Beats generates almost all its $1bn in revenues from selling their highly recognizable headphones. But the headphone market is a relatively small one in Apple’s world and it therefore seems unlikely that they are paying up for this side of the business.
I think they see all the value in the Beats brand and how it can be applied to other products with the main one being their fledgling music streaming service. It gives the Apple brand an injection of the cool factor and it gives them a stronger position in the fat growing music streaming market.
Apple’s brand is not as strong as it once was, especially with the younger demographic. Evidence of this can be seen in Samsung’s successful portrayal of the iPhone as the device for older, boring people and their phone being the one of choice for the younger, more creative crowd.
Apple’s iTunes store is also not the force it once was and sales declined in 2013 for the first time; and their move into a streaming service hasn’t taken hold at all.
They see this move as killing two birds with one stone. But here’s why i think they are wrong.
The Beats brand is undoubtedly strong but for me just not sustainable. It has its roots in the young 18-30 yr old market. Not only is this market notoriously fickle but also as the brand moves into older demographics and becomes increasingly mass market, something that will be accelerated by its acquisition by a big corporation, it starts to lose its cool factor.
But also the Beats brand is celebrity driven and, to my mind, therefore difficult to sustain. The company was founded by smart celebrities in the music business. It has been further boosted by lots of celebrities wearing and endorsing the products.
It all seems a bit superficial to me. There are no deeper brand values such as a history of innovation, great product quality or fantastic customer service that are associated with the most valuable brands. The company only started manufacturing its own products around a year ago. And are these celebrities going to be so willing to endorse the products and push the brand now that it’s owned by Apple and they have had their pockets lined with hundreds of millions of dollars? I doubt it.
And then on to the streaming service. You would have though Apple were perfectly placed to transition their iTunes brand into a strong and popular streaming service but it hasn’t happened. They launched iTunes Radio around a year ago but it doesn’t seem to be a big focus for the company and has struggled to build momentum. It seems strange that they haven’t focused more on this service given the growth in the market and it adds further weight to the argument that Apple are great at hardware and software but nowhere near as good in online services – the market that is growing the fastest across the board.
This brings us to Beat Music, their streaming service. The service was launched in January of this year and, while being generally well received especially for its playlists and discovery, is still very small (estimates are at around 100,000 users) in a business that will live and die based on its scale. If a company with more than a hundred billion on its balance sheet really wanted to buy itself into a leadership position in streaming why not buy one of the leaders in Spotify or Pandora – it would still only be a rounding error relative to their huge pile of cash.
So i think this is a weak move by Apple. To my mind it betrays doubts about its brand and also an acceptance that they don’t have what it takes to build their own streaming service into a market leader when you would think they were perfectly positioned to do so. And i don’t think Beats has what it takes to address these areas and prove to be a successful acquisition.
By far the best thing Apple could do for its brand and its future success is to innovate itself like it used to do better then anyone in the world.