While this makes little sense on the surface, I suspect the folks at Apple are far from stupid. There's likely a solid reason behind this move, and instead of doing the easy thing by saying "b-b-but their headphones are crap!", it'd be more productive to explore the underlying motives.
I actually think this is a smart move. Beats first and foremost is a fashion company. The majority don't buy Beats for sound quality, but for the style and image. I see people wearing Beats in all sorts of colors every day on the train. NBA players are seen sporting them at practice or in the locker room. It has become the fashion icon for audio-wear. In the context of Apple's recent fashion-binge with hires from Burberry and YSL, this move may provide further evidence of Apple creating/entering the wearable-tech fashion market.
This could also be a response to Apple losing ground in music streaming. Rdio, Spotify have become the default source of music for so many, I wouldn't be surprised if Apple has seen a hit to their music sales. They also botched social music up with Ping, which is an area the aforementioned services are doing pretty well in. Beats may have the connections, the brand and marketing capital, to help make Apple a formidable competitor in this area. But I read here yesterday that the Beats streaming service only has 200,000 low-quality subscribers (ie they joined because their phones came preloaded with the service), so I'm less inclined to believe Apple dropped 3.2 billion on them for this alone.
Maybe it's a combination of both, or for a different reason altogether. It's intriguing, nonetheless.
This is the key. I would add it isn't just a fashion company, it is a _premium_ fashion company. I did a quick look at Amazon [1], and the price points are fairly solid: $99 to $299 for over-the-ear headphones, and around $45 for the in-ear models.
I doubt Apple could get away with this level of mark-up if they entered the headphone space. They have a solid markup on their accessaries, but I doubt the margins are similar.
Taking a step back, I wonder what Angela Ahrendts [2] is going to do with this brand. Is the beats brand part of their iWatch strategy?
Maybe, but that is sort of like saying Phil Schiller is _just_ going to market them. I always remember this post from Daring Fireball about how integrated Apple is:
As I mentioned below, Beats is first and foremost a fashionable hardware company for the mass markets, which Apple is too. In that sense they're very much in sync. As the dominant hardware company, why not acquire an up and coming fashionable hardware and accessories company? It happens in every other niche by the dominant company.
People in the tech community, and Hacker News more specifically, are having a hard time grasping this deal because they still see Apple's roots as a niche tech company of superior quality, whereas they've long moved to a mass market company. For a long time Apple was seen in a similar light as Beats; they charged a premium for commoditized product (personal computers with operating systems) and were heavily driven by marketing. Wether Hacker News wants to accept it or not, they're both predominantly mass market fashionable hardware companies that charge a premium for their ostensibly superior products. Beats has created a justifiably large brand, whether techies want to accept that fact or not.
On top of that, I assume that Samsung's announcement just last week that they're entering the "premium mobile audio" space had a lot of influence on Apple doing this deal. So far this seems to be overlooked by most pundits.
Feels like th first truly post-Steve move to me.
I see this as Apple's needing to find a way to use their vast cash piles. But really it will be a long watering down of apple into conglomerate. So be it, money begets conglomerates.
Stupid or not (and I'm inclined to agree with you that Apple should probably get the benefit of the doubt on that), it looks like a departure for Apple.
It's hard to see Beats justifying a $3.2bn valuation without a significant part of that being the value of the brand which suggests that's part of what Apple will be interested in. If that is true is there any precedent for Apple making a significant effort to sell non-Apple branded goods?
> "It's hard to see Beats justifying a $3.2bn valuation"
I've seen this sentiment a few times and find it fascinating. We find it justifiable for Facebook to spend $19bn on a messaging app with very little revenue yet I read Beats will make around $1bn in revenue this year (+ they have huge margins) and $3bn is difficult to justify.
I recall that there were plenty of questions about the WhatsApp valuation.
Here I think the question is what the value of Beats is to Apple. Last year Apple's revenue was £170bn so I don't think they're looking at Beats to give them an extra 0.5%.
Of course the other side of that is with Apple's cash pile being what it is there is almost no financial risk to the acquisition so how much justification does it need?
True, Beats' revenues are large but nothing compared to Apple's. Beats revenues + Apple's huge cash pile make it an almost risk free deal as you say. I think the streaming Beats streaming service (which I use - I don't use their headphones) is actually very slick and underrated. We all know how bad Apple is at consumer cloud services so this part of the acquisition should be useful. It's also important to point out the investment Beats have made in their streaming service (the number of curated playlists they have and the quality of them is astonishing) and it would take Apple a long time to match that.
The parent _didn't_ say "It's hard to see Beats justifying a $3.2bn valuation". He said "It's hard to see Beats justifying a $3.2bn valuation without a significant part of that being the value of the brand", which is a completely different proposition.
