File this one under: “Bound to Happen.”
If you remember, Apple forked out $3 billion in May to buy Beats Electronics from hip hop artist, Dr. Dre, and music producer, Jimmy Iovine, who co-founded the firm in 2008.
The acquisition was notable both for its size – thought to be the biggest in Apple’s history – as well as its “What?” factor.
After the announcement, some analysts wondered why Apple would spend so much on a streaming music service, given that it already boasts iTunes. They’ve questioned Apple’s goal here.
Well, they’re clearly not paying attention…
Apple and Beats: Musical Fusion or Musical Madness?
Yes… it’s true that most of Apple’s acquisitions tend to be small, unknown companies. Ones brimming with incredible talent and innovation that Apple quickly rolls up into its existing business.
So in that regard, the Beats buyout is different from its normal acquisition strategy.
But there’s a method behind what some analysts called madness.
While iTunes is an unquestionably massive digital music platform (it’s the world’s largest music downloading service), and iTunes Radio launched last year, the iTunes star is fading amid competition from popular streaming music services like Spotify, Pandora (P), and Rdio.
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And streaming music becomes the new normal, iTunes downloads are declining.
Known mostly for its headphones, Beats also launched its own subscription-based streaming music service earlier this year.
That’s when Apple pounced…
Apple Dances to the Beats
In keeping with his promise to launch new products this year, Apple chief, Tim Cook, wasted little time in snapping up Beats.
He explained the decision to The New York Times: “Could Eddy’s team [Eddy Cue is Apple’s iTunes chief] have built a subscription service? Of course. But you don’t build everything yourself. It’s not one thing that excites us here. It’s the people. It’s the service. [Iovine and Dre] are really unique. It’s like finding the precise grain of sand on the beach. They’re rare and very hard to find.”
To that end, both Iovine and Dre will join Apple, too.
So for Apple, it’s essentially a shortcut (albeit a $3-billion one) into the streaming music business, as Cook aims to “continue to create the most innovative music products and services in the world.”
Not only that, it makes a major splash in the industry and send shockwaves through its rivals.
While Beats only has 250,000 paying subscribers, compared to Spotify’s 10 million, pushing Beats to every single iPhone and iPad user via a pre-installed Apple update is an unquestionable game changer for both Apple and Beats.
In addition, of course, Apple will grab revenue from Beats’ other products – headphones and speakers, sold to consumers individually, as well as integrating its audio technology into computers and car manufacturers’ sound systems.
And while some doubt the quality of the BeatsAudio equipment (despite having Dr. Dre’s name and reputation behind them) he remains a star attraction, with significant pulling power.
For Apple, this is all about branching out and branding. The company hopes Beats will help it both shake up the streaming music business, as well as adding strong name and brand recognition to its existing reputation.
Look for Beats to hit an iPhone or iPad near you in the New Year.