The over-analysis of the reasoning behind Apple’s offer, which began long before the acquisition was official, is mind-boggling. We no longer live in an Apple world. Apple dominated music because of the seamless interface of the iPod and iTunes, with the iTunes Store the glue holding it all together. It no longer has a market monopoly. As that dominance erodes, you must come up with a new dominant product, one that hopefully ties all your others together. So far, Apple CEO Tim Cook has failed to do this.
Cook is an operations guy. The company has no vision, and now needs to go outside to find it. Steve Jobs was famous for saying one thing and doing another, decrying this and then doing exactly that. Everybody knew that streaming was eclipsing downloads, except at Apple, where they were adhering to Jobs’ philosophy. Apple had no Plan B — no streaming service ready to be launched. This deal is a desperation move to get into music streaming, and it’s a good thing it did, no matter what the price.
Apple still won’t dominate the market; the leader in streaming is YouTube. The fact Beats Music works on Android is a red herring. No one is looking to pay for streaming yet. Music is already free on YouTube. Beats “curation” was a marketing smokescreen, a dollop of fluff made to make the company look attractive.
Yes, Apple’s new head of retail, Angela Ahrendts, will figure out a way to sell more Beats headphones; she’s a marketing guru. But do you really think Apple wants to own a headphone company — one built upon fashion? Apple didn’t want the headphones, but Beats co-founder Jimmy Iovine insisted upon selling the whole thing. This makes sense: It gives Apple the illusion of cash flow/profit and it allows Iovine to take his money off the table all at once.
But if you assume Beats Music will triumph under Apple, you believe iTunes Radio demolished Pandora, which is untrue, although it does appear that iTunes Radio will have worldwide penetration first. Pandora has prime position in the U.S., and there is a first-mover advantage, especially in tech.
Meanwhile for Spotify, which already has an incredible amount of worldwide penetration, this deal is the best thing that could happen. The more Apple promotes streaming music, the more the category grows.
So the only people who care about this deal are those with stock in Apple, or those who make money off prognosticating about Apple, and those envious of the score Iovine and company made. Iovine got out at the right time. Apple has the deep pockets to compete with Spotify by making the service free. Beats did not have that kind of money. Without this deal, Beats Music dies.
Apple buys Iovine’s relationships with the music industry, where he’s held in high regard and has a lot of sway by marrying a peculiar blend of sycophantic behavior with a willingness to draw the line. He already works for Lucian Grainge, so Universal is in his pocket, especially after having made the company a windfall profit. As for Warner, Len Blavatnik invested in Beats, so Jimmy has him tied up too. Dr. Dre, meanwhile, may be a hip-hop icon, but his recording days are through.
Ultimately, creative companies must be run by creative people. Iovine knows little about electronics and almost nothing about code, but he managed to create the Beats headphone juggernaut (Monster provided the tech) and Beats Music (MOG provided the tech). Either you’ve got insight and the ability to execute — to assemble disparate components for an unforeseen future — or you don’t. Cook doesn’t, so Apple pays.