3 Reasons Apple Wants Beats (And 1 Reason It Doesn’t)

5/12/14 10:33AM EST

3 Reasons Apple Wants Beats And 1 Reason It Doesnt 3 Reasons Apple Wants Beats (And 1 Reason It Doesnt)

Image via Flickr/ Jun Wang

Apple Inc. (NASDAQ:AAPL) is set on buying Beats headphones according to last week’s rumor swirl. The Cupertino company is already in the headware business, and it’s apparently upping its game, but there’s a little mystery to the Beats investment. Here’s a look at why Apple wants the headphone business and one reason it might want to stay away.

Apple Needs A Wearable Brand

Beats is about the coolest name in wearables right now. Samsung and Google may be doing their best to add computing to the regular old technology people hag on their bodies, but they haven’t built a brand that consumers care bout. Beats won its business based on its brand. The company’s marketing is paralleled only by the success of Apple’s marketing of the iPhone and iPad.

There are two reasons why Apple needs wearables branding. First is the company’s coming foray into wearable technology. The iWatch is apparently set to be released this year, and Apple could do with a solid brand to help make the products cool. Apple could use the Beats brand in order to help sell the iWatch, and $3.2 billion isn’t all that much to pay for that kind of mind-share.

Apple Needs Streaming Licenses

Apple needs streaming licenses in order to make sure it stays on top in the music business. It is important to remember that the Cupertino company made its money in music and built the rest of its revenue on the back of those successes. Beats just launched a music-streaming service that’s small, but it may be attractive. The company may have the clout to give Apple better access to streaming licenses.

It’s not clear whether the current licenses held by Beats would transfer on acquisition, but the company has something more than outstanding agreements. Beats has relationships with the music industry that Apple could leverage, particularly after burning bridges in years of tough negotiations. Dr. Dre is a powerful voice, and Apple would like to have him speaking for iTunes rather than the competition.

Apple Can Always Use More Cash

Apple Inc. (NASDAQ:AAPL) could probably justify buying Beats based on the company’s cash flow alone. Given Apple’s powerful fan base and the firm’s retail operation, current Beats sales numbers could be multiplied by Apple support. The company could become a boon to Apple, which sells headphones but has never seen them rise above a commodity level.

Ignoring bigger plans, Apple may just buy into Beats because it’s a good fit to increase revenue. The firm’s margin is likely to be driven upwards by Beats sales, though the volume may not be enough for that to have much significance. Beats may just be a good all round purchase without any long term plan.

Apple Doesn’t Want To Look Desperate

Apple buying beats may be a sign that the company is getting desperate. Investors are concerned about the future of the company, particularly as it seems set on entering into markets it has little experience in for growth. A $3 billion grab of a cool brand may be alright for some firms, but Apple is different.

Apple has never gone for big acquisitions. The company has usually gone for smaller companies that have technology Cupertino would like to get its hands on. Beats is different. The company has no technology, and it’s not cheap. It currently competes with Apple in a visible way, and it seems like Tim Cook might be trying to buy cool. Apple doesn’t want to look desperate to its investors, but a Beats acquisition may cause just that reaction.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.

 
 

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