05/09/14 18:59
The remarkably strong rumor that
Apple will be buying Beats Audio for $3.2B has been ricocheting around the web all day.
I just don't get it.
There's no obvious win for Apple. Beats' primary asset is its brand. Everything else, from its design to engineering is either outsourced or a commodity. The company was
founded by none other than the Monster Cable company after all.
Buying Beats would mean that Apple had to manage two brands instead of one. What's the point of a merger then? It's not like the Beats brand can simply be folded under Apple’s (Apple Beats?). The product lines hardly overlap (EarBeats?), and neither does their marketing.
It can't be to give a boost to iTunes Radio. Sure, Beats has a streaming service, but it launched barely a few months ago. Even if iTunes radio were on the verge of shutting down, it wouldn't warrant such an expensive and risky bet.
If Apple needed something strategic from Beats, they must want it very badly to be cornered into buying them. Almost anything could be achieved with an equivalent licensing deal. If Apple could license Google Maps for the original iPhone, surely they could get whatever licensing deal with Beats in, well a heartbeat.
The truly disturbing thing is what this deal indicates about Apple's management thinking. What state must Apple's senior management be in to even consider such an acquisition? Beats is the kind of cool hip company you might expect a flailing dinosaur like HP to buy. It must mean that Apple doesn’t believe they can build what Beats has on their own.
The most charitable explanation is that Apple wants Beats' senior talent, specifically media mogul Jimmy Iovine. Presumably to help broker music deals. But if Apple feels that they need to spend $3.2B to better connect with music companies, then they have fallen far indeed.
Jimmy Iovine is a notoriously good negotiator, and if he pulls this deal off, he certainly will forever be remembered for being one.
Maybe there is some new secret initiative (BeatsWatch? BeatsTV?) that would leverage the Beats brand better than Apple’s, but then Apple shouldn't be in such a business to begin with.
Successful brands rarely buy other successful brands, unless one of them isn't as successful as they appear, or there are obvious synergies. Clearly Tim Cook sees something here that I cannot.
Imagine if Starbucks announced they were buying Krispy Kreme donuts. It would make slightly more sense, since they are direct competitors in many ways. Seems reasonable that they might save costs on distribution and operations. Starbucks could start to sell Krispe Kreme donuts in their stores, and vice-versa. M&A 101.
Yet, such a deal would still be disturbing if I were a Starbucks investor or customer. Unless they were going to simply retire the Krispy Kreme brand, it would mean cognitive dissonance for their customers (am I Hipster-or-Retro today?). It's unlikely they would ditch the brand, since that is Krispy Kreme's main asset. So Starbucks’ management would be stuck running two sets of stores.
Donuts aren't exactly a cutting edge technology these days. If Starbucks wanted to sell donuts, or make better deals with donut makers, they would already, and owning Krispy Kreme wouldn't help them much.
The Apple-Beats deal makes less sense than that.
Most M&A deals, even good ones on paper, don't succeed. The Apple-eats-Beats deal at best seems like a good waste of $3.2B. At worst, it might signal the slow decline of a once iconic brand.
Update: It's confirmed, they've
bought Beats for $3B.
Related: Tech, Business.