When you hear that Apple may buy a well-known company, it’s dangerous to assume that it’s going to happen. Actually, based on history, the safest assumption is that the idea is sheer fantasy–there have been countless rumors of such acquisitions which, though always fun to speculate about, never amounted to anything.
With that out of the way: Matthew Garrahan and Tim Bradshaw of the Financial Times are reporting that Apple is “closing in” on a $3.2 billion deal to buy Beats, the maker of headphones and speakers (and a new subscription music service) co-founded by Jimmy Iovine and Dr. Dre. They say it’s possible it could be announced next week.
I’m not assuming that the acquisition is as real and close to being done as Garrahan and Bradshaw say it is–and even they stress that it could fall apart at the last minute. But even if you just mull it over as a theoretical business transaction which may or may not happen, it raises some obvious questions.
1. Why would Apple make an acquisition so atypical for Apple? The company normally pays amounts in the hundreds of millions for fairly small, obscure startups that have created inventive, proprietary technologies that can help it get where it already wants to go, only faster–such as P.A. Semi, the chip company it bought in 2008 as it was gearing up to design its own processors. Beats is a well-known producer of stylish products in consumer electronics categories that are essentially commodities, not a technology company.
2. Why would Apple want to own an audio accessory company? It’s presumably possible to make attractive profits selling headphones and speakers. It just feels so…mundane. (It also would put Apple in direct competition with some of the companies whose products it sells in the Apple Store.)
3. Or is it the music service that’s enticing? The Beats Music service, which debuted in January, is perfectly nice. But it’s so new that it doesn’t yet have a teeming customer base, and there’s nothing about it that screams “Apple could never build this on its own.”
4. Could it be the brain trust? Snap up Beats, and you’d get Iovine, Dre, a bunch of well-connected executives in the music business and a team that knows how to design products that large numbers of consumers are willing to pay a premium for. Maybe that could be as attractive to Apple as Beats’ current products.
5. Would the Beats brand live on in its current form? It’s not bizarrely inconsistent with Apple’s own personality, but it’s also not identical. Apple owning a well-known brand and not trying to subsume it would be something new. Or perhaps it would split the difference by recasting the product line as Apple Beats.
6. Would its design aesthetic? It’s astonishing when you think about it: Apple is the world’s largest consumer-goods company by market capitalization, yet all of its products, to a greater or lesser degree, bear the imprint of one man, Jonathan Ive. Apple making hardware he has nothing to do with feels odd. But so would him devoting brain cells to large numbers of products in the categories Beats plays in.
7. Would this be a genius move in a way I’m not seeing? I keep turning it over in my head, and still can’t figure out how such a merger would be brilliant or, really, any more interesting than, say, Procter & Gamble’s acquisition of Gillette. To pick a boring-but-sensible transaction at random.
Of course, there’s no law that stipulates that tech deals have to be interesting. And in the world of major tech-company acquisitions, $3.2 billion is…well, more than chump change but less than a historic figure. It’s roughly what Google paid for Nest in January, and amounts to only 2 percent of the cash Apple has on hand. So such a deal wouldn’t represent an enormous gambit that could reshape Apple as we know it.
Maybe the company just likes the idea of collecting all the profits for all those Beats products it sells in its stores, or thinks that Beats Music could be an attractive foundation for an Apple subscription service. Either one of those rationales, or both of them, could be enough to make the deal work.
Or maybe this isn’t happening at all. If it doesn’t, kindly forget that I wrote this story, so that I can write another one explaining why the notion was absurd and unworthy of contemplation in the first place.
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