Apple’s apparent purchase of Beats took everyone by surprise. I must confess that my immediate reaction was to be slightly appalled. As someone whose audio tastes run more to B&O and B+W, I’ve always viewed Beats headphones as over-bassed, over-priced fashion items. But then my tastes in music admittedly differ somewhat from those of the typical Beats customer.
Even so, it’s still a little baffling at first glance. Tim Cook himself said a year ago that Apple asks two questions when considering an acquisition:
Would it help us make a great product, and would the culture fit at Apple?
My immediate answer to both would be “no,” so why would Apple spend $3.2B on a headphone manufacturer with a small sideline streaming music service … ?
Let’s look at what Beats might offer to Apple. It knows how to make headphones with a sound that appeals to those with a taste for bass that causes buildings to vibrate as you walk past. But that’s trivial: if you compare some of Apple’s current bassy iPod EQ profiles to Beats Audio’s profile, there’s not much difference.
Beats has a particular design ethic somewhat different to that of Apple products, designs that could reasonably claim to have become iconic in their own right. But Apple has built its entire brand on stylish, minimalist, under-stated design. It’s hard to see it wanting to shift direction, and Beats has in any case headed some way towards a more conservative, Apple-istic aesthetic in its most recent products.
Beats has a streaming music service. This is potentially more interesting. The market is shifting away from downloads, where iTunes is king, to streaming, where Apple is nowhere. iTunes Radio doesn’t seem to have set the world alight, and my personal view is that radio services are ultimately just a halfway house to on-demand streaming like Spotify, Rdio, Google Play All Access – and Beats Music.
Apple ultimately needs an on-demand music service, but the question I’d have to ask here is: why would it need to buy Beats to create one? Again, Apple almost certainly has all the expertise it needs in-house, and could easily go out and hire some Spotify execs if it needed more.
It’s also not for the subscriber base. Beats Music has only around 200,000 subscribers, which – in Apple terms - is indistinguishable from zero.
But Beats does have one thing going for it: an extremely cool image in the youth market. Look around at the headphones being worn on any street, any metro service. Filter out anyone aged 30 or over. Filter out low-end tat. What you are left with is almost exclusively Beats.
In the high-end headphone market as a whole, Beats has 64 percent of it. In the high-end youth headphone market, it’s basically all of it.
Of course, Apple also has a highly cool image across the market, youth included. But the youth market is fickle. What’s in today can be out tomorrow. This year’s ‘must be seen with’ brand can be next year’s embarrassment. No company – not even Apple – can afford to be complacent about its fashionable image.
To appreciate just how much expertise Beats has in appealing to the fashion-conscious youth market, think back to before Beats headphones existed. How many people did you see wearing headphones – rather than earphones – in the street? Vanishingly few. How many of those few were under 30? Almost none.
This was the marketing genius of Beats. It took a product category that was as boring and old-fashioned as could be – headphones were things worn by 50 year old white guys at home to listen to classical music – and turned it into a product that 20 year old rap fans wanted to wear. That’s pretty huge.
There’s another product category out there that currently has much the same old-fashioned image as did headphones. Watches. How many teens wear watches these days? How many 20-somethings?
Today’s smartwatches haven’t done much to change that: mostly they’ve been bought by tech-heads. So when you want to figure out how to make smartwatches popular in the youth market, Beats may have something to bring to the party.
Almost certainly not in terms of the hardware. As I said earlier, I don’t see Apple wanting to incorporate any Beats-style design cues, and the physical design of the iWatch must have been finalised long before this deal was even conceived.
But perhaps in terms of the marketing. Perhaps in terms of what it takes to turn an unexciting product category into a must-have fashion item. Couple together the expertise both companies have in making things cool, and you may just have a winning combination.
Is that marketing expertise worth $3.2B? Maybe, maybe not. But it doesn’t have to be: Beats headphones bring in $1B per year. Keep that business going at that kind of level, and Apple may just have purchased Beats’ youth marketing expertise for free. Looked at in those terms, what initially seemed rather baffling could be viewed as a no-brainer.