Beats by Dre: Designed by Apple in California
I know it’s been a while (over a year) since I last posted anything on here. 2013 was just a hectic year. Lots of stuff happened in tech, but I won’t bother to point out what I was right about last year (almost everything). So what has brought me back to Tumblr? This Apple acquisition of Beats Electronics. Ever since rumors first broke of this deal, my mind has been churning as to what makes Beats worth $3.2B. And while the deal came in at $3B ($2.5B for Beats Electronics and $500M for Beats Music) and many reports as to why Apple wanted Beats, I’m still a little mystified. Are Dr. Dre and Jimmy Iovine really that valuable? Is Beats streaming music service and their 200,000 subscribers worth $3B? This certainly isn’t about overpriced and mediocre-sounding headphones and speakers. Can’t be. And I don’t want anyone to think I’m hating on a widely popular electronics brand. I’ve owned Beats headphones and earbuds since day one. I’ve been lucky enough to never have had to pay for any. The quality just isn’t there for me. I’d much rather listen to music via a pair of Sennheiser RS 180’s. I won’t even mention the HD 700’s. Best consumer headphones you could ever buy. Even still, I’m in love with my Beats Executives and my Beats Pill. They are amazing products for what they are designed to do. Amazing. And they also have a certain cool factor. Apple products also have a cool factor. So there’s that synergy between two lifestyle brands. But that alone isn’t worth Apple largest ever purchase. Apple’s largest purchase before this was it’s purchase of NeXT in 1996 for $429M (inflated to $639M today). The purchase of NeXT allowed Apple to develop Mac OS X. This was key in Apple developing a modern operating system for it’s Mac lineup, and later iOS for iPhone and iPad. Considering all the products that run on NeXT code, that purchase was cheap. I just don’t see the same value in this Beats purchase. Tim Cook has gone on record as saying that new features for Beats will “blow your mind” and that there are “products you haven’t thought of yet”. Those are bold statements. Some could say that they are for investors who are concerned that Apple just blew $3B of their money on a company that only cleared $1.5B in revenue last year. I think it’s clear to say that the return on this investment won’t come in the form of headphone sales, no matter how high the profit margin is for Beats products. From everything I’ve been reading, this purchase was for the people resources that Beats will bring to Apple. Dre and Iovine will be full-time employees at Apple. Still not sure how that is going to work. You don’t just go from owning a company to being an employee. No matter how much money ($700M for Dr. Dre in this case) you made from selling your company. It’s a different mindset when you’re the guy at the top making the decisions than when you’re just another employee. And yes, I know they won’t be too far from senior management, reporting to Apple SVP Eddy Cue. But they won’t be involved in many closed door meetings. That’s not an easy pill to swallow. Egos can wreck a business faster than any rival. I don’t see that happening with Dre as he’s a relatively quiet figure and Iovine has had a good relationship with Apple in the past. But the chemistry between these two and Apple’s top brass should be watched. I think Apple is betting on Iovine’s relationships in the music and TV industry to boost declining music sales and to possible secure some content deals for Apple’s heavily rumored television product. Apple has promised to go into categories that it currently isn’t in. So along with the obvious iWatch, a true Apple TV is likely the other. While the iWatch will generate a few billion for Apple, television is a much bigger opportunity. Should Apple be able to successfully tap into that, we’re talking about the worlds first trillion dollar valuation for a company. In the short term (I’m thinking holiday quarter), we can expect to see some Jonny Ive inspired headphones and speakers. Too early to see Beats Audio in iPhones but it will likely come. Still, nothing mind-blowing. All very predictable really. For this deal to be successful, Iovine has to deliver some huge content deals.