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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.
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to use their talents for?”
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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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