May 12, 2014
Do you have teenage children? I have one such darling creature and another one soon to screech into his teens, so I know all you need to know about Beats.
About this time last year, I became aware of the Beats craze in Dublin, when both my children requested these ludicrously expensive headphones. The sight of white, middle-class south Dublin kids doing their best ghetto pimp-roll, outsized headphones covering half their heads, trousers slung down somewhere around their knees, is not only comical, but is exactly why Apple is going to pay more than $3 billion for Beats in yet another mega technology deal.
Rapper Dr Dre (the co-owner of Beats) will get a massive payout, at a time when Apple is trying to keep ahead of trends in music listening. This is Apple’s biggest deal ever and it makes a distinct switch from Steve Jobs’ preferred strategy of organic growth.
Apple’s i-Tunes revenue has plateaued and millions are switching to cloud-based, file sharing apps like Spotify. Beats offers such a service. However, what is really driving Apple’s acquisition is its need to be “cool”. For years, Apple has been cool and hip and the device of choice for the discerning. However, Samsung has stolen these clothes and Apple’s management, largely middle-aged white men, know it’s hard to get that back, unless of course you buy it from someone else, which is where the hip-hop cachet of Dr Dre and his Beats come in.
Apple wants to get back inside the heads and hoodies of wannabe gangsta kids all over the world and this is how it’s going to do it. But at $3.2 billion there clearly is a hefty price tag of “the rebirth of cool” – particularly for a company with only $800 million of total revenues. But then again, even a whopping $3.2 billion only represents 2 per cent of Apple’s current cash and investments balance.
Sometimes when you have so much money to play with, even incredible amounts of money seem small beer.
The question that is niggling me is whether Steve Jobs would have bought Beats. Would a ruthless technologist, like Jobs, splash out on a product that looks like such a marketing trick?
If Apple wants to be cool again, that’s fair enough, but the problem with cool is that it is transitory. What is cool and fashionable today, is not necessarily cool tomorrow. It can only remain cool if there is substance.
The problem with trying to win over teenagers is that they are fickle. In order to get inside their heads temporarily, it may be enough to have celebrity rappers endorsing some product. But in order to stay inside their heads, to build real loyalty, you have to have something really different technologically.
The reason Apple is Apple is because its products were/are truly revolutionary. The iPod, the iPad and the iPhone were all extraordinary pieces of technology, as well as being brilliant designs. Much is made about Apple’s design but the technology and what marketing people call the “user experience” – as well as the design – were completely superior to any competitors at the time.
The same can’t be said about Beats. The Beats headphones are a fad. They have no superior technology and they look and feel like an “out-of-the-box” set of Chinese headphones with a bit of celebrity rapper branding wrapped around them.
So Apple is buying a fad, not a piece of cutting edge technology.
Over the years, I’ve worked with lots of professional sound engineers, and a quick poll of those lads last Friday suggested there is nothing different about Beats. Those guys use the audio technology for TV, recordings or cinema of the likes of the German company Sennheiser, which is a reputed maker of quality headphones and had revenues of around $800 million in 2012 – so not much different from Beats but with a wider presence around the world. Sennheiser has a long list of patents. Would that have been a better buy for Apple?
If you go on audiophile websites they are almost universally critical of Beats’ technology. Despite the fact that Beats dominates the market for high-end headphones, there’s significant doubt regarding the audio quality of these headphones. Audiophile site after audiophile site says that, apart from heavy bass, Beats sells because of branding, not because of audio quality.
When interviewed in 2011, Tyll Hertsens, the editor in chief of InnerFidelity.com, a site for audiophiles, said of Beats: “In terms of sound performance, they are among the worst you can buy. They are absolutely, extraordinarily bad.”
And if you take the fact that Beats had just 30 employees back in 2010, it seems obvious that Beats took the out-of-the-box route to build its products.
But maybe the teenage lad on the Dart doesn’t care about the sound quality of the headphones, as long as the good-looking girl sitting opposite him sees him wearing the trendy Beats headsets. That’s the power of branding. But can it last?
And would Jobs have bought the company for €3.2 billion?
Those who know about these things would say: no way.
There are also other audio brands Apple could have bought for technical know-how and quality. For the kind of money Apple put forward, it could basically have bought true audio knowledge.
This also may signal a massive change by Apple from being a quality technology and design company to a firm that is panicking and chasing fads. One of the problems with having such a huge war chest of cash is that it is easy to buy practically anything. Could it be that all that glistens will now catch Apple’s eye?
If Apple goes down this road, it could be disastrous for the company because every investment will not add to the wealth of the company but will destroy it.
Today, because of the celebrity status of Dr Dre, much is being made of him being the world’s first billionaire rappe.r. And good for him. But the worrying thing is that Apple is buying a brand which is successful not because of technology but because of marketing. Marketing is transitory, not permanent.
Nothing summed this up for me more than the day my son arrived home with his new Beats when we were on holiday. He’d bought fake ones in a stall in Croatia for less than a tenner. When so called cutting-edge technology can be ripped off so easily, you know the product hasn’t got much of a shelf life.