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  • Apple and Beats: Instant Cool?

    May 30th, 2014

    So one commentator suggests that, in buying Beats Electronics, Apple becomes "cool" again in a way the company hasn't been in a while. I suppose you might see that possibility on the surface, what with the most recent actions involving share buybacks and stock splits.

    Yet another commentator suggests that Apple just paid $3 billion for a successor to Tim Cook, claiming that the outspoken Beats co-founder Jimmy Iovine was a master at the "reality distortion field" in the tradition of Steve Jobs. Sure, he is great at delivering great sound bites. He is outspoken, blunt, and isn't shy about the direction of his criticisms. His first public comments included a pointed barb against the audio quality of Apple's ear buds, but he isn't being asked about the reputation of Beats headphones for delivering bass-heavy mushy sound. To be fair, recent models have been redesigned to offer a more neutral sonic signature, as recent reviews demonstrate, so maybe he's being given a pass.

    But being outspoken doesn't necessarily qualify Iovine to be CEO of Apple. His expertise is largely in the music industry, and that's the area in which he'll work as an Apple employee under Eddy Cue. Still, that assumes he'll stay put, since yet another commentator suggests he'll leave once the check clears. Yet it's also clear that Apple didn't buy Beats for fancy headphones, though getting a highly-praised music streaming service makes sense. But any deal would likely have included long-term contracts for Iovine and Dr. Dre.

    Yet another criticism has it that Apple could have used in-house design expertise to build superior headphones and improve iTunes Radio. Perhaps. But this isn't the first time Apple has purchased companies with promising technologies to add or improve product features. Consider Siri, for example, or PA Semi, designers of low-power chips that were instrumental in creating the A-series processors. Or how about AuthenTec, a company that developed fingerprint recognition technology that became Touch ID?

    In each case, these acquisitions, and no doubt all or most of the others in recent years, allowed Apple to save months or years of work in developing and delivering new technologies. They are only recent examples.

    In 2000, Apple acquired a digital music app, SoundJam MP, from a small Mac developer, Casady & Greene. The developers, Jeffrey Robbin, Bill Kincaid and Dave Heller, became Apple employees, and, in early 2001, the app morphed into iTunes 1.0. Robbin reportedly remains lead developer of iTunes, but was also said to be involved in Apple's TV project as of a 2011 report. He's thus a key example of someone who didn't leave Apple after his product was acquired.

    In short, the assumption that Apple develops all its technology by itself is flawed. Don't forget the fruits of the 1996 acquisition of NeXT as a major example of how the company became better because of an acquisition.

    Indeed, Apple is a rarity among large tech companies. The histories of Google, HP, and Microsoft are littered with expensive acquisitions that didn't improve the bottom line. Sure, Apple keeps technology acquisitions mostly quiet, although many have been revealed from SEC filings and random checks of information about tech executives who have become Apple employees.

    This isn't to say every single Apple acquisition has been the perfect fit. But by picking and choosing companies for specific technology needs and paying fairly low prices for them, it's hard to come up with a clunker in the bunch. Sure, the Beats Electronics deal is high-profile. The price and the company's co-founders made it impossible to do this deal on the down-low.

    Yet that very factor may have worked to Apple's benefit. The timing is perfect as well, coming just days ahead of the WWDC, where new versions of iOS and OS X are expected to be demonstrated, and there may be unknown new product or service surprises. All the speculation about the Beats deal over the last few weeks has delivered untold millions of dollars of free publicity for Apple, essentially drowning out whatever other tech companies were doing.

    I mean, how many tech pundits were still talking about the Microsoft Surface 3 tablet/laptop/whatever after the initial coverage? What about Samsung's new health and fitness wristband? This announcement also received some coverage, but, typical of most anything Samsung has done lately, you won't remember it next week.

    Sometimes you have to wonder how much of the Beats run-up was deliberate. Did Dr. Dre really exhibit a case of loose lips boasting at a party that he'd become the world's first billionaire hip-hop artist? There were even published reports that Apple cut the price of the acquisition as a result, or was ready to bail. Really?

    But don't forget that Dre is a wealthy entrepreneur and not just a musical artist. It's possible that his seeming offhand comments were carefully orchestrated, and Apple was fully aware of what he was doing. The same might be said for Iovine's blunt comments at Wednesday's Code conference session. They may have seemed spontaneous, perhaps accidental, but that may not at all be true.

    An alleged new era of spontaneity? When has anything at Apple not been carefully orchestrated for maximum impact?



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    4 Responses to “Apple and Beats: Instant Cool?”

    1. Monotonous Langor says:

      I don't understand people who complain about Apple's EarPods. They are leaps and bounds better than the previous Apple ear buds, and they are very comfortable. I listen to podcasts using my iPhone and EarPods when I'm falling asleep at night and often when I awaken in the morning, both EarPods are still in place.

      I grant you EarPods don't produce the kind of sound quality that over-the-ear headphones do, but who in his right mind expects them to?!

      Gene Steinberg Reply:

      @Monotonous Langor, They also say that all Beats headphones have heavy bass and mushy sound. That may have been true for the earlier designs, which probably catered to a demographic that preferred that sonic attribute. But newer models have been praised for sounding quite good. It leads me to believe the products are being updated to hit a more mainstream audience, while also pleasing at least some of the critics.

      I also suspect those EarPods will undergo refinement too.

      Peace,
      Gene

    2. DaveD says:

      I thought that when Apple bought NeXT the price tag was quite high at the time, somewhere north of 400 million bucks. In comparison to today's Beats purchase, it was chump change, an investment with great returns. I still don't understand why (1) Apple bought Beats and (2) the very, very big price tag, three billion (with a b) bucks.

      I know Apple has quite a large stash of cash (mostly overseas), but the price appears to be on the very high side. To be fair all we have to do is to look at the other companies' multi-billion purchases. There is Microsoft's Skype purchase for 8 billion and Google's Motorola purchase for 12 billion. Let's not forget, Microsoft failed attempt to buy Yahoo for 40 billion. A billion here, a billion there, and soon we are talking about real money.

    3. dfs says:

      The basic thing that bothers me about this whole Beats deal is that it's going to drive the whole Apple music acquisition / playback model even further in the direction of pop music, and make the Apple environment all the clumsier and less friendly for those of us (primarily but maybe not exclusively classical music fans) who deal in albums, or even in sets of albums, rather than individual tunes.

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