Everyone is Wrong about the Apple Beats Acquisition

If you read the media reports last night or yesterday, you heard that beats-by-dr-dre.pngApple is in talks to buy Beats Electronics because of the latter company’s streaming service. Frankly, I can’t understand this logic and perhaps I have the inability to understand the obvious but to me the reason has more to do with the brand and international expansion opportunities and most importantly the one thing everyone seems to think the acquisition is not about… Retail. Yes retail. Apple is a master at it. My trip to the Microsoft store last weekend just reminded me that even when companies like Microsoft copy the Apple retail store look and feel, they don’t generate a fraction of the excitement or customers.

Yesterday, I tweeted that B&O was an inspiration to Apple. The company obviously understands better than anyone else, how intertwined consumer electronics, music and computing have become. Moreover, they see the appeal of companies like Bose, another organization which Apple seems to have borrowed marketing ideas from.

Beats is Bose for the under-40 generation. It is cool, hip and has amazing potential. Bose has retail stores all over the place and a complete product line… Beats does not. This means Apple can launch Beats Electronics stores worldwide – or place store-within-a-store locations in the Apple store or negotiate leases for two stores next to each other.

Bose helped launch the iPod as a high-end audio device and since that time, Apple has realized the margins on audio equipment can be massive. Just as they cut out the middle-man by designing their own processor, designing their own phone after a failed partnership with Motorola, they are now doing the same thing in the audio space. This means higher retail margins. It also means they can take their international distribution and supply chain expertise and apply it to the Beats product line. In short, lower costs and more efficient distribution.

To me, this is all the obvious stuff. Will they integrate the headphones into phones or iPods in some proprietary way? Perhaps, but I don’t see this as a big deal for consumers, and it certainly wasn’t for HTC either.

The loser here is frankly Bose, a company which I believe has been one of the most innovative in tech. The challenge Bose has is competing with companies like Sonos in the WiFi audio space and now a combination of Apple and Beats. To demonstrate the company realizes the challenges it faces, they just released headphones in different colors a few weeks ago.

The other interesting point people make is that Beats audio products aren’t true audiophile quality products so Apple doesn’t really benefit from the product line in an acquisition. My response is Apple is a marketing company… They can take anything and make you wait in line to buy it. The iPhone does a lot of things very well but it certainly doesn’t have the best screen, highest resolution, best battery life, provide the best value, etc… This doesn’t mean it isn’t a runaway success. Point being, Apple takes good products and makes you crave them.

Applying this expertise to Beats products which you could argue is already pretty good at this game will increase sales.

Now, this isn’t the breakthrough innovation that people were looking for from Cupertino but it could certainly add tens of billions of dollars to the bottom line and in the end, that is what investors are looking for.

One final thought is if you sell products in the Apple ecosystem, you should be rethinking things as Apple could become a competitor at a moment’s notice. This isn’t new in the tech world – Oracle and Microsoft and even IBM decades back were and are still famous for expanding their markets by competing with their partners or companies which make their products better.

I think this is a very smart move for Apple and it will be very interesting to see if my thoughts on retail align with announcements we will see in the upcoming months and years.

Also see:

  • My recent thoughts on the Microsoft Store as compared to Apple
  • How Barnes & Noble has copied Apple Stores
  • How I suggested phone vendors emulate Beats when competing with Apple

Some think this acquisition is all about wearable tech and that is an interesting idea. You can expect to learn more about these thoughts at Wearable Tech Expo July 23 & 24 in NYC.

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