Apple are reportedly going to buy Beats Music for $3.2 billion; a number that would have been big news a year ago but is modest news today. Beats is a very interesting entrepreneurial story in of itself and I encourage people who want to know more to read this Inc piece from a couple of months ago. But the story today concerns just why Apple might be making this purchase.
Put simply, the consensus is that there is no great technology at the heart of Beats and no tangible assets of note. It has a brand — albiet a good one — but that is all. Apple normally don’t make purchases like this. Although others do.
So if the obvious doesn’t make sense let’s just look towards the less obvious. And by this I mean the really less obvious.
What did it take for Beats to build a brand so quickly in what was previously a commodity end of the headphone and speaker segment? The answer is — and I am going to put this in ways a five year old can understand — they understood what the young people wanted. Specifically, what the young people wanted to wear. Because that’s the thing about Beats headphones. They are wearables. You see people wearing them.
Now what is generically the problem with wearables. Well if you look at big high tech plays in the past, the problem is that people don’t want to actually wear them. This is what happened to the Segway and is happening now with Google Glass. And no one will ever wear an Occulus Rift in public. The response to this has been to try and work out how to make these things innocuous. But the technology doesn’t really allow that just as it didn’t allow it with good headphones.
If that was the big issue, what should a company thinking of moving into the wearable space or perhaps providing a revolutionary product do? They need to acquire the capabilities to learn how to make things that people want to wear and don’t mind doing so in an obvious manner. Thus, you hire the head of big fashion brand and you acquire the company that has proven itself to make techy things that people want to wear — specifically, your customers shopping in your own store.
Analysts struggle to analyse capabilities. That is why they have trouble working out Apple at all. It is a capability based company. So when a company like that acquires another company like that, they are really struggling. But if you accept that appealing to people in public is a capability that can’t just simply be built, you start to build a more plausible picture here.
Of course, this should only add fuel to the fire that something interesting is coming from Apple soon.