In the nineties, Apple was falling apart. Steve Jobs was gone, and the company seemed distracted. Instead of focussing on computers and operating systems, Apple branched out. It built new printers and a camera, called the QuickTake, that couldn’t zoom or focus. This seemed like an attempt to disguise the lack of innovation in its main business. In fact, the new products only added clutter and chaos.
After Apple acquired Jobs’s company NeXT, at the end of 1996, Jobs and his hardware chief, Jon Rubinstein, worked rapidly to restore order. One of their first moves was to kill the division that had built the printers and cameras.
Today, Apple is in a very different position—last year, the company’s revenue was a hundred and seventy-one billion dollars. But, four years after the launch of the iPad, it has been under intense pressure to release its next exciting new device. Tim Cook, the C.E.O. of Apple, has insisted repeatedly that great things are in the works, but the company seems more interested in celebrating its past accomplishments than in talking about its future. Now Apple reportedly wants to spend $3.2 billion to acquire the company Beats Electronics, which is best known for its three-hundred-dollar headphones.
On the surface, the deal makes some sense. Apple has almost a hundred and sixty billion dollars in cash (nearly ten per cent of cash held by all the U.S. corporations outside the financial industry combined). In addition to its headphone business, Beats has a streaming-music service, Beats Music, that could help Apple improve its own music offerings. The founders of Beats—the hip-hop artist Andre (Dr. Dre) Young and the music producer Jimmy Iovine—have successfully used their music-industry relationships to win over record labels. Beats, a young company with a few hundred employees, seems like the kind of business that could be indoctrinated into Apple’s culture and ideology.
But it’s hard to make the case that all this is worth $3.2 billion, which is far more than Apple has spent on any other acquisition. Apple’s own music-streaming service, iTunes Radio, hasn’t been very successful. Beats Music, which charges a monthly subscription fee of $9.99, would undoubtedly bring Apple more subscribers—but not many of them. Analysts estimate that Beats Music has two hundred thousand subscribers, most of whom use the service through a free trial offered through A. T. & T. In April, Yinke Adegoke and Alex Pham, of Billboard magazine, reported that some of their sources at record labels have been disappointed by Beats Music’s early subscriber numbers.
Most of the $3.2 billion price tag, then, comes from the headphones. Beats doesn’t disclose its financials, but estimates put annual revenues at just over a billion dollars—about what Apple makes in two days. Beats’ products are big, bold, and closely identified with the celebrities who help design them—Justin Bieber, Lady Gaga, Sean (Diddy) Combs. Apple products, on the other hand, are known for their minimalist design and understated elegance. It’s hard to imagine Apple’s design chief, Jonathan Ive, knowing what to do with the Beats aesthetic. Ive could change Beats’ design to fit his tastes, but then what would be the point of buying the company? Meanwhile, the idea of Beats’ current designer continuing in his job seems far-fetched. Beats headphones are designed by Ammunition Group, which is owned by Apple’s first industrial design chief—and Ive’s former boss—Robert Brunner, whom Ive has openly criticized inside Apple.
There are other possibilities. One, suggested by Peter Lauria, of Buzzfeed, is that the purchase is a way for Apple to acquire Beats’ co-founder and music producer, Jimmy Iovine, who was a friend of Steve Jobs’s. Like Jobs, Iovine has a reputation for being loud, volatile, and dynamic, all of the things that Tim Cook is not. Also, in addition to headphones, Beats sells a line of speakers, which could give Apple a way into the home-audio market, which is growing fast. But, still, it’s hard to see how any of this is worth billions of dollars.
There’s another, more mundane reason why Apple could be interested in Beats—one that hasn’t gotten as much attention. Maybe Apple simply has cash to burn and wants to spend some of it to acquire a steady, reliable stream of revenue and profits from an expanded line of accessories. If Apple’s experience in the nineties is any indication, this would be worrisome.
Yukari Iwatani Kane is a former Apple reporter for the Wall Street Journal. She is the author of “Haunted Empire: Apple After Steve Jobs.”
Above: Andre (Dr. Dre) Young, in Los Angeles; June 29, 2013. Photograph by Chelsea Lauren/BET/Getty.
