Apple is buying Beats Electronics – why?
I was pretty surprised when I read the news about Apple being interested in buying Beats Electronics. Apple is not exactly known for spending huge sums on other companies, well they’re rather known for not spending any money, that’s why they are currently sitting on $100bn cash. And now they want to go out and spend 3,2 of those billions on some headphone company? Arguably a well-known company that brings it decent cash. In 2013 Beats had most likely more than 1bn in revenue. The company has sold around 15 to 20 million units to date and is leading the $100-plus headphone industry in the U.S. with more than a 60% market share. Well those are the positive points, but what’s about the other side?
Apple vs. Beats Electronics
Let’s see what Google has to say about Apple products:
Well Apple and Beats Electronics share at least one thing. Both companies are selling expensive products, that’s where we have a match. But the next attribute both companies are famous for are pretty much the opposite of each other. While Apple is known for building high quality products, arguably even the best in some areas (thinking Macbook – and this comes from a non-fan) Beats is definitively not known for producing the best quality.
Just recently the most famous German hardware testing company “Stiftung Warentest”, tested high-quality headphones (site in German, translated via Bing) and guess what? Beats headphones ended up on the last place, despite being the most expensive headphone they have tested. The headphones pretty much failed in all tests, even in categories where you’d normally expect them to excel at, like bass and general sound quality.
So it cannot be the build quality that Apple is after, so what are they after?
Beats Music app & it’s huge market control
There are two things tech blogs are focusing on the most, when talking about the potential acquisition. 1. The recently released Beats Music app, which has currently around 200.000 subscribers. 2. The monopolistic position Beats has in the high-end headphone market.
Some say with Apple behind the app it could become a potential competitor to Spotifiy (10 million subscriber) a market Apple is interested in since quite awhile and where it failed to succeed in the past. Now with the Beats app in their pocket it could be the signal to start a new attempt to tackle Spotify’s success. Time will tell if this is going to be the case.
The next point is the market controlling position Beats has managed to gain over the last years. This is certainly interesting to Apple and a reason why they would pick it over other, arguably too small companies like Bose or Sennheiser, even if they are selling better products. The profit margin is certainly interesting to Apple as well, as it’s most likely going to be much higher than of the other headphone producing companies. And considering the revenue is around 1,5bn an asking price of 3,2bn for the whole company doesn’t seem to be the worst deal of the century.
How Apple would have saved HTC
Interesting side-note. If HTC, which is struggling at lot in recent years, had hold on to their controlling stake in Beats Audio they would have earned around 1.29bn in profit from this sale. But instead they have sold their shares in two packages one of them netting a loss of $4.8 million, the second one generated $85 million in profit. Ouch!
What twitter has to say about Apple buying Beats