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]

 
 
 

<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

Exclusive and Native Apps for the Apple Watch Coming in the Fall
Exclusive and Native Apps for the Apple Watch Coming in the Fall
Apps developers to start beginning work on apps by next month
 
 
Apple to Announce an Apple Pay Rewards Program Beginning Next Month
Apple to Announce an Apple Pay Rewards Program Beginning Next Month
Analysts believe in response to the debut of Android Pay
 
 
Apple Pay
Apple Introducing a New Rewards Program for Apple Pay at WWDC
A report states that Apple will provide “perks” for the customers of its online payment service
 
 
Apple Introducing a New Rewards Program for Apple Pay at WWDC
A report states that Apple will provide “perks” for the customers of its online payment service