Beats hit some high notes, but the purchase doesn't measure up
Apple gained a number of asets when it acquired Beats, but there's little there that the company couldn't have built itself or acquired less expensively.
The appearance of Apple's Eddy Cue and Beats' Jimmy Iovine at the first Code Conference answered some of the questions that were raised when whispers first spread that the Apple and Beats would now seek to make beautiful money together.
Beats' electronics products, on which the company made its name, will live on. The music service, complete with its support for Android and Windows Phone, would also live on. And, answering a question no one had any doubt about, Beats' licensing deal with HP, which Iovine described as "a marriage of convenience," will end when its contract expires.
Other questions, though, continue to go unanswered. In confirming the continuation of many of the things that made Beats Beats, Apple didn't really say much about what led it to make Beats into part of Apple. We have heard that the Beats acquisition was "about music" (obviously) and that most of the value it would bring to Apple would be revealed in its future plans.
Indeed, when one looks at the four fundamental assets Beats brings to Apple today, there's not a compelling case for any single thing the company offered. These included:
An audio accessories business. Beats' pricey headphones both stole share in the airline lounge and attracted new category customers in the dance lounge. But Apple had already incidentally created a major presence in the headphone market via customers ordering replacements for their iPhones. Surely, with a bit of effort, it could have either gone upstream itself or purchased a less expensive company with a great reputation for headphone quality.
A music service. Here again, Apple had built the fundamentals of a streaming subscription service with iTunes Radio and it sure didn't need Beats to broker a billing relationship with AT&T (or any other carrier). In fact, it wouldn't need the carriers at all given the tens of millions of credit card companies that It has racked up via the iTunes store. And speaking of iTunes, Beats also gives Apple...
A new brand. Some have accused Apple of "buying cool" with its purchase of Beats, a charge that was levied against Beats partners HP and HTC as well. The Beats brand may well skew younger, cooler, and more toward music than Apple's. But compared to, say, HTC, the Apple brand is already pretty cool. iTunes has been Apple's audio subbrand for over 13 years and was already on its way to becoming a service brand with iTunes Radio. On the other hand, Apple's never really had a subbrand for the audio systems and processing inside its products (as it has for its cameras with FaceTime), and Beats may well provide that.
Talent. People are often cited as a reason for acquisitions that don't add up and Apple will now have some unknown services for some unknown time from Beats founders Iovine and Dr. Dre. But again, it's hard to imagine that Apple couldn't enlist the services of many visionary music producers or legendary artists. One would think that Apple buying Beats would lead to a more substantive celebrity association than the short-lived spokesperson affiliations of Alicia Keys (BlackBerry) and Jessica Alba (Microsoft). However, for Dre, at least, one gets the impression that it just might have been about the money.
One of the most interesting revelations about the talks between the two companies came when Cue noted that Apple had passed on buying Beats back when it did the deal with HTC simply because the timing wasn't right. But now that it is, the companies will have to go beyond simple moves such as integrating the Beats sound into Apple products to make the deal worthwhile.