May 8 2014, 7:30pm CDT | by Forbes
If the news reports are correct, Andre Young could become a very rich man. Mr. Young is, of course, known as rapper and record producer Dr. Dre, who six years ago co-founded Beats Electronics, now the reported subject of a $3.2 billion purchase by Apple Inc. If true, it would be Apple’s largest acquisition to date, and one that immediately sparked speculation about what Apple would really gain from the purchase. The Financial Times reports the sale could be announced as early as next week.
First, Beats markets a premium line of consumer headphones, earphones and speakers. But more importantly for Apple, the company holds patents on certain software technology, and operates a subscription streaming music service that could help Apple’s iTunes service expand in reach and quality.
The Apple retail stores have been selling the Beats headphones with the “b” logo almost since their invention, and have scored substantial space on the stores’ wall shelving. In fact, according to the privately-held Beats, it has a 51 percent share of the $1 billion premium headphone market (over $100). Beats COO Luke Wood has even claimed the company created the market for premium headphones back in 2008. Some of Beats over-the-ear models are priced at $450, while earphones are priced down to $90.
Beyond the headphones and earbuds, Beats has partnered with Chrysler to offer its technology across select models, including the Fiat line. The company describes it as “a high-definition music experience the way the artist intended.” The technology could dovetail nicely with Apple’s just-introduced CarPlay product and their future plans to become more active in the automotive marketplace.
However, the biggest asset of Beats would be the company’s streaming music service, which offers a much more thorough—and successful—social experience than iTunes. It’s advertised as “The right music for right now,” using a very simple interface crafted especially for the mobile experience. Using the Beats iOS app, the user simply creates a “sentence” explaining where they are, what they’re feeling and who they’re with. Beats then creates a playlist of the appropriate music. There are also additional paths to finding music, including by genre, artist playlist and curator. Once your music is playing, there are additional options to follow artists and explore their work, share playlists and comment on music.
And lastly, and quite frankly, there’s no streaming music service so close to the “the scene” than Beats. Incorporating the Beats technology into iTunes could generate a entirely new list of subscribers for the service, which now has over 800 million accounts.
Interestingly, the Beats music app is available for Android and Windows smartphones, and in a version for desktop computers. It’s not clear if Apple would maintain the apps for the other smartphone brands once the purchase is finalized.
The company has had an on-again, off-again relationship with various investors and funding partners over the years. However, given the size of the reported purchase and Apple’s corporate seriousness, Beats’ financials and ownership must be in-the-clear enough for Apple to act. And Apple’s executives must be thorougly convinced of how Beats’ products will improve iTunes—and their bottom line.
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