Today, Apple acquired Beats for $3 billion. When I first heard the rumors, I didn’t believe it. The deal didn’t seem to make sense, until you really dug into the core of this complex transaction, and all the value that Beats provides.

Let me explain what’s so fascinating about this deal…

What’s so different about this acquisition?

The Beats acquisition represents entirely new ground for Apple.

• The largest acquisition to date (by far). Up until today, Apple’s largest acquisition was of Steve Job’s NeXT for $400 million in February of 1997. Apple usually acquires small companies with valuable technology, and intellectual property, and usually does it discreetly.
• The first acquisition of a brand, leaving the brand intact. Whenever Apple buys a popular app, they immediately shut down the app, and that app company basically ceases to exist. Apple acquisitions are usually absorbed into the behemoth, rather than operated as separate entities. Beats will basically continue on, as normal, selling headphones, speakers, and music. The only difference is that they will now also be providing product, and marketing assistance, and additional revenue, to Apple.
• The first acquisition of a hardware products company: Apple doesn’t often acquire hardware companies. Usually, they acquire software companies, and development companies. This is their first acquisition of a successful consumer product.
• The first acquisition of customers. With a big brand, comes customers. One of Apple’s motivations for buying Beats was to acquire Beats Music – Beats’s popular music streaming service, and its customers. Apple has lost ground to the likes of Spotify and Pandora, so the acquisition of Beats Music gives them access to a whole new group of customers, and also boosts their marketshare.
• The Headphone Connection. For over a decade, most Apple i-Devices have come with the ubiquitous white headphones. They came to represent a culture shift, and a generation. Now, Beats headphones are starting to fill that same role. Apple has never been a premium headphone manufacturer, but I guess this means they are now?
• Beats, HP, and HTC. Back when Beats was starting out, they partnered with several tech companies, including HP, and HTC. Some of those partnerships left them with a bad brand image. P.S. Will the next Mac feature Beats Audio? (I kid, hopefully)
• Steve Jobs, and doing too much. Steve Jobs, Apple’s legendary founder, was a practitioner of KISS (Keep it Simple Stupid). Scarred By ‘90s Apple, which overstretched itself, and became a jack-of-all-trades, master-of-none, Jobs was wary of entering too many product categories, and compromising on quality. With a potential “smart home platform” on the way, will Apple once again overstretch themselves?

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying no to 1,000 things.” – Steve Jobs

• A rare addition of celebrity executives. Celebrities joining technology companies is not a rarity. Alicia Keys did a one-year stint assisting Blackberry. It is unusual from Apple though, a company that usually prefers to focus on its products. Dr. Dre and Jimmy Iovine will now supposedly serve under Craig Federighi at Apple, and I’m interested to see how active a role they take.
• Interesting Side note: Tonight, several Apple executives, and Jimmy Iovine will be discussing the deal at friend-of-TASC Walt Mossberg’s code conference. We should gain some interesting insights from that. Also, I wonder how Dre will participate in Apple’s Worldwide Developer Conference, next week.

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