[Brave Ulysses]

You have probably read the news by now as it is spreading like wildfire. $3.2 Billion for a headphone maker/crappy streaming service.

I'm with John Gruber.... I don't get it.


I honestly can not see any reason that this would be a desirable purchase, especially at that price.


Thoughts?

[Matsu]

To stop Neil Young's new Pono service/player dead in it's tracks... (kidding, naturally.)

[addison]

Seems dumb to me too. Can't wait to hear the official line though. $3.2 billion is a huge number but in this crazy world we live in it's literally become pocket change for some of these companies.

[psmith2.0]

I just read about it this morning. Seems Apple could do all this on their own for far less. As Gruber points out, if they're not going to keep the Beats brand, what's the point? And any music streaming rights would have to be redone with Apple a new owner. So, again, what's the point?

Is there any sort of true, genuine tech or superiority in those headphones that Apple wants to pull from and use with their earbuds? That's hard to even imagine or believe. But if so, $3.2B worth? I somehow doubt it.

Is there anything else to that company, innovation/tech-wise, Apple really wants or needs for some future device or service?

Apple isn't a "buy for cool street cred" outfit (they don't need it anyway, and certainly not for $3B), so I have no idea.

In fact, I don't even think it's legit. It's just one of those crazy rumors that somehow got some real traction. It happens.

[Brave Ulysses]

Originally Posted by pscates2.0 In fact, I don't even think it's legit. It's just one of those crazy rumors that somehow got some real traction. It happens.

At this point, due to the financial implications and market impact, I believe that Apple would have denied it.


As you said, 3.2 Billion dollars could develop headphones easily.... and I'm not convinced that Beats has incredible subscription deals that would either transfer to Apple or that Apple could not achieve on its own by paying off record labels with 3.2 billion dollars.



I also hate Jimmy Iovine..... seems like a complete poser and a tool.

[Partial]

The buzz is also saying any media streaming contracts would not transfer to Apple - So, that kind of shoots down the theory of buying the Spotify competitor.

I don't get it. I'm guessing we'll find out more in the coming weeks.

Let's hope it's false, though.

[HHogan]

I don't get it either.

A purchase for the sake of making a purchase perhaps?

[709]

Eh. I don't know. Beats headphones are very popular among a specific crowd, and pulls in ~1B a year. Even if 1/3 of that is profit Apple could keep the line going for a few more years and shave 1B off of the purchase price. Maybe they wanted the "Beats" name for their own music service (a nod to the Beatles?). Maybe they think this will give them some "urban" cred. Or maybe they think Iovine and Dre have enough pull inside the industry to help get the labels onboard for their streaming service. It's probably a little of all of that.

I'm not in love with the (possible) acquisition, but there must be something(s) there that Apple wants. They don't just blow cash for the hell of it.

[Robo]

We're years past the ideal time to buy Beats. At work we don't sell nearly as many of them as we used to, and the average selling price has plummeted. The hip urbanites buying $299 Studios have moved on; now we're mainly selling $169 Solos to suburban tweens with birthday money. The much hyped New Studios, despite being much improved, were a flop that did nothing to stop the ASP from falling, the "drenched" color Solos didn't really revive interest in the line, and now the Solos can't even command $199 any more—if you look they're now $169 pretty much everywhere. I'm sure Beats still made a lot of money and had a lot of market share as recently as this past holiday, but those are lagging indicators—look to average selling price to see when something is losing it's cool. I could tell last holiday that we were passed peak Beats; last holiday seemed like the last hurrah. We halved the size of our Beats display this spring.

This is the *perfect* time to get suckered overpaying for Beats, though. I'm sure the numbers look healthy now. But the numbers for BlackBerry looked healthy for a long while, too—if you ignored average selling price. Remember when the RAZR was the thing to have? And then a few short years later, every other middle schooler had one? The RAZR wasn't done in by the iPhone, not really. It lost its cool before that.

Idunno. Buying Beats does seem like a very Tim Cook thing to do (in a bad way). Just think of the synergy between the two companies! The problem is that I can't see anyone at Apple being genuinely passionate about Beats. It's a calculated "head" decision, not a heart decision. Like hiring that guy from Dixon's to run Apple Retail.

