According to an article written by Ryan Faughnder and Chris O’Brien, titled Apple may be buying Beats Electronics for $3.2 billion, which was published on the LA Times web site on the evening of May 8, 2014, on May 8, 2014, the Financial Times published a report of talks between Apple and Beats Electronics. The driver for the report amounted to a strong likelihood Apple intends to acquire Beats Electronics. A sale price of $3.2 billion is included in the LA Times article.
In a short video clip titled ‘Apple: Can-Kicking’ Alan Livsey and Joseph Cotterill of the Financial Times opine on the merits, or lack thereof, of Apple proceeding with the acquisition.
Joseph Cotterill sums up what will likely prove to be a popular investor concern about the deal: “Where else could [Apple] have spent the $3 Billion?”
Messrs Cotterill and Livsey go on to delineate why the deal fails to make a lot of sense:
- iTunes, which back in 2008, according to Mr. Cotterill, amounted to a $16.00, per subscriber, business, is now just a $1.00 per subscriber business. He sees the Beats subscription service as, essentially, more of the same
- Mr. Livsey characterizes Apple as the quintessential brand, and wonders why it makes sense for them to buy another heavily branded business — Beats Electronics
- Finally, Cotterill notes Apple will not be buying the Beats Electronics hardware business, just the subscription engine they have developed, which though highly regarded, still has far fewer subscribers than Spotify
Is this Apple’s attempt to build its own SaaS, cloud offer? In other words, is the Beats Electronics subscription service Apple’s attempt to cobble together their own version of Microsoft’s highly successful Office 365 cloud SaaS offer? Certainly the target market is entirely dissimilar (SMBs and enterprise businesses on the Office 365 side, vs music lovers with a credit card for Apple/Beats side), but the recurring revenue, low maintenance, presumably high margin business is very much the objective of both attempts. Presumably we will all know a lot more about the rationale behind the deal if Apple makes a formal announcement about it.
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