Apple's acquisition of Beats Music and Beats Electronics has perplexed the inter webs. Some say this is a clear indication that Apple's best days are over. Others say this is proof that Apple is getting smarter. Many have admitted that they have no idea why Apple would acquire Beats as there is nothing about Beats that Apple can't manage on its own. My perspective is a bit different. I looked at Apple's Press Release announcing the acquisition and their reason is clear.
"Apple® today announced it has agreed to acquire the critically acclaimed subscription streaming music service Beats Music, and Beats Electronics, which makes the popular Beats headphones, speakers and audio software…"
OK. So you buy a company for $2.6 billion. What do you say when you announce the deal? Why you bought it, right?
Apple wants Beats for it's subscription service. Everything else is just icing. Beats Music is a very small part but gets the first mention in the press release. Ahead of the headphones, and ahead of Iovine.
Yes, there is $400 million more, but it vests over time, so relax.
No? Not convinced? Here is another example. This is the opening line in Satya Nadela's statement on the Microsoft - Nokia acquisition.
“Today we welcome the Nokia Devices and Services business to our family. The mobile capabilities and assets they bring will advance our transformation...”
It is clear why Apple bought Beats. They wanted a music subscription service. So they bought one. But can't Apple just build a service like Beats Music instead of spending the monies? Yeah, of course. Here are a few reasons they bought instead of built.
A stitch in time
Apple needs a music subscription service. The likes of Spotify and Pandora have proved there is a market. Apple's data shows that the "buy" music model is on a decline. Apple wants to retain its position as the top destination for Music lovers. And Apple has run the numbers. Such a service will work. Apple will give it prime real estate on the iOS home screen.
But Apple already has a brand in the music space, iTunes. And brand iTunes works not only for music, but also apps, movies, podcasts and much more.
If Apple has to enter the music as a subscription space, it needs a new brand. And Apple has to enter the music as a subscription space.
A good option
Beats Music was the only viable option for Apple. It is run by industry veterans and not software entrepreneurs. The founders understand the music business better than most and have connections inside the industry. The Beats Music service uses a personalization algorithm that is a mix of digital innovation and musical passion. 300 years of experience in the music industry comes with this acquisition. This rich team cannot be built just by snatching Jimmy Iovine and offering him a lucrative contract to bake this within iTunes. Plus, Beats has fantastic relationships with some of the big artists, a mandatory requirement after the Ping debacle.
A trojan horse
Whenever Apple is compared with Google, the following quote is never far behind in the discussion. That Google is getting better at design faster that Apple is getting better in services. Maps and mail are cited as proofs.
A new, independent brand will give Apple the flexibility to launch the service on Android and Windows. It will open the market and bring the Apple experience to many more users. Since the smartphone market is getting saturated quickly, growth can come only from customers jumping ship. What better way to start than with Music? Email and maps are covered. But Music is still wide open.
And the headphones? Yeah, they are important. They sell a lot and are profitable. Apple will shore up this part of Beats, and introduce another accessory for its devices. So there's that.
Most of the data and facts in this blog post come from Apple Press Release announcing the acquisition. Here it is.