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

Instagram launches messaging app
New York, July 30 (IANS) Social network Instagram has launched its messaging app called Bolt which makes sending visuals easy. The easy to use app allows you to tap once to send a photo and long press to send a video.
 
 
Eating tree nuts daily prolongs life
Toronto, July 30 (IANS) Include at least 50 grams of almonds, cashews, chestnuts, walnuts or pistachios in your diet to control blood fats (triglycerides) and sugars - two of the five markers for metabolic syndrome.
 
 
Sweetened beverages can impair memory
New York, July 30 (IANS) Limit your sugar-sweetened beverage intake if you are a teenager. An alarming study shows that daily consumption of beverages can impair your ability to learn and remember.
 
 
Menu design can spoil diners' mood
New York, July 30 (IANS) If you have ordered the wrong food at a restaurant, do not blame yourself. Curse the menu instead.
 
 
 

Latest from the Network

Bolt calls report nonsense, editor stands by it
Glasgow, July 31 (IANS/CMC) A row has broken out in Glasgow over comments a newspaper claimed were made by Jamaican sprinter Usain Bolt to describe the Commonwealth Games that are currently on here. The Times reporter...
Read more on Sport Balla
 
China's yuan weakens
Beijing, July 31 (IANS) The value of the Chinese currency renminbi, or the yuan, weakened by 30 basis points to 6.1675 against the US dollar in its central parity Thursday, authorities said. In China's foreign...
Read more on Business Balla
 
'Brazil needs political reform, modernisation'
Brasilia, July 31 (IANS) Brazilian President Dilma Rousseff said Wednesday that the country needed political reform and modernisation to limit state bureaucracy and spur economic activity. At a forum held at the...
Read more on Politics Balla
 
Grondona's death sad day for football: Messi
Buenos Aires, July 31 (IANS) Argentine football star Lionel Messi Wednesday said the death of the longtime president of the Argentine Football Association (AFA), Julio Grondona, was "a sad day for football". He was 82...
Read more on Sport Balla
 
Moscow urges Kiev for OSCE observers' safety
Moscow, July 31 (IANS) Russian government Wednesday urged the Ukrainian side to immediately stop military operations to ensure the security of observers of the Organisation for Security and Cooperation in Europe (OSCE...
Read more on Politics Balla
 
Lily Allen's 'Bridget Jones' soundtrack scrapped
London, July 31 (IANS) Singer Lily Allen's soundtrack for a planned "Bridget Jones" musical has been dropped. The "Smile" hitmaker penned a score for the stage show based on the novel by Helen Fielding, but after...
Read more on Celebrity Balla
 
US denounces shelling of UN school in Gaza
Washington, July 31 (IANS) The US Wednesday condemned the shelling of a UN school in Gaza but refused to pinpoint Israel for it. The US does condemn the shelling of a UN school in Gaza which reportedly killed and...
Read more on Politics Balla
 
Downey Jr. want to go shopping for daughter
Los Angeles, July 31 (IANS) Actor Robert Downey Jr. wants to take out time to shop for his unborn baby girl. The 49-year-old and wife Susan Levin will welcome a daughter in November and the former is planning to...
Read more on Celebrity Balla
 
US House approves lawsuit against Obama
Washington, July 31 (IANS) The US House Wednesday approved a lawsuit against President Barack Obama over alleged abuse of executive power. The 225-201 vote fell along party lines, with five Republicans voting against...
Read more on Politics Balla