3.2 Billion Dollar Plastic

Apple has been making quite a bit of noise lately... namely being set to spend 3.2 billion dollars on Beats Electronics, a company known for it's headphones, and speakers. What makes this pending acquisition so interesting is the huge sum of money Apple is willing to spend. All their previous company purchases have been (relatively) small, and this may just be a boon for both sides. For the owners of Beats, Dr. Dre and Jimmy Iovine, the obvious benefit is the money. A lot of of it. But this means so much more in terms of market share and image for both companies - especially Apple's stock

It's no secret that both the Apple and Beats share the common target market of young affluent 16-24 year olds. By swallowing Beats into its corporation, Apple not only strengthens its stranglehold on this sector, but also opens itself to a new avenue of profit in the consumer electronics industry through Headphones, as well as an already set up ground work for streaming music through Beats Music. With that being said there are a few concerns I have.

Efficiency of Company:
First off, some of the math doesn't really make sense in this acquisition. Apple is spending 3.2 billion dollars on a company that was considered to be at best worth 1 billion dollars as of September 2013 by the research company NPD Group (National Purchase Diary). And that's not taking into account the fact that Beats is estimated to hold about 64% of the plus $100 dollar headphone market (again by NPD). So Beats as a company generating revenue doesn't seem like it has enough room to grow to justify the purchase. The only other reason I can think of Apple making this purchase is that they really are stuck on their music streaming service. The Itunes radio Apple came out with didn't boost profits as much as they hoped. Perhaps bringing aboard Jimmy Iovine's mind will help them circumvent the the otherwise necessary R&D time to figure out what works themselves. The end result would be a short term loss of profit, but long term growth through a new music streaming service. I'd call that a win for any stockholder.

Image Issues
Ironically, the real issue I see with this purchase is exactly that: What I see. A lot of teens my age own Beats. A lot own Iphones. And all of us image concerned teenagers want to stand out. That's part of the reason why Samsung's Galaxy phones have been gobbling up more and more of Apple's market share. Who wants to buy the same phone as everyone else if you could get a shiny new one from a different company? That's also why I don't think Beats will generate much more revenue growth as a company. Their beginning to become "old fads". And while I applaud both companies for trying to change their products to refresh interest, it's not necessarily working. Yes, Apple is still generating more and more Iphone sales each year, but growth in those increases has slowed, as the premium smartphone market has saturated. For Beats, the situation is more dire. The redesigned headphones will cause some teens to purchase them, but others who've seen far too many glossy red and black headphones will completely ignore them. Simply buying Beats will not make Apple cooler to the younger demographic. But Apple is willing to believe that it will. Dr. Dre, congratulations. You probably wont be hip-hop's first billionaire (http://money.cnn.com/2014/05/09/technology/innovation/dr-dre-billionaire/) with this purchase, but you'll be closer than anyone before.