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Back in May 2014 Apple announced they’d be buying a company called Beats Electronics
for three billion dollars.
Making it the most expensive acquisition Apple’s ever made.
And to this day, I receive questions from viewers asking why they did it.
So in this video I’m going to explain three reasons why Apple bought Beats, and whether
or not the three billion dollar purchase has paid off.
This is Greg with Apple Explained, and if you want to help decide which topics I cover,
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So why did Apple acquire Beats?
Well, the answer is something we don’t even need to speculate about, since Eddy Cue, an
Apple executive, provided three reasons himself.
The first being talent.
Beats Electronics was founded by two of the most powerful and influential figures in the
music industry: Jimmy Iovine who co-founded Interscope records back in the nineties, which
has since become one of the most successful labels in the world.
And Dr. Dre, one of the most iconic rappers in history that’s also achieved success
as a record producer and audio engineer.
So when these two forces joined together to create Beats Electronics in 2006, it wasn’t
too surprising that the company quickly became successful.
They understood what demographic listened to their music, and what type of headphone
would be most appealing to that group.
Which was a market that more established sound companies like Sony and Bose were overlooking
for years.
That high level of talent and notoriety is what Apple always looks for when creating
new products and services.
We saw it when Tomlinson M. Holman, famous for inventing the THX sound system, was hired
as Apple’s audio director to work on new products like the HomePod.
And we saw it with the release of Apple TV Plus, when Apple paid some of the most high
profile actors, directors, and writers, like Opera, Steven Spielberg, and J.J. Abrams to
create content for their platform.
Apple has always put an emphasis on attracting the best talent possible, which meant Jimmy
Iovine and Dr. Dre fit the bill perfectly.
But the question is, “what was Apple going to use their talents for?”
And the answer is pretty clear: To help build a music streaming service.
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Which brings us to the second reason Apple bought Beats, to access and own all the technology
used in the Beats Music service.
You see, in January 2014, Beats Electronics launched a music streaming service called
Beats Music.
They tried differentiating themselves from other services like Spotify by claiming to
offer the freedom of an on-demand subscription service combined with, quote, “features
that would give you that feeling only music that moves you can give.”
Now I wasn’t sure what that meant back in 2014 and I’m still not sure what it means
today.
But Iovine often mentioned the importance of playing the right song at the right time,
and how the only thing more important than the song you’re currently listening to,
is the song that plays next.
So I guess they were trying to offer a music service that played songs in a more satisfying
sequence than Spotify.
Although I did try the Beats Music service back then, and never noticed any real-world
benefits of that design goal.
But that unique approach to streaming music was exactly what Apple was looking for.
At the time, Spotify was exploding in popularity around the world and iTunes was being left
behind in the dust.
So Apple had to take swift action.
Which is why they began acquisition negotiations with Beats just four months after their Beats
Music service debuted.
And even though it feels like Apple was kind’ve cheating by simply buying Beat’s music service
and rebranding it as their own, it’s actually the same way iTunes was created.
Apple bought a piece of software called SoundJam and had it’s creators join Apple to develop
the technology even further until it eventually became iTunes.
The key point is that the software looked and behaved quite a bit differently after
Apple aided in it’s development.
And the same can be said for Beats Music.
Apple didn’t simply slap their name and logo on it and call it a day.
They actually spent about a year adding features and optimizing the interface to make sure
they were creating the best streaming service possible.
Now, it’s debatable whether or not Apple Music was very good when it first came out
in 2015, but that’s something I’ll touch on later in the video.
Because there’s still one more reason why Eddy Cue said Apple bought Beats, and that
was for their, quote, “great headphones.”
Now, this is also something that’s debatable especially if you’re asking an audiophile.
Since there was and still is a lot of criticism of Beat’s sound signature being too bass-heavy.
But keep in mind that audiophiles aren’t really Beat’s target demographic.
Instead, they market to customers who love music with a lot of bass, and want headphones
that deliver a deep satisfying thump.
But I honestly believe Apple wasn’t as concerned about the sound quality or design of Beats
headphones as much as they were impressed by how much revenue they generated.
In 2014 alone Beats Electronics earned over one billion dollars in sales from their headphones,
which made them one of the most valuable headphone manufactures in the world.
And keep in mind, Apple was working on a pair of headphones themselves.
The original AirPods, which would be released two years later.
So those are the three reasons Apple bought Beats.
For their talent, music service, and great headphones.
But the question you might be asking now is, “was that three billion dollar purchase
worth it?”
And while the answer may vary slightly depending on who you ask, if you judge it strictly from
a revenue standpoint, the Beats acquisition was absolutely worth it.
Not only is the company generating upwards of one billion dollars each year, but it helped
position Apple as one of the biggest headphone manufactures in the world, in just a couple
years.
And that isn’t even considering how much money was saved by using Beats Music as the
foundation of Apple’s streaming service.
Since Iovine and Dr. Dre had already negotiated contracts with music labels and done most
of the legwork required to establish a reputable music service.
All Apple had to do was focus on the features and interface.
So just how well did Iovine and Dr. Dre do in creating Apple Music?
Well, apparently not great.
Because the two were let go from Apple just four years after being hired on.
And when the service debuted in 2015, it was met with a pretty cold reception.
The app was riddled with bugs, the Connect feature was criticized as being pointless,
and was later removed by Apple, the interface was considered to be unappealing and difficult
to navigate, and listeners were frustrated by a lack of music discovery features.
Something that happened to be one of Spotify’s biggest strengths.
Now Apple has since updated Apple Music several times to address those issues, and is now
a much better music service than it was in 2015.
So while not everything worked out perfectly, the decision to buy Beats ultimately worked
out in Apple’s favor.
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