> "How about reading entire sentences and posts before commenting?"
I did read the entire thing. I don't think the brand matters too much, my point was the profit they're making justifies the price regardless of the brand. And my point was address not specifically to the parent but to the point that the valuation can't be justified which I've seen in several places hence my first sentence: "I've seen this sentiment a few times".
I could see it, Beats are a primarily aspirational product (anyone serious about music will tell you (at length)) that Beats are mediocre at best (even excluding the markup).
I could also see a Beats "FitBit style" device working well in partnership with an iPhone.
While this makes little sense on the surface, I suspect the folks at Apple are far from stupid. There's likely a solid reason behind this move, and instead of doing the easy thing by saying "b-b-but their headphones are crap!", it'd be more productive to explore the underlying motives.
This isn't about Apple being smart or stupid. It's not about whether this deal makes sense monetarily.
It's about values. Apple has always trumpeted the kind of values that don't require having a PhD or the nose of an experienced businessman to judge. It's about great products, they say. Excellence in everything from the design, to the ads, the packaging, materials, hardware, software and even the stores where all this is being sold.
The reason people believed Apple has those values was that in no way anything Apple ever did either publicly or privately has ever shown any mismatch with their marketing message before.
And we'd hear the stories of Jobs crying when watching the Think Different ad. We'd know that even if you may think what these folks say is bullshit, at least they honestly believed their own bullshit.
And the confusion now is because people look at Apple + Beats, and they don't see how the sum improves on any of the goals Apple has repeatedly declared they care about. You can explain various accidents like the iPhone 4 antenna and so on as accidents, no one is perfect, but this is no accident. It's a deliberate action that makes no sense for the Apple we used to know before.
Maybe Tim Cook would like to explain why Apple + Beats makes sense. It worked when Apple shipped Macs with IE and had to accept investment from Microsoft in the 90s. And the explanation made sense.
However if we hear the typical corporate bullshit about synergy and how together they're greater and what not, without being able to explain why would this result in better products, there'll be a lot of disenfranchised Apple supporters, I can tell you that.
Comments
While this makes little sense on the surface, I suspect the folks at Apple are far from stupid. There's likely a solid reason behind this move, and instead of doing the easy thing by saying "b-b-but their headphones are crap!", it'd be more productive to explore the underlying motives.
I actually think this is a smart move. Beats first and foremost is a fashion company. The majority don't buy Beats for sound quality, but for the style and image. I see people wearing Beats in all sorts of colors every day on the train. NBA players are seen sporting them at practice or in the locker room. It has become the fashion icon for audio-wear. In the context of Apple's recent fashion-binge with hires from Burberry and YSL, this move may provide further evidence of Apple creating/entering the wearable-tech fashion market.
This could also be a response to Apple losing ground in music streaming. Rdio, Spotify have become the default source of music for so many, I wouldn't be surprised if Apple has seen a hit to their music sales. They also botched social music up with Ping, which is an area the aforementioned services are doing pretty well in. Beats may have the connections, the brand and marketing capital, to help make Apple a formidable competitor in this area. But I read here yesterday that the Beats streaming service only has 200,000 low-quality subscribers (ie they joined because their phones came preloaded with the service), so I'm less inclined to believe Apple dropped 3.2 billion on them for this alone.
Maybe it's a combination of both, or for a different reason altogether. It's intriguing, nonetheless.
This is the key. I would add it isn't just a fashion company, it is a _premium_ fashion company. I did a quick look at Amazon [1], and the price points are fairly solid: $99 to $299 for over-the-ear headphones, and around $45 for the in-ear models.
I doubt Apple could get away with this level of mark-up if they entered the headphone space. They have a solid markup on their accessaries, but I doubt the margins are similar.
Taking a step back, I wonder what Angela Ahrendts [2] is going to do with this brand. Is the beats brand part of their iWatch strategy?
[1] http://www.amazon.com/s/ref=nb_sb_ss_i_0_5?url=search-alias%...
[2] http://www.apple.com/pr/bios/angela-ahrendts.html
Ahrendts will be selling its products, considering that she's managing retail operations.
Paul Deneve[1] (ex-YSL CEO) might do something with it.
[1] http://www.businessweek.com/articles/2013-07-03/apple-hires-...
Maybe, but that is sort of like saying Phil Schiller is _just_ going to market them. I always remember this post from Daring Fireball about how integrated Apple is:
http://daringfireball.net/linked/2012/10/29/whither-phil
Those prices also include a huge margin. I read that a pair at $200 are estimated to cost $14 to make.
