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beats

Apple’s Beats deal: more questions than (obvious) answers

beats

Hilton Tarrant: Columnist
Hilton Tarrant is production editor at Moneyweb. His main focus is project management for the listed company’s local and international websites, and contributes to their strategic direction.... More

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There’s a lot about Apple’s purchase of Beats Electronics — a headphone maker and streaming music provider — for somewhere north of US$3-billion that doesn’t add up. That is, if there’s a deal at all (it remains one of those deals “according to people familiar with the matter”).

Mobile analyst (now partner at venture capital firm Andreessen Horowitz) Benedict Evans suggests that an Apple/Beats tie-up is “something of a Rorschach Blot – people who think Apple has lost its way see this as proof, while people who don’t assume there must be some other piece to the puzzle (TV? wearables?) that we can’t see to make this deal makes sense.”

First, the context… A US$3.2 billion deal would be Apple’s largest acquisition ever, by a country mile. Its previous largest was the purchase of Next (in a deal that brought Steve Jobs back to the company) for US$400-million.

Everyone has a theory, and those theories range from ones that make “absolute sense” to some that say, bluntly, the lunatics are taking over the asylum at Apple. If Dr Dre ends up in a VP-level job at Apple, they might be right.

There’s a big focus on the (struggling) Beats Music streaming service. Apple wants the company because it’s lost the lead in music, so the theory goes. But if it wanted the streaming music service, why didn’t it buy Rdio or Spotify (valued at over US$4-billion) or Pandora (valued at nearly US$5-billion)? Maybe it wants music producer and Beats executive Jimmy Iovine. But, buying an entire company for one exec?

An angle floated by many is that new retail chief Angela Ahrendts has something to do with it. Yes, she’ll sell a lot of headphones. But could the reason be so blindingly obvious? Analyst Ben Thompson ponders whether Apple is transforming into a fashion company:

“… Are we witnessing a reinvention, into the sort of company that seeks to transcend computing, demoting technology to an essential ingredient of an aspirational brand that identifies its users as the truly with it? Is Apple becoming a fashion house? … You have an iPhone framed as an experience, not a product. And now you acquire an accessory maker differentiated almost completely by its brand, not its inherent technical quality.”

I don’t buy it.

Then there’s the suggestion from Evans and Ben Bajarin (also an analyst) on the Cubed podcast that the Beats brand could be a way for Apple to take its iPhone line into the mid-market without diluting its current offering. A phone designed around music? Makes sense, and maybe what Apple could’ve done with its iPod brand (and line) years ago…

Technology writer and friend Micah Singleton suggests that Iovine and Beats Music form part of the equation, but intriguingly raises “cultural influence” as a reason:

Dr.Dre — the greatest hip hop producer of all time — has helped Beats headphones attain the prime spot in the black American hierarchy of gadgets, even above the iPhone. The fact is, Apple never had cachet with black people. Android is king in black America. Some 71 percent of black Americans own smartphones — the highest rate of any demographic — with 73 percent of black smartphone owners eschewing Apple’s iPhone for Google, according to Nielsen.

That makes logical sense (and has been missed by practically every single “analysis”)… But, still, something doesn’t quite add up.

Perhaps we’re all too wrapped up in the “cult of Apple” to appreciate that Apple, with its cash pile of over $150-billion, is prepared to take some risks. Flinging some mud ($3.2-billion worth) at a wall is not exactly risking the company…

There’s a lot happening behind the scenes that remains opaque to even the “best” analysts. Nike stopping production of its Fuelband, Ahrendts joining the company, chief executive Tim Cook repeating over and over that Apple will enter a new product category this year….

And, we’re back at Evans’s Rorschach Blot. The answer will be obvious in a year or two. Or the Beats buy will be a failure. Until then, we’ll insert whatever meaning we want into the deal (which is not even a deal yet)…