Apple Is Buying Beats, But Why?

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I'm finding it hard to get worked up about the reports that Apple is preparing to buy Beats, the Dr. Dre–founded line of expensive headphones. Mostly, I trust in the fact that Apple presumably isn't paying all those M&A people to waste its money on dumb acquisitions. Even though Apple has enough cash on hand that it could throw a million dollars a day off the Golden Gate Bridge and never notice the difference, it's doubtful that they'd shell out $3.2 billion for a music company if they didn't have a fully formed plan for making money with it.

I should probably have a stronger opinion on the Apple/Beats deal, since every other tech pundit seems vexed, displeased, or concerned about it. But mostly, I don't think it will matter. Apple is an iPhone company these days – everything else it does is window dressing.

I suppose it's worth thinking about why Apple might want Beats in the first place. Maybe it wants to take over Beats Music, the company's relatively small streaming service, and build it into a competitor of Spotify and Pandora. Maybe, as Peter Lauria suggests, Tim Cook wants to work with Beats co-founder Jimmy Iovine. Or maybe Apple just wants to buy a company that brings in a reported $1 billion in annual revenue, and whose flagship product is massively popular among young people. (For what it's worth, I live next to a middle school – every seventh-grader has Beats headphones.)

I tend to think, Occam's Razor in hand, that Apple might just want Beats for what it mostly is: a manufacturer of extremely popular, well-marketed headphones of moderate quality. The people who are calling for Apple to buy a software company like Dropbox or Spotify are missing the fact that software hasn't been Apple's primary game for a long time. Its expertise is in making beautiful, functional hardware that sells itself. Beats headphones might not be the most functional on the market, but they look good, and they're flying off shelves. If Apple thinks it can bring its audio team's expertise and Jony Ive's product magic together on a new, improved line of headphones, and convince Beats 1.0 buyers to upgrade to Beats 2.0, that's an easy, modest revenue stream it didn't have before.

Apple's headphones are no great shakes, after all. And, unlike with other product lines, there's no Apple-produced premium headphone upgrade. (Except for a $79 pair of in-ear buds that nobody seems to like.) If Apple can make a better line of premium headphones, and get existing Beats customers to upgrade once or twice, that would probably be enough to make the deal worth $3.2 billion.

The only puzzling thing about the Apple/Beats deal is that the two companies seem to have fundamentally different product philosophies. Apple became massive by making things nobody knew they wanted – things that were so well-built and functional that they seemed to come from outer space – and letting customers drool with anticipation. Beats got the promotion part right, but it glossed over the functionality. Even at the company's outset, the Beats strategy consisted almost entirely of making them the coolest headphones, rather than the best:

The Dr. Dre task force took Monster's audio gear and pimped it, tirelessly, as a gadget status symbol without rival. That was the plan —period. Marketing, Iovine told Kevin Lee, would take too long. Education would take too long. Instead, the strategy was to enchant the public: Beats would be "the hottest product to have, and sound will be a Trojan horse. And that's what we did. Beats was in every single music video," says Kevin. Iovine made sure Beats had prominent placement across Interscope's sterling roster, infiltrating the money and product lust-addled brains of video-watching America.

I guess Apple could use some cool. Many American teens have grown up in a world where Apple products are so commonplace as to lose their grandeur – they didn't see the before picture of cell phones and MP3 players, just the after. And headphones are a category where consumers have proven they're willing to spend extra for quality, aesthetics, or some combination of the two. Acquiring Beats could improve Apple's image among a group of young consumers that view it like I view Xerox – as a company that made some groundbreaking things once, but hasn't done much of note lately.

And if Beats flops? Apple still has $150 billion in the bank, and a line of iconic smartphones that is still throwing off Croesus-like levels of cash. I think it'll be okay.