be the best, what the headphones do have is a powerful brand and a ‘cool’ factor. The sorts of people who would spend £100 on a pair of Beats are probably exactly the sorts of people who used to dance in silhouettes in the old Apple adverts.
This match-up works well, as both Beats and iPhones are perceived as “premium” products, so can be marketed effectively together.
4) Talent grab?
A lot of the time when massive companies by smaller companies it isn’t to get hold of their product, but the people who make it. Perhaps there are key people at Beats who Tim Cook wants to put to work in Mountain View? Certainly there are going to be designers at Beats who will be of interest, and what about the people who can actually deliver streaming audio innovation? One of the key selling points of Beats Music, versus, say, Spotify, is that apparently the recommendation playlists were manually curated. Maybe Apple want a piece of that?
Will we soon be seeing MacOS by Dre?
5) They’re cash rich and want innovation insurance?
Finally – simply Apple can afford it. Earlier this year they had $158bn in cash. That’s cash – readily available currency, not assets. They’re one of the most cash-rich companies in the world, so could be choosing to spend it wisely to ensure they remain on top.
We all know how quickly tech companies rise and fall. Compare Apple of the mid-90s to today, or look at how Microsoft are now struggling in mobile and even desktop. Just five years ago Nintendo were on top of the gaming world with the Wii – and yet now things are looking disastrous.
One way to fight against potential failure is to keep innovating – something that Apple (and especially Steve Jobs) was obsessed with. In recent years they seem to have slipped a little – and in any case, now they’re a mega-corporation they can’t move as quickly. So buying up innovative smaller companies could be a wise move. They’re not the only ones – think about how Facebook recently bought WhatsApp. That wasn’t just to gain access to their users, but also because WhatsApp was growing fast – and Facebook were worried about losing their position. So if you’ve got the cash, then it makes sense to spend it.
Are there any other reasons Apple have (almost certainly) bought Beats? Let us know in the comments.