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.
Thanks David. I remember Motorola did the same thing around about 10 years Xmas. They bought all sort of mobile phones that doesn’t have the look and feel of Motorola. Is this the end of Apple?
€10 in Croatia? We were ripped off! We paid €15 in Portugal…
The point about being currently cool is well made. Where do Beats go from here? How are they going to remain dominant in a very transient market.
All it takes is for Kanye West or Jay-Z to bring out their own headphones and the whole market will switch. If they see Dr Dre making absolutely huge money from this you can understand it if they looked for an opportunity to do the same.
It seems very unnecessary risk.
Subscribe.
It’s obviously a marketing ploy to win over a new generation to the Apple Brand. I remember Jobs gave a an Apple 2 to every school in America and that turned out to be a good move. It was at a time when IBM were the masters of the universe in computer terms. As for the technology in the Beat headphones, it’s only run of the mill – the larger the diaphragm the more air is displaced and the better the bass. In my younger days, I spent four years in a lab in London working on developing sound reproduction… Read more »
Well given the fact that Gary Barlow, a private citizen is being dragged across the coals in the UK media today for legally arranging his own tax affairs, while Apple Inc. and their mates in Google, eBay, Amazon, Starbucks etc. practice tax evasion on a monumental scale (they are the real welfare scammers), I sincerely hope it’s the end for Apple and their pile of shite products, none of which I would ever use.
The acquisition of Beats by Apple is a marriage made in heaven. The merger of two companies that charge their customers a premium for the fashion accessories they sell!
You haven’t mentioned Beats new streaming service Beats Music.
Its likely to have been a key strategic consideration as apple are struggling in the area at present.
The headphone business may be a distraction from the real deal.
To be fair to APPLE they defined cool in the smart phone market and created a monster of an industry in the tablet market also. While i agree that the headphones are over priced tat I concede that I am distinctly uncool and by no means the target market that the headphones are aimed at, however what is interesting about the purchase of beats is everyone is looking at just the headphones product but i think they actually have a half decent music streaming business also. Streaming is (or has )rapidly replacing/ ed downloads as preferred medium for the tech… Read more »
Just saw T larkin comments, apologies for rehashing it!
Also Apple has been harassed by many a pundit for not putting its war chest to work, when it does buybacks its gets accused of financial engineering, when it buys companies it gets accused of a dumb purchase, tough break dammed if you do and dammed if you dont…….This is a company that has defined a whole generation and affected the way a lot of people live their lives and made fist fulls of cash doing it, it aint going anywhere soon
I hate using headphones other than for mixing. Even using Apple Lossless codec and an i-Pod you need a headphone amp and decent headphones. Even then there are problems with the quality of components so the real audio buffs have been hacking Apple for years: http://redwineaudio.com/mods/imod The same cost/benefit/profit issues apply to Beats. They aren’t up to anything other than posing. You can be sure Dre doesn’t use them in his studio other than for photo-shoots! I say this a musician with acute hearing, which is both a blessing and a a curse. However, a LOT of people either haven’t… Read more »
I once visited an Apple factory in Shenzhen China back in the day they were rolling out their first iPhone. The factory made iPhone accessories like straps, covers etc and then later I recognised these same products in their Apple store in Dublin selling for premium prices. It was my first business trip outside Europe and to describe it as a factory would be to describe Auschwitz as a detention centre. It truly shook me to the core as I had literally stepped into a living nightmare. Nothing but nothing could excuse that hellhole. That was my ‘Wake Up!’ moment.… Read more »
“Will Apple’s effort to buy cool backfire?” It all depends and what way you look at the question. Example; if there is a head the ball in charge and he can borrow money very cheaply in the short term (which he can at the moment) to rapidly grow the share price in a combined entity he stands to make a killing in bonuses and share options. What does he care if the whole thing collapses in 2 or 3 years time? Remember David when Tony OReily borrowed up to me bollicks from Sorros to buy Eircom? He landed it with… Read more »
To those who wonder have Apple stopped innovating, I ask: when did they start? I never could understand how the iPod name became as synonymous with MP3 players as Hoovers once were with vacuum cleaners. The iPod was neither first nor best. Worst of all it was, like most Apple products, horribly closed: no swappable drive, no expansion ports, you couldn’t even change the battery yourself. Just shows what you can do with a piece of white plastic made in China when you get the Apple marketing machine behind you.
As somebody who boycots Apple products, over the issue of the treatment of the workers in Shenzen, none of this matters to me.
I will not be subsidizing any of acquisitions by Apple.
As a matter of conscience.
I am currently listening to a song called “World Peace Is None Of Your Business” by Morrissey on Spotify which is encoded using Ogg-Vorbis to avoid royalty payment to Fraunhofer for the MPEG Layer-3 Audio Codec. On headphones, the ‘free’ service is painful and no better than a bad transistor radio. There is no headphone circuitry in existence which can remedy the source sound problems. Lipstick pigs and Beats headphones… The weakest link in the audio chain….is the source. The ‘premium’ service is slightly better, particularly when monitored on Bluetooth speakers. There is currently no CD/Wav/BlueRay audio version of this… Read more »
Sleazy News Headline of the Month
“Son of Joe Biden appointed to board of major Ukrainian gas company”
(*also Joe Biden’s senior campaign adviser in 2004, financier Devon Archer)
http://rt.com/business/158660-biden-son-ukraine-company/
Well put. I looked at the Company last summer, when it attempted to do a dividend distribution (which failed – despite widening considerably). The implied EV from the failed transaction is significantly lower than Apple’s purchase price, which is alarming. Furthermore, the Company’s top line growth has significantly deteriorated, indicating it is coming to the end of the fad. At the time of the failed dividend, the Company stated that it’s new ‘Pill’ product would drive growth and help diversify revenue. I’d be interested to see if that has been the case over the past year. This is sloppy execution/timing… Read more »
All these devices have an aging processor. Young cool people buy the latest and greatest to stay young and up to date. A teenager working on a Windows XP system is either a hardcore geek, an innocent or someone who doesn’t mind to look like an grand parent. Apple knows the fashion industry very well. When the iPod came out with the distinctive white wire and earpiece, it was the coolest thing how to decorate your head. In my younger years you define and express yourself by what type of music you listen to. Is it Motown, CSNY, Bob Dylan,… Read more »
Oops! Didn’t mean to post such a long one. Sorry!
#PONO #SELFIE Can PONO, Apple or Beats save music from the vast cacophony of modern life intruding & overcome the fact that most people aren’t in ‘full spectrum listening mode’, they aren’t paying attention unless on drugs at da club. Music? Muzak, just a bubblegum soundtrack to a consumer lifestyle. Beats headphones on the train, “strike a pose & vogue, look at my i-device, look at my clothes, #selfie ” , sharing their dubious music taste with everyone. I do that too, of course, but tastefully, not in an OCD chain-smoker sort of way. Wait! OMG! I am like, so… Read more »