[Kraetos]

Originally Posted by Robo Like hiring that guy from Dixon's to run Apple Retail.

Ding ding ding.

This is Tim Cook's second big mistake as Apple CEO. However, the Browett mistake was easy to fix, they just fired the doofus less than year in.

This is not an easy mistake to fix. This is just $3.2 billion down the drain. Of course, Apple can afford to flush $3.2 billion, but not if they keep doing it.

I mean, what's the point?

- The headphones? Please. Beats are awful.
- The technical bits of the streaming service? Why? They've already built iTunes Radio.
- The legal bits of the streaming service? Has to be renegotiated anyways, this doesn't give them any legal leverage.
- The brand? The Beats brand is strong (it must be, given how many people it's convinced to buy overpriced headphones) but it's nothing compared to the Apple brand itself.

If anything this will weaken the Apple brand. Lots of people already think Apple is all marketing and no substance. Beats actually is all marketing and no substance.

This is just an awful decision all around. All numbers, no soul. Very disappointed in Cook.

[Jason]

It may have already happened.

http://www.engadget.com/2014/05/09/b...ple-confirmed/

I cannot fathom this purchase for all the reasons stated here and elsewhere. Bose-level quality celebrity-rapper endorsed headphones and a streaming service that may be 'uncool' this time next year.

Hopefully, Apple have made the decision carefully. It's easier to spend your billions than earn them.

[HHogan]

The only thing I can possibility think of is a new focus around iTunes, Music and what made Apple a juggernaut in that industry with Tim Cook knowing he's not the right person to do it all himself.

At the end of the day, present-era this is the worst Apple has looked. Every single product line is dated, nothing really new, promise after promise of new categories. They need help.

[Jason]

I think a lot of this harkens back to the old problem that first surfaced after Jobs died. Cook is not a visionary. Maybe he's paying billions to secure the services of Jimmy Iovine and his unique insights into the music industry. If that's true, then the sale is laughable.

[addison]

Originally Posted by Jason I cannot fathom this purchase for all the reasons stated here and elsewhere. Bose-level quality celebrity-rapper endorsed headphones and a streaming service that may be 'uncool' this time next year

Maybe Apple thinks they can make the streaming service work. I don't know anyone that uses iTunes Radio and it's not really the same type of service. Beats is a pretty good name for a streaming service plus I think they have it in car play already.

I doubt it has anything to do with gaudy headphones though as others mentioned they sell. I know they used to be one of the most stolen items from the stores.

[psmith2.0]

I've yet to come across an article today that points out a positive, "up" side to this that we're just all somehow missing. If someone comes across one, please post it.

Kraetos' post above perfectly sums of my exact thoughts as well, his four bulleted points. None of those make any sense, or justify a $3B outlay for something so...well, idiotic and, as Robo points out, kinda on the backside/downslope of cool.

There must be something there we simply don't see or know about, because if it's any of the above...yikes. That's not comforting.

If they're going to spend that sort of money, there are so many other areas (and companies) that make sense. Additional mapping improvements, camera and camera software advances, etc.

[709]

Originally Posted by 709 Eh. I don't know. Beats headphones are very popular among a specific crowd, and pulls in ~1B a year. Even if 1/3 of that is profit Apple could keep the line going for a few more years and shave 1B off of the purchase price. ...

I just read an article over at The Verge quoting a NYT article that estimates "A $200 pair of Beats Headphones is said to cost the manufacturer as little as $14." I don't know how close that is to being accurate, but those are some profit margins. So lets say Apple continues with the Beat headphone brand not even changing a thing (well, maybe some design voodoo and updated innards), and for arguments sake let's say that it loses 200 grand every year for 5 years. That's still 3B in gross revenue. Add another year on there and you're likely looking at Beats in its entirety being a "free" acquisition paid for just by headphone revenue.

That's hugely oversimplified, of course, but at least Apple is buying a company with an existing revenue stream to offset some of the purchase costs. It's not like they're spending 19B for a messaging app just to mine data on a half-billion users.

[Jason]

Time Magazine has some ideas about the purchase.

http://time.com/93557/apple-beats/

[psmith2.0]

So what am I missing here?

