Apple's Beats: Maturity or Mistake?

By Doug Mohney May 09, 2014

Apple is reportedly going to buy Beats for $3.2 billion.  Depending on how you view it, this is a great move or a bad mistake.  I'm thinking Apple is finally hitting middle age by having to purchase the audio hardware and music streaming company.

I confess I'm a little stunned at $3.2 billion for a company that produces headphones, speakers, and offers a subscription music service. It's the largest purchase Apple has ever made and the most significant brand since buying NeXT to get Steve Jobs back into the company. Everyone else has been small and relatively low-profile companies that integrate into the larger whole.

Beats is the first name brand Apple has effectively purchased and will attempt to integrate into the company as a whole. Certainly Beats has the upper-end hardware cachet that Apple loves to cultivate for its own image, but opens questions if Beats will keep its brand and continue to offer its technology to other hardware manufacturers.

Beats Music seems to be the key to the acquisition, since Apple has not done well with bootstrapping its own music subscription service to match Spotify. The irony here is people have been more comfortable with video streaming services, such as Netflix, with music subscription starting to impact traditional downloadable music via sources like iTunes. Last year, downloads fell 2 percent while music subscription revenue increased by 50 percent to $1.1 billion, according to a report by the global music industry association.

It is too soon to tell if this is a mistake. Certainly, it is one Apple can afford with over $150 billion in cash lying around. And in today's Cloud as a Service marketplace, a consumer subscription service generating monthly recurring revenue is something to love if Apple can crank its marketing mojo.

I view Apple's purchase of Beats as a sign of maturity.  Rather than try to perfect a streaming service in-house as would have been traditional under former CEO Jobs, company management has taken a more conservative path by simply buying a solution for its streaming needs.  While there will be challenges in messages and marketing, those pale behind having a ready-to-market offering with an established name brand. 

About the only caveat here is how well Beats and Apple management will play together. If Beats is left alone with nothing more than an occasional nudge from the Apple mothership when it comes to hardware design and branding, I think the merger will work well. Should Apple become too heavy-handed, the results could be ugly and cause considerable damage.

Edited by Rory J. Thompson

Contributing Editor

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