News & Views

Why Apple bought Beats (hint: it wasn't for headphones)

by Chris Barth

Check out this story – more of a blurb, really – from 2004:

'Police in Britain are warning iPod owners there that wearing the white headphones included with the iPod makes them a target for muggings. It shouldn't be too big of a deal to just buy new headphones (especially since the ones you get for free with the iPod aren't that hot anyway), but what's really bizarre is Apple's response to all of this, with a spokesman claiming that some iPod fans would "rather be robbed" than use headphones that were less cool.'

Apocryphal? Potentially. But the fact of the matter is that Apple was a major player in the conspicuous earbud game a full decade before it forked over $3bn to buy Beats, the luxury headphone maker that has single-handedly redefined the category in recent years. Though the acquisition has been questioned by many, there's no question that the two brands share a fair amount of DNA. Charismatic, persuasive founder: check. High-end product that upends its category: check. Second (or third or fourth) mover advantage that allows the brand to change an industry: check.

Over its 8-year history, Beats has proven itself as a master marketer. Its Olympic coup in 2012 turned a few thousand dollars worth of free headphones into millions in marketing. The brand's Show Your Color campaign mobilised an impressive following, transcending product and establishing a cultural phenomenon. And it hasn't looked back since. It's telling that Apple, one of the world's strongest brands, plans to keep the Beats brand distinct from the Cupertino mothership.

‘Beats isn’t just about the music. That’s one of the reasons the brand has become so remarkably successful. Its relevance is as part of culture, helping shape culture,' R/GA London creative director James Temple told Contagious last year. 'The #showyourcolor campaign wasn’t about the headphones. It was about consumers expressing themselves through the headphones. That’s a key distinction. While the scale and impact were larger than life, the idea itself was very simple. This has always been a brand in the hands of consumers. We thought the campaign should work the same way.’

Expressing yourself through a product that's a cooler brand of a commodified piece of technology. Hmmm. Sounds familiar. 

But Apple didn't buy Beats for its headphones business – at least not exclusively. Instead, the brand's streaming music service Beats Music is the hidden gem here. Launched in February, the service is poised to make Apple a major player in a rapidly growing but hard to crack industry; Beats Music represents the upside of this acquisition. Failure of Beats Music wouldn't break the deal, but its success could make it.

In Issue 38 of Contagious, I took a long look at streaming music and its marketing in our quarterly sector focus. The simplified version? Over the past year, streaming music has undergone a transformation, moving away from talking about technical specifications to marketing based on the ability to create emotional connections. As the industry has matured, it has become more and more important for streaming services to be able to serve up music that matches a mood, that fits a moment.

‘The browsing, context-aware, really smart playlist space feels like something that does sort of bridge both needs of the audience,’ Chet Gulland, head of digital strategy at Droga5, told me earlier this year. He sees contextual personalisation as a differentiating factor for streaming services. ‘It all comes down to going back to the new promise: music matters in a moment. Music is at its best when it’s perfectly matched to the moment.’

You've probably already figured out who does this well: Beats Music. The service's human-curated playlists promise to go beyond the algorithm to put together playlists that people actually want to listen to, whether it's 90s hip hop or folk standards. And its 'The Sentence' feature – which, admittedly, runs the risk of coming across as gimmicky in the long run – allows listeners to fill in a Madlib to generate a playlist that matches their mood. That secret sauce could be a differentiating factor as streaming libraries become increasingly homogenous.

Apple has dabbled in music streaming in the past. iTunes Radio got off to a notable start, recruiting more than 20 million listeners in its first month – a number that dwarfs the reported 250,000 paid users on Beats' ledger. But those numbers, by most counts, have proved unsustainable, and advertisers have been less than enthusiastic about spending money for what amount to little more than internet radio ads. On another front, Apple would prefer you forget its failed foray into social music, Ping. Beats Music gives Apple a second life in both areas, and the experiment is bankrolled by a massive headphone business that shows little sign of flagging.

UK research firm Generator predicts that music subscription revenues will rise nearly $3bn by 2017, becoming ‘by far the largest growth segment and the engine that will drive the music industry’s growth'. If Apple and Beats Music can grab just a small slice of that pie – and I wouldn't bet against it – the $3bn price tag on the Beats brand will seem downright affordable. And when we're Rocking Out in The Office with Our Pets to 80s Rock thanks to Beats Music, streaming from our iPhones to our Beats branded speakers, this acquisition will seem prescient.