What is iTunes Radio all about, then?

I kinda thought Apple had a streaming music offering? Is it small potatoes compared to the others?

And, as I've read in about 5-6 other places today, that stuff (streaming rights) wouldn't just automatically transition over to Apple, would it? Wouldn't new negotiations and deals have to be done?

[Yontsey]

IMO, I think iTunes Radio sucks. Pandora is much better. I wish Apple would come out with something to rival Spotify.

[psmith2.0]

Here we go. (via DF).



There isn't a subject on earth someone can't jam this particular wedge into, huh?

I just think people are trying to figure out why Apple is spending $3B (much more than they've ever spent on any other acquisition) for something that nobody can figure out the purpose/benefit, that's all. That it happens to have a black rap guy in the mix shouldn't be any sort of "coded message" or whatever (I couldn't possibly give four less damns about Dr. Dre, going in either direction; he's about as neutral and an unknown to me as it gets ). And I didn't even know until today that Jimmy Iovine was part of that company.

It could've been Crayola, Fender or JBL and folks would be asking the same kinds of questions.

"What does Apple want with crayons? Some new color profiles? Are they gonna make an iGuitar, do away with tube amps and go completely digital? They gonna start putting JBL-designed/based systems in all Macs?"

The only people bringing the other stuff into it are the ones who always seem to bring it into everything...whether it makes sense or not. But it's a "button-pusher".

It's weird that Apple is possibly dropping $3B on something that nobody can figure out why. No more complicated, or insidious, than that.

[709]

Originally Posted by pscates2.0 Here we go. (via DF). There isn't a subject on earth someone can't jam this particular wedge into, huh?

Ugh.

We'll stick a slight-eyed badge on anything not white and christian. We're largely a racist* country, SCOTUS be damned. There's no getting around that, it's just truth.

All we can do is deal with it and change it slowly by shaking our heads and shaming the offenders. It'll take generations to change it. Ironically, hip-hop and rap have done more to change black+white race-relations in this country than anything else. White people always like to imagine they can dance.

*not specifically talking about any group in particular, since every group is racist. It's just the way it is.

[709]

On a lighter note: via DF

Oh, and that $3.2 billion price tag? With Beats Electronics’ hardware business already creating significant profits, Apple’s purchase price could be covered within a couple years. So in essence the company is getting into streaming music for a song.

Ahem. Apparently I'm not the only one that saw the value in existing revenue. Apple gets everything else for next to free. Whether it works out or not remains to be seen, but if it does work out, it will be a Tim win. I hope people treat it as such.

[Dorian Gray]

Originally Posted by 709 So lets say Apple continues with the Beat headphone brand not even changing a thing (well, maybe some design voodoo and updated innards), and for arguments sake let's say that it loses 200 grand every year for 5 years. That's still 3B in gross revenue.

Originally Posted by 709 That's hugely oversimplified, of course, but at least Apple is buying a company with an existing revenue stream to offset some of the purchase costs. It's not like they're spending 19B for a messaging app just to mine data on a half-billion users.

Yeah, at least the company is making lots of money. But it’s optimistic to think it’ll make $3 billion over the next five years (you must mean $200 million, not 200 grand, above). Selling $14 headphones for $200 can’t last for long – someone else will come along and repeat the trick at Beats’ expense, or people will just stop spending $200 on unremarkable headphones. Probably sooner rather than later.

But your point stands. The profitable headphones are icing on the streaming-music cake, which therefore works out cheap – provided you can pay a cool $3.2 billion up front. That suits Apple to a T.

Spotify is changing things in a big way. My girlfriend pays €10/month (don’t quote me on that price) for unlimited access to music. It works very well. It’s sort of taken over the way we both listen to music at home.

[Wrao]

Seems like a pretty high price but I can't say it's completely nonsensical. Beats are essentially the iPhone of Headphones, both in their position in the market and the transformative effect their release had on the headphone market overall. I think what throws people is the celebrity branding. We're pretty used to celebrity-backed products being kind of BS(George Foreman Grill being the prime example, as the product had nothing to do with him)

Beats were originally developed by Monster if I remember correctly, but I think it is fair to say Dre and Iovine have contributed more than just being brand ambassador/spokesperson/empty suits for the company. And while there are undeniably better headphones out there, some even better and cheaper, Beats are far from crap, and it's not like records aren't or haven't been cut while using their studio models either.

