It’s not about you: why Beats caught Apple’s eye
I don’t like Beats as brand, nor do most of the people I know. They make garish products which lack technical sophistication and cost too much. Like most who’ve written commentary of Apple’s acquisition, I don’t understand why consumers pay a premium for this brand. That’s because, again, like most of those commentators, I’m not the type of customer Beats is targeting.
All customer-centred design flows from an ability to empathise with those unlike ourselves, so let’s start by recognising that how you or I feel about the Beats or Apple brands is irrelevant. What matters is that there are large number of customers who buy in to the Beats image and those customers represent an attractive new market segment for Apple.
There are two reasons Apple bought Beats:
- Accessing a growing (about 62 percent compound annual revenue growth from 2011 – 2014 according to some estimates) segment of high margin headphone and speaker accessories where it has no current product line-up.
- Adding the rights to sell streaming subscriptions to a 20m song catalogue that might otherwise have taken years of negotiation with record labels, with no guarantee they would ever have given Apple the terms they wanted.
Apple is a company which both benefits and loses from its own mythic status. When a company like Apple decides to make an acquisition or release a new product it does so amid the inevitable expectation that it will be transformative. Beats will not be a transformative acquisition. It might help Apple reach a different set of customers, it might help it sell some more accessories with healthy margins through its retail stores and it will assist the natural evolution of its music revenues from individual downloads to ongoing subscriptions.
It is misguided to expect everything an organisation like Apple does to result in a breakthrough new product category. Recognise the Beats acquisition for what it is: a small expenditure relative to Apple’s prodigious cash flows and a comparatively low risk way of trying a few new things: reaching new customers, expanding accessories revenues into new product categories and a neat way of transforming a potential competitive threat to iTunes music downloads into its own experiment in music subscription pricing.
Consider also that, depending on the geographical nuances of Beats’ holding structure, the real cost of this acquisition to Apple might be rather less than the $3 billion headline: much of Apple’s cash resides abroad and, given the taxation costs of returning that cash to US shores, this may be a financially efficient way of employing capital it would otherwise have struggled to utilise.
However, most importantly of all, recognise the limitations of this and the countless other ‘analysis’ pieces which will be written about the acquisition. Invest your time instead in exploring the Beats experience from a user perspective. It may not be targeted to you or I, but I found it to be a well designed and comprehensive product range for enjoying music in a certain way, from the way in which the streaming service employs curation and user-driven personalisation to match customers’ tastes to the industrial design and packaging of its headphones and speakers. Try it, put yourself in the shoes of a different kind of user and draw your own conclusions about whether Apple has spent wisely.
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