So Why Did Apple Buy Beats?
After the Beats Music streaming service was ignored during Apple's major new product presentation earlier this month, it was only a matter of time before someone would report that Apple is about to axe it. TechCrunch did it yesterday. Despite Apple's rote and uninformative denial, it's clear four months after Apple's acquisition of Beats Electronics that the company didn't pay $3 billion just for a bunch of curated playlists and a nice-looking app.
In a recent interview, Apple Chief Executive Officer Tim Cook described what sold him on the deal:
"And so, one night, I'm sitting playing with theirs versus some others. And all of a sudden, it dawns on me that when I listened to theirs for a while, I feel completely different. And the reason is that they recognized that human curation was important in the subscription service, that the sequencing of songs that you listen to affects how you feel. I think they've done a fabulous job with their brand. It's hard to describe. But you know it when you feel it. And so, that night, I couldn't sleep that night. And so, I was thinking, 'We've -- we need to do this.'"
This seems like a stretch. He could have had the same experience with the market leader in streaming music, Spotify, which started rolling out curated playlists a year ago, or with Songza, the music-curation startup that Google acquired -- reportedly for $39 million -- last summer. It does credit to Jimmy Iovine, one of Beats' founders, that he sold Cook on his company's fledgling service, which only had about 250,000 users at the time.
Telling people what to listen to isn't always a winning strategy, as Apple found out recently when it gave a U2 album to its entire customer base and ended up developing a program that let users delete it forever. Music preferences are as personal as it gets, and curation needs to be gentle and unintrusive. It makes sense for Apple to have it as a feature on any music service it eventually decides to offer, but it can hardly be the central feature of a streaming app. That's why Beats Music hasn't blown Spotify or Pandora out of the water.
Beats Music isnt' pre-installed on the iPhone 6, and the Apple Watch demonstration didn't include it even though some third-party developers' apps for the watch were advertised.
By now it should be obvious that Apple bought Beats for the charisma of its founders, Dr. Dre and Iovine. Their trick has been to sell grossly overpriced, mediocre headphones as a fashion statement. Apple needed that: The company's top brass listens to that '80s throwback band U2, after all.
The headphones are still ubiquitous, though no recent sales data are available. Apple isn't likely to rebrand them even if Beats loses a legal challenge to Bose electronics over noise-suppression technology: It's Dr. Dre's panache that sells them, and not technological sophistication. Cook, the bottom-line-oriented ex-chief financial officer, called Beats a "fast-growing business." That may be justification enough for Apple's biggest acquisition.
All of which goes a long way toward explaining what kind of company Apple is today. The Apple Watch, after all, is the Beats headphones of the emerging wearable computer industry: Technologically modest but inexplicably attractive.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the author on this story:
Leonid Bershidsky at email@example.com
To contact the editor on this story:
James Greiff at firstname.lastname@example.org