As I mentioned below, Beats is first and foremost a fashionable hardware company for the mass markets, which Apple is too. In that sense they're very much in sync. As the dominant hardware company, why not acquire an up and coming fashionable hardware and accessories company? It happens in every other niche by the dominant company.
People in the tech community, and Hacker News more specifically, are having a hard time grasping this deal because they still see Apple's roots as a niche tech company of superior quality, whereas they've long moved to a mass market company. For a long time Apple was seen in a similar light as Beats; they charged a premium for commoditized product (personal computers with operating systems) and were heavily driven by marketing. Wether Hacker News wants to accept it or not, they're both predominantly mass market fashionable hardware companies that charge a premium for their ostensibly superior products. Beats has created a justifiably large brand, whether techies want to accept that fact or not.
On top of that, I assume that Samsung's announcement just last week that they're entering the "premium mobile audio" space had a lot of influence on Apple doing this deal. So far this seems to be overlooked by most pundits.
Feels like th first truly post-Steve move to me. I see this as Apple's needing to find a way to use their vast cash piles. But really it will be a long watering down of apple into conglomerate. So be it, money begets conglomerates.
Stupid or not (and I'm inclined to agree with you that Apple should probably get the benefit of the doubt on that), it looks like a departure for Apple.
It's hard to see Beats justifying a $3.2bn valuation without a significant part of that being the value of the brand which suggests that's part of what Apple will be interested in. If that is true is there any precedent for Apple making a significant effort to sell non-Apple branded goods?
I've seen this sentiment a few times and find it fascinating. We find it justifiable for Facebook to spend $19bn on a messaging app with very little revenue yet I read Beats will make around $1bn in revenue this year (+ they have huge margins) and $3bn is difficult to justify.
I recall that there were plenty of questions about the WhatsApp valuation.
Here I think the question is what the value of Beats is to Apple. Last year Apple's revenue was £170bn so I don't think they're looking at Beats to give them an extra 0.5%.
Of course the other side of that is with Apple's cash pile being what it is there is almost no financial risk to the acquisition so how much justification does it need?
True, Beats' revenues are large but nothing compared to Apple's. Beats revenues + Apple's huge cash pile make it an almost risk free deal as you say. I think the streaming Beats streaming service (which I use - I don't use their headphones) is actually very slick and underrated. We all know how bad Apple is at consumer cloud services so this part of the acquisition should be useful. It's also important to point out the investment Beats have made in their streaming service (the number of curated playlists they have and the quality of them is astonishing) and it would take Apple a long time to match that.
The parent _didn't_ say "It's hard to see Beats justifying a $3.2bn valuation". He said "It's hard to see Beats justifying a $3.2bn valuation without a significant part of that being the value of the brand", which is a completely different proposition.
I did read the entire thing. I don't think the brand matters too much, my point was the profit they're making justifies the price regardless of the brand. And my point was address not specifically to the parent but to the point that the valuation can't be justified which I've seen in several places hence my first sentence: "I've seen this sentiment a few times".
Beats (in really tiny writing) by Apple.
I could see it, Beats are a primarily aspirational product (anyone serious about music will tell you (at length)) that Beats are mediocre at best (even excluding the markup).
I could also see a Beats "FitBit style" device working well in partnership with an iPhone.
Angela Ahrendts (Burberry) was hired for retail and online store management. You might be onto something with Paul Deneve (YSL) though.
This isn't about Apple being smart or stupid. It's not about whether this deal makes sense monetarily.
It's about values. Apple has always trumpeted the kind of values that don't require having a PhD or the nose of an experienced businessman to judge. It's about great products, they say. Excellence in everything from the design, to the ads, the packaging, materials, hardware, software and even the stores where all this is being sold.
The reason people believed Apple has those values was that in no way anything Apple ever did either publicly or privately has ever shown any mismatch with their marketing message before.
And we'd hear the stories of Jobs crying when watching the Think Different ad. We'd know that even if you may think what these folks say is bullshit, at least they honestly believed their own bullshit.
And the confusion now is because people look at Apple + Beats, and they don't see how the sum improves on any of the goals Apple has repeatedly declared they care about. You can explain various accidents like the iPhone 4 antenna and so on as accidents, no one is perfect, but this is no accident. It's a deliberate action that makes no sense for the Apple we used to know before.
Maybe Tim Cook would like to explain why Apple + Beats makes sense. It worked when Apple shipped Macs with IE and had to accept investment from Microsoft in the 90s. And the explanation made sense.
However if we hear the typical corporate bullshit about synergy and how together they're greater and what not, without being able to explain why would this result in better products, there'll be a lot of disenfranchised Apple supporters, I can tell you that.
This.