Why Apple paid $3.2 billion for Beats
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Apple is about to make its biggest acquisition in history: a $3 billion-plus deal for Beats Electronics, a maker of high-end headphones that recently launched a streaming music service. The deal, first reported by the Financial Times, has not yet closed, according to people familiar with the matter. Assuming the deal goes through, there's another question: Why would Apple do it? Apple has more than $150 billion in cash on its books, so it has the financial muscle to buy the company. But Apple's acquisitions have always been small, not costing billions of dollars. What's changed now? The best way to put this deal in perspective is to think of it as two separate transactions. First, Apple is buying an electronics maker that has a lot of customers willing to pay a premium for its headphones, including some record lovers who don't think highly of them. Merging that business with Jonathan Ive's design and product efforts could give the company a slew of new products, and even create new channels for long-rumored products like the iWatch. But in the long run, Apple may be more interested in the prospects of Beats Music, a streaming music service. Apple revolutionized the music industry with its $1-a-track launch of the iTunes Music Store in 2003. Over the past few years, Apple has used its dominance in the digital music market to boost sales of hardware products such as the iPod and iPhone, because users who already have a library of songs in the Apple ecosystem can more easily use these products, preventing them from being lured away by competitors. The late Apple co-founder Steve Jobs always resisted the streaming music model. But music download sales have been sluggish for years and are even starting to decline, partly because of free music services such as Pandora and Spotify, which use cloud platforms and offer better paid options. The decline in iTunes music revenue has little impact on Apple, which now makes much more money from apps than from music and other media. But it is clear that Tim Cook still believes that a streaming service of his own is necessary. Beats Music, which was launched in January, has not been a big hit: industry insiders estimate that the service has a total of about 200,000 users, mainly due to a marketing agreement with AT&T to provide free trials to AT&T users. Beats CEO Jim Iovine has publicly stated that his first goal is to reach 500,000 subscribers, but even so, it is still far behind Spotify, which has nearly 10 million paying users. Beats said last month that the company is under pressure to break through AT&T's user limit and agree to sell subscription services on iTunes. However, this requires paying Apple a 30% revenue share. If Apple wants, it can obviously develop its own streaming subscription service. But the company's recent attempts to expand its music services may convince Cook that the best way is to seek help from outside. Both the iTunes Match cloud music storage service and the iTunes Radio music radio service have disappointed the music industry and even Apple's loyal users. So instead of developing new services on its own, it might be better to acquire a whole set of services to accelerate development. Google and Facebook have been adhering to this thinking for years, which is why they have spent billions of dollars to acquire companies such as Motorola Mobility and WhatsApp. If the Beats deal means that Apple has changed its mindset, then the merger and acquisition war in Silicon Valley may be more interesting. As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity. |
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