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Posted by James McQuivey on May 9, 2014
A media frenzy arose last night when the Financial Times suggested it had word from the inside that Apple is closing in on buying Beats Electronics for $3.2 billion. The immediate response from all quarters has been puzzlement and on multiple levels. As the sun rose today, so did the doubts about the impending deal. Generally, large strategic acquisitions — like when Google bought Nest for a similar figure — can be justified on the basis of buying something you don’t already have: a promising new technology, a large customer base, or entrée into a desirable industry. None of these things apply to this acquisition by Apple. Acquisitions at a more mature business stage can typically be justified purely on a revenue or margin basis or the desire to snap up a brand with more energy. Those don’t apply here, either. Even those who have tried to stretch the argument a bit have suggested that Apple could be buying Beats purely for a quick road into the music streaming business as a hedge against Spotify — except that Apple owns the music industry and doesn’t need Beats to build the music streaming offering that the company has denied for years that it should even consider getting into.
Not that Beats isn’t an attractive company worth buying; it is. But not at this price and not given what we know about it currently. Certainly, the whole deal could still come crashing down, and we’d never hear about the details. Given Apple’s historical tight-fistedness with the contents of its huge treasure chest, it wouldn’t be surprising if the company backed away, especially after last night’s trial balloon (if it was such) sputtered so badly. But let’s consider this fact: Apple is not a stupid company. Sure, Apple can make mistakes (Apple Ping, anyone?), but when it trips over itself, it usually does so on the way up a hill worth climbing. Which leads me to this flight of fancy: What if, in buying Beats, Apple knows something that we do not; Apple sees something that we do not? If true, what could it be? I offer three possibilities, in descending order of plausibility, but in ascending order of awesomeness.