The long rumored merger between Apple and Beats is now official. Like with many acquisitions over the past year, critics have questioned whether it’s worth paying $3 billion for Beats. For Apple, which has nearly $100 billion in cash on hand, this is low-risk with a potential high reward. The deal is less about headphones and more about streaming services and a “cool” factor.
Apple, who was losing their cool factor, needed to make a move. “Apple CEO Tim Cook has vowed to shake things up and Wall Street has been very patient, but the music industry is giddy over a multibillion dollar acquisition that would strengthen the iTunes streaming music service at a time when Apple is facing increased competition from Spotify, Google, Amazon, and other powerful competitors,” said music industry insider Jeremy Geffen.
An acquisition of this kind is a departure for Apple. Until now, their policy has been to acquire companies and create products under the Apple name. However, they see value beyond a product or service.
Geffen believes that value is in the people associated with Beats. “Of course, you get the headphones and speakers and the emerging subscription music service, but Apple is also getting Dr. Dre, Jimmy Iovine, and a bunch of well-connected music execs that have consistently exceeded the expectations of a fickle, competitive market.”
Apple’s Worldwide Developer Conference will shift the conversation to new operating systems and gadgets but the real news is this merger. In order to stay competitive, Apple needs to go where people will be and not where they are currently.
Tim Cook, Apple’s CEO, was impressed with the Beats streaming service and its ability to turn trial users into paid subscribers. Apple could have bought Spotify but liked this business model better over the long-term.
“It’s a competitive decision for Apple. If they didn’t make a move, someone else would have. Maybe Samsung or another phone maker or a streaming music service like Pandora that wants to make a move into hardware,” said Geffen. “It’s an expensive acquisition but it also costs a lot to wait on the sidelines and watch one of your competitors snap them up.”
There is a master plan when it comes to this acquisition. A plan that targets the entire music industry and not just the music hardware market.
Apple, after months if not years of maintaining the status quo, are being aggressive again. The tech world is at its best when Apple is being disruptive.