Posted by James McQuivey on May 28, 2014
The rumors turn out to be true. Apple is buying Beats for $3 billion, just slightly less money than originally suggested. Now that it's official, I'm confidently reiterating my conviction that Apple cannot be spending this unprecedented sum on Beats for either its headphones or its subscription music business. Because while the company may be worth that much, it's not worth that much to Apple, the world's most innovative consumer electronics and consumer software maker. Because choosing to buy Beats purely for its existing businesses and revenues would represent Apple significantly lowering its sights, aiming to graduate right from innovative leader of life-changing technology to kinda-cool company that makes stuff teenagers like. Not that selling to teenagers isn't a good thing; it can certainly bring in money, but it doesn't typically generate long-lasting brand relationships.
To be clear, if Apple is buying Beats purely for its headphones or music subscription business, then Apple is making a mistake. However, there are those of us who still believe that Apple hasn't thrown in the towel. And why would it? There are still many consumer markets to dominate — entire markets like wearables and home automation tech and even in-car experiences, all of which are in their infancy — and Apple still has the smarts, the brand, and certainly the money to make a run for any of those things, if not all of them. So why would Apple instead sign up to become a holding company for fashionable but not life-changing brands?
If Apple hasn't thrown in the towel on the future, then what could it be up to with Beats? Expect Apple to tie Beats into a more comprehensive wearables strategy in the future. It has the technology and manufacturing chops, and Beats has a brand that can get people to wear conspicuous gear without shame. Put the two together and you have a recipe for body-based product innovation — as if Apple came to the wearables market, took one look at Google Glass, and said, "We can do better than that."
As we have said elsewhere, this is the optimistic view, the one based on the expectation that Apple still has its mojo. If, on the other hand, none of this materializes and Beats just ends up being a nice accessories business for Apple, well then, we will have to finally accept that a phenomenon like Apple can't last forever.
Search Forrester's Blogs
Free On-Demand and Live Events
Latest events from Forrester analysts, online and in person »