Top 10 juicy rationalizations for Apple’s $3.2-billion Beats deal
“I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex.” -- Jeff Goldblum in “The Big Chill.”
So it appears Apple Inc. of Cupertino, Calif., is really about to break with tradition and acquire Beats Electronics and Beats Music for $3.2 billion. The news caused such a tizzy in Silicon Valley and the entertainment worlds, in part, because there seemed no obvious explanation for the deal.
Of course, Beats and Apple weren’t talking. And in fact, Apple is so secretive, that if the deal does close Monday, who knows if the company will even acknowledge it, let alone explain it? Apple’s acquisitions are usually so small, the company typically doesn’t issue press releases or note them in their public securities filings.
Will we see a press conference with Beats co-founders Jimmy Iovine and Dr. Dre shaking hands with Apple Chief Executive Tim Cook? Maybe, but don’t necessarily hold your breath.
Absent parties from the two companies talking, plenty of other observers, analysts and thumb suckers stepped into the void to speculate. Here, then, are 10 rationalizations we’ve heard for the deal (offered in no particular order of sense or wisdom):
1. Apple gets Jimmy Iovine. Supposedly, music mogul Iovine is going to join in a creative advisory role. Getting the creative team of Iovine and Dr. Dre could give Apple some expanded credibility with artists and labels.
“That’s a pretty darn good team,” said David Bakula, senior vice president of client development and industry insights for Nielsen Entertainment.
2. Beats’ brand. Apparently, some folks think that Apple is getting a bit stodgy, and dull. For folks who buy that (not saying we do!), then the Beats brand brings some cred with the millennials, aka, those who might not necessarily want to be associated with the company that makes dear old dad’s iPhone.
“You’ve got two incredibly well-branded companies getting together here and that’s a very good combination,” Bakula said. “You’ve got a tremendously valuable brand in Apple and a tremendously valuable brand in Beats. When you think of high-end headphones, Beats is the standard.”
3. Beats Music. This is the most obvious explanation, though not everyone buys it. The argument in favor: Beats interface is slick; Apple needs to get into streaming music in a bigger way; and Beats is on Android, the world’s largest mobile operating system, while iTunes is not. The case against: Apple can do all of this itself; Beats Music is off to a slow start, and iTunes already has 800 million users and their credit card information.
4. Wearables. In a world where everyone is talking about the emerging field of wearable computers, Apple could use Beats’ headphone business as away to better understand consumers’ habits and desires. And possibly, Apple could start to sneak in some other nifty doodads into those headphones. Biosensors? Cameras? Maybe a voice control? Let your imagination run wild!
At the very least, Beats has mastered the art of getting consumers to put big, noticeable gadgets on their heads and actually make it seem cool.
“This is a fantastic fashion technology brand that has fundamentally transformed its category, and it’s the category leader,” said Larry Miller, professor of music business at New York University’s Steinhardt School of Culture, Education, and Human Development. “There was a time when you wouldn’t be seen outside wearing over-the-ear headphones on the street, but now it is a utilitarian fashion statement available at every price point and every color.”
5. Connected home. Everyone is thinking about how to get more gadgets into every room of the house. What better way to leverage that ecosystem of Apple products than with some fabulous Bluetooth speakers that look great and can blow your windows out? But wait: What if there was a way to purchase and download content through these speakers by adding, say, a screen?
“Apple is looking at audio as a place where they can further elevate their ecosystem,” said Ben Arnold, an analyst at NPD.
6. New iPhone brand. Here’s a mindblower: What if Apple split its iPhones business into two lines? New iPhone remains the premium. And the mid-tier phones (like the iPhone 5c) becomes ... Beats phones. This seemed to be the notion floated by Benedict Evans, a venture partner at Andreessen Horowitz in a tweet:
“Putting a Beats logo on a $300 iPhone would be a very effective way to stop it cannibalising the high-end product,” he wrote.
Carl Howed, a Yankee Group analyst, found this notion intriguing.
“What if Apple was to split its phone business into two brands?” he said. “If you look at the iPhone 5c, which comes in bright candy colors, and you look at Beats headphones, which come in bright candy colors, that might make some sense.”
7. Android. Back in ancient times, when iTunes first launched, it was a curiosity until Apple decided to make it available for Windows machines. Flash forward, and Apple still hasn’t made iTunes available for Android, the world’s largest mobile operating system. However, Beats is on Android. So, getting Beats gets Apple on Android without getting iTunes on Android. Get it?
8. Strong hardware business. This comes from those who say, hey, don’t over-think this thing. Beats makes great headhones and speakers that it sells at a modest premium. Apple is going to get a business that is growing nicely, and will add incrementally to its revenue. And at $3.2 billion, it’s a decent but not obscene premium for a company that reportedly had revenue of more than $1 billion last year. What’s so bad about that?
“Apple’s doing something that’s pretty practical,” said Brian White, an analyst at Cantor Fitzgerald. “I know a lot of people are scratching their heads around this. But it’s not like this deal is way out there.”
9. Algorithms. Under the hood of Beats Music is a nifty bit of technology that can start to learn about you, and your moods, and recommend music and playlists to suit your needs. Why not bake that into iTunes and other Apple products to help you connect and buy lots of different kinds of content?
10. Wild card. Beats has something secret going on. As the companies became cozier, Apple saw it. Apple’s mind was blown. So Apple’s buying the company before whatever this thing is becomes super huge.
“There’s some strategic reason we don’t know about,” Howe said.