Why The Beats Deal Makes Perfect Sense For Apple

May 9 2014, 12:10pm CDT | by

For the most part today, the only comments I’ve seen from people analyzing the Beats-Apple deal are negative.

Here’s a piece by Jay Yarow saying why the deal makes no sense as an example.

Here’s why this way of thinking is wrong:

- Paying 3x sales for a business isn’t expensive.  That’s what Beats is selling on its headphones today.  And a lot of these are sold through Apple’s stores.  So now Apple will push them harder than ever.  What’s the payback on the deal then for Apple?  Three years? Maybe four.

- They’re getting the music subscription service as well.  So, if the deal makes sense just for the headphones, Apple’s also getting a music service with it as well.  I haven’t seen anyone say how much that service makes today.  Instead, I see a lot of snark that it’s not as popular a service as Spotify or Pandora.  Will Apple be able to leverage the service? I think so, for reasons I’ll outline below.  But they’re getting it essentially for free if you only pin the acquisition cost for the headphones business.

- The Beats headphones and music service will be Apple’s ticket for taking iTunes to the Android user base.  I think the real play for Apple with this deal is: how does this increase our addressable market for iTunes?  I think they’ll try and use it as their Trojan Horse into the Android community not using iTunes or iOS.  If this works, it’s worth the deal right there.  As one industry insider told me: “This makes a ton of sense to me for the headphones, since they don’t have to play in Google's ecosystem at all (as they would if their play was the music app) to be an important part of an Android user’s day.”

- Beats just became a wearable play.  I heard some commentator say today that Beats headphones don’t have any special sensors or technology in them.  That’s true.  But that’s what Apple’s working on.  Put the peanut butter and chocolate together and you’ve got yourself a winning combo.  Lots of folks just will never use Google Glass. They look goofy.  Apple’s Tim Cook famously said that the wrist is an area of great interest for Apple.  They’ll have their own Apple Band there.  But now, with this deal, they just got another valuable piece of real estate on your body for wearables: your ears.  From an industry insider: “Yes, I think this is the most valuable piece – take massive distribution of something that isn’t yet but absolutely could soon be an essential wearable.”

- Jimmy Iovine. Cool dude now in the Apple fold.

Good move, Apple.

Critics be damned.

[No positions]

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Apple’s New SIM Card Is Great For Travelers
Apple’s New SIM Card Is Great For Travelers
The latest iPad comes with SIM cards perfect for people on the go
 
 
Tim Cook Met With Chinese Officials On Privacy
Tim Cook Met With Chinese Officials On Privacy
The Chinese government has taken an interest in Apple’s security and privacy
 
 
Why Is Apple Pay The Most Secure Option Available?
Why Is Apple Pay The Most Secure Option Available?
Is Apple Pay really worth the hype?
 
 
Apple Planning to Open 25 New Stores in China within Two Years
Apple Planning to Open 25 New Stores in China within Two Years
Tim Cook reveals that Apple is thinking to build 25 additional stores in the massive Chinese market
 
 
 

Latest from the Network

Second MERS case reported in Qatar
Doha, Oct 23 (IANS) A 43-year-old man in Qatar has tested positive for Middle East Respiratory Syndrome (MERS) in the second confirmed case of the deadly virus in 10 days, media reported Thursday. The patient had...
Read more on Business Balla
 
Two people die in Pakistan bomb blast
Islamabad, Oct 23 (IANS) At least two people were killed and 12 others injured in an explosion that took place in Pakistan's Balochistan province Thursday, media reported. The bomb was planted on a motorcycle, Dawn...
Read more on Politics Balla
 
Trott extends contract with Warwickshire till 2017
London, Oct 23 (IANS) England batsman Jonathan Trott, whose mental issues led to his abrupt departure from last winter's Ashes tour, has confirmed his successful comeback to competitive cricket by signing a new three-...
Read more on Sport Balla
 
Srikanth, Kashyap big movers in BWF rankings
Kuala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest Badminton World Federation (BWF) rankings released Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Alvin Stardust dead
London, Oct 23 (IANS) English singer Alvin Stardust died after a short illness. He was 72. Stardust's manager confirmed the news about his demise Thursday, reports mirror.co.uk. He was recently diagnosed with...
Read more on Celebrity Balla
 
Indian man reunited with family after 40 years
Dubai, Oct 23 (IANS) An Indian man, who had disappeared from his hometown in Kerala nearly 40 years ago, has been found by his family at a hospital in Dubai in the UAE, a newspaper report said. Now in his 60s, Abdulla...
Read more on Politics Balla
 
Srikanth, Kashyap, Saina rise in world rankings
Kala Lumpur, Oct 23 (IANS) Indian men shuttlers Kidambi Srikanth and Parupalli Kashyap jumped seven places each in the latest released Badminton World Federation (BWF) rankings Thursday while Olympic bronze medallist...
Read more on Sport Balla
 
Flintoff signs for Big Bash side Brisbane Heat
Brisbane, Oct 23 (IANS) Former England captain and all-rounder Andrew Flintoff, who retired from international cricket in 2009, Wednesday confirmed that he will play for Brisbane Heat in the Big Bash League (BBL) this...
Read more on Sport Balla
 
OPEC daily basket price falls again
Vienna, Oct 23 (IANS/WAM) The basket of 12 crude oils of the Organization of Petroleum Exporting Countries (OPEC) closed at $81.94 a barrel Wednesday compared to $82.09 Tuesday, the OPEC Secretariat said. The new OPEC...
Read more on Business Balla
 
Lopez to sign multi-million dollar deal?
Los Angeles, Oct 23 (IANS) Singer-actress Jennifer Lopez is reportedly in the final stages of securing a multi-million dollar deal to perform in Las Vegas. The 45-year-old is being offered $350,000 per show at The...
Read more on Celebrity Balla