The other factor here is that Beats is *profitable*. Unlike some other big ticket acquisitions made by major tech firms where multiple billions have been spent on barely profitable or "we're still figuring out our profit situation" or "revenue/idea driven, profit later" companies, I think it is right in Apple's wheelhouse to go after a company that is actually profitable vs. trying to reform one that maybe isn't. Though that does -- I'm sure -- puff up the asking price quite a bit.



--

One "I don't know where this goes" thought about the whole thing is how bizarre to me the hostile reaction has been from Apple fans especially. That is to say, it is strange to see Apple fans, of all people, levying hostile criticism against Beats that sounds amazingly similar to the hostile criticism people levy against Apple (e.g. "overpriced for what you get", "successful because of marketing", "designed for posters/hipsters")

[psmith2.0]

Originally Posted by Wrao One "I don't know where this goes" thought about the whole thing is how bizarre to me the hostile reaction has been from Apple fans especially. That is to say, it is strange to see Apple fans, of all people, levying hostile criticism against Beats that sounds amazingly similar to the hostile criticism people levy against Apple (e.g. "overpriced for what you get", "successful because of marketing", "designed for posters/hipsters")

Except those things don't actually apply to Apple, and are usually just tired old sour-grapes from people who don't know better (Apple stuff is expensive, I'll grant that; but I'm not buying a new system every 2-3 years so it probably doesn't hit me the way it may others). But the "successful because of marketing" and "designed for posers/hipsters" is complete nonsense and only oblivious, chip-on-their-shoulder types would still keep trotting out that silliness at this point.

But it seems like most everyone thinks those headphones aren't worth the price they go for, and that it is a strong marketing/image thing at play here, vs. outright, pure audio quality.

[Jason]

What I can't figure out for the life of me is why Apple (with all their resources, engineering, money) can't just build their own streaming service?

Someone mentioned somewhere about Apple historically not being too good with Internet services - they're expertise has been with design and marketing.

I still think this smacks of a kind of desperate course of action. They didn't anticipate or are too late to streaming and are paying through the nose for some 'bolt-on' service, just in the hope of staying ahead.

[Jason]

Originally Posted by Wrao One "I don't know where this goes" thought about the whole thing is how bizarre to me the hostile reaction has been from Apple fans especially. That is to say, it is strange to see Apple fans, of all people, levying hostile criticism against Beats that sounds amazingly similar to the hostile criticism people levy against Apple (e.g. "overpriced for what you get", "successful because of marketing", "designed for posters/hipsters")

That's true. While I like and still buy Apple stuff, the irony of one 'over-hyped and over-priced' company buying another of the same ilk has not been lost on me.

[Brave Ulysses]

So.... I've spent the last 2 days reading every article on this potential deal, commentary, and also researching Beats, their products, and especially Jimmy Iovine.


I think I "get it." And I think I understand Apple's interest and actually respect Tim Cook's balls (for lack of a better term) in pursuing a deal like this that is inevitably going to be met with confusion and skepticism.


I think what is important to accept at first is that Apple is a huge company, the biggest in the world. $3.2 Billion is not much money to them. It may be their biggest acquisition in history but it's a small expense.

Apple has several key markets that they do business in, and do business in very successfully; iPhones, iPads, Music, Macs (Apple TVs as well). Music use to be iPod/iTunes but now it is much more like iTunes and portions of every iOS device. Each business has a hardware, software, and service component, but the focus is on the hardware and profit margins on the hardware.

The software and services exist to add value to the hardware. However, the iTunes store surprisingly became a big enough business on its own for Apple to care about and in combination with the iPod, Apple took over the music market. But, Apple's music offerings both in hardware, software and services are old, stagnant, and "not cool" anymore. Apple is may still have the market share, but they are not leading in innovation and buzz and for the first time the iTunes store sales went down. iPod sales are shrinking to a point where Apple considers it to longer be a meaningful product segment. And Apple has struggled to introduce fresh ideas into its music business.

