Apple video
Ari Paparo, EVP at Baazarvoice, tweeted last night that, "This is a genius deal. High margin new category with no risk, tons of synergy, and they don't dilute the Apple brand."
That explanation makes plenty of sense. Beats is reportedly going to do $1 billion in revenue this year. As Peter Kafka at Re/Code notes, paying 3X revenue for a headphone company isn't all that bad. It charges a lot for its headphones, so presumably it's profitable.
Beats also has a streaming service, which is what the smart set thinks Apple is really after. Since Beats is probably making money on its own, Apple is essentially getting a streaming service for free.
Plus, we're talking about $3.2 billion for a company with $150 billion in the bank. This is chump change. Last quarter, Apple generated $13.5 billion in cash flow from operations. It can easily afford Beats.
So, sure, who cares. Go nuts Apple, buy Beats.
But, for people who closely cover Apple this is a strange transaction.
Last June, Apple kicked off WWDC, its annual developers conference, with this video, which emphasizes Apple's dedication to focus. Four months later, Apple played this video again when it was introducing its new iPads.
The video starts by saying, "If everyone is busy building everything, how can anyone perfect anything?"
This video wasn't first, or only, time Apple emphasized focus.
In December of 2012, CEO Tim Cook said, "The DNA of the company, the thing that makes our heart beat, is a maniacal focus on making the best products in the world. Not good products, or a lot of products, but the absolute best products in the world."
He added, "We have to make sure at Apple that we stay true, to focus, to laser focus. We can only do great things a few times. Only on a few products."
Beats may be many wonderful things to many wonderful people, but it is not a company with a laser focus on making the best products in the world. Beats headphones are generally panned by the critics. Its streaming service is considered second tier. And the company manufactures a bunch of stuff.
Influential venture capitalist Marc Andreessen pooh-poohed the idea of Apple's focus on Twitter, saying, "Well, your focus preachers today does Mac, iPod, iPhone, iPad, iTunes, iCloud, retail stores, Genius Bars, monitors, software apps," and he added, "The whole 'focus'/'simple' thing is overrated and mostly a myth at this point." He called the above video, "Apple's version of throat-clearing."
However, John Gruber, one of the most insightful writers on Apple, is perplexed by the deal. He writes, "Nothing from Beats looks like Apple. Not the brand, not the hardware." He also says, "If Apple wanted to sell expensive high-end headphones, they don't need to spend $3 billion. The Beats streaming service is interesting, but can't Apple do that on its own, as an expansion of the iTunes Music Store and iTunes Radio?"
If Apple really wanted to a streaming product, it should have bought Spotify or Rdio, the two best in the industry.
This is what makes the reported Apple deal so troubling. Apple can easily afford it. From that viewpoint, it's not a terrible deal. But Apple has been emphasizing that high quality products and focus are its soul. This doesn't fit either of those.