Beats on the other hand has come out of no where in the last 3-4 years to make a big name for itself in the music industry with a single iconic product that has lead to a complete product line of high margin, great (but not best) sounding, cool headphones that are cool to wear and have buzz. They are a hardware company that values the combination of quality, performance, design, and emotion and have proven to be very successful. They took a product that was boring and "dead" and saw opportunity. They are now taking those same "values" and applying them to the software/service side using the same brand name as their hardware. And while not as popular (yet) as Spotify or Pandora, Beats' streaming service has brought renewed innovation to the streaming category and has also generated buzz. It's also clear from listening to Jimmy Iovine speak that there is ambition to transform the way people listen and enjoy music and not simply provide a "me too" product, which is all iTunes Radio really turned out to be.


For $3.2 Billion, or a month's profit, Apple will be purchasing a company that will rejuvenate one of its "core 4" product categories.... Music. It will instantly add high selling, buzz worthy, and high margin hardware (headphones, speakers, etc). It will instantly add a streaming service that is better than iTunes Radio (even if they need to renegotiate deals with labels). And it will instantly add a staff of leaders/visionaries and engineers who obviously "get" what it takes to sell music hardware, software, and services. Yes, that includes excellent marketing and design, and not necessarily the technical best products but instead great products that have the best balance of design, appeal, performance, and service, which is really what Apple is all about.

Even low estimates place Beats' annual revenue at 1 Billion last year. Their revenue has doubled each of the last 2 years. If that keeps up, which it seems as if it will, this deal pays for itself in a matter of a few years (as noted above). It's also the kind of growth that Apple use to see in it's own products.


The key is to not make this deal out to be a bigger deal than what Apple likely intends it to be. Keep the dollar figure and Apple's size in perspective. This deal will draw a lot of attention and people will jump at the chance to attack what on the surface appears to be Apple's first big move for a new "direction". But it's nothing of the sort. It is simply $3.2 Billion to reinvigorate Apple's Music product category that Apple has slipped in and is no longer seen as dominant or innovative in. I don't think it has major significance for any other product category Apple is in or that it is symbolic of Apple lacking vision.


Watch this discussion with Jimmy Iovine at All Things D a few years ago.
http://allthingsd.com/20130306/jimmy...on-music-plan/

If you actually watch the full thing you will quickly see what I am talking about.

Jimmy Iovine seems to be a bit of the L.A. version of Steve Jobs... at least when it comes to this one category, Music. The LA part of him is probably what turned me off of him without knowing much about him and hearing him out, but listening to him talk about products and services is like listening to Steve. He is full of vision, focus, confidence, arrogance, and he has uncanny ability to convince someone that he is doing something for the customer, that as an unspoken side effect, will also rake in a ton of money.

On the other hand....
http://www.youtube.com/watch?v=guMFKBXp544

There's that... and this is not racist, but that is the ugly side of this deal. I'm curious how the Dr. Dre side of this deal plays out. It is impossible for me to envision a board meeting at Apple with Dr. Dre at the table.


One last thing.... an Apple watch... or whatever other wearable products Apple may make.... think about how important cool wireless headphones may be for Apple's success moving forward.

[Jason]

You raised some really Good points. I enjoyed reading that. Thanks

As for that video, it's probably the kind of thing Apple would have rather not have been released.

[billybobsky]

I am not sure I see anything wrong with the video. Dr. Dre seems to be celebratory but not crude/crass/etc (as opposed to the cameraman, Tyrese, even then its not *terrible*). Besides, that is not a racial statement, that's a social class one. By and large our billionaires have come from wealth, even Jobs was raised in a household that was comfortable. We aren't used to urban or rural poor becoming incredibly wealthy. And while Jay Z and Diddy are likely going to be billionaires as well, they have acquired the trappings of social class as they have slowly advanced (they outwardly project 'class'), and of course, I am pretty sure Dr. Dre has as well. His rise has also been via hard work and has taken the better part of a decade or two... And I realize you weren't criticizing him at all....

I see no ugly side. I see an excited celebration of a 50 year old who for the first time in his life crosses a threshold he could not have possibly known was open to him...