Entertainment / Organizational Strategy / Technology

Beats by Tim Cook

Ryan Gill

Beats Ryan

Tim Cook has been CEO of Apple for three years now and in that time he has continued along the path Steve Jobs laid before him.  His strategy has been to maintain Apple and work in the same business model that has created success during Jobs’ time as CEO.  However, recently we have seen several changes being made by Apple in an attempt to adapt to the changing marketplace they are in.  In late May, Apple released a press statement saying that they would be purchasing Beats Music and Beats Electronics for a sum of $3 billion.  Beats Music is a digital streaming service that creates an individualized listening experience for each subscriber; it is in the same market as Spotify and Pandora.  Beats Electronics is the brand for consumer headphone and speaker products; their flagship line of products is Beats by Dre, a premium headphone product.

Apple has always been on the leading front for electronic music.  In 2003 they flipped the music industry on its head when they released the first online music singles for sale at a cost of only 99 cents. Apple noticed that many consumers wanted only one or two songs off an entire CD and were paying, or worse, not paying, for many songs that they had no intention of listening to.  In addition to this change, the iTunes store allowed users to organize their music into playlists and tracks were more easily accessible.  The listener could change from one artist to another without the annoyance of switching disks in their music player.

The iTunes store was wildly successful for many years, but recently it has been losing steam to many online streaming services. In research done by the Recording Industry Association, in the United States the sale of downloaded songs fell 1% last year and at the same time streaming music services saw a revenue increase of 39%.  Most of these streaming services allow you to listen to music as much as you want on your phone, computer or laptop for a flat rate per month.  The downside to this is the consumer will never own an actual copy of the music, electronic or physical.  When they stop paying for the service the music goes away.  Despite these negative aspects streaming music is a booming market.  Beats Music is one of these services and Apple purchasing them shows Cook’s awareness of the changing industry.

It is important to note that just because the streaming market is growing does not mean it is soft and easy to profit in.  If Beats Music tries to expand it will be met with fierce competition from the other established players who are currently fighting to take control.  Beats Music charges consumers $9.99 a month for their services.  Apple has a service similar to Pandora, a free service that makes its revenue off of advertising, called iTunes Radio.  But Beats Music has a model more similar to Spotify.  Pandora currently has 75 million active listeners, while Spotify has 10 million subscribers paying $10 a month.

The other part of the business Apple acquired, Beats Electronics produces higher end headphones that are as much of a piece of style as they are a medium for listening to music.  Beats are the market leader for premium quality headphones.  Consumers in their twenties spend so much time listening to music that the way they are perceived while doing so has become an important matter for a marketer to tackle.  It is a situation akin to that of Ray-Ban’s sunglasses where the practicality of the sunglasses shading the sun is only the half of their selling point.  The other half is the style of the product and the prestige conveyed of the person who wears them.  Beats headphones are perfectly aligned with Apple’s current products.  Both Beats and Apple produce products that target younger consumers who want higher end products that are reliable and consistent.  They are not cost efficient compared to their competitors but they have a brand association that is difficult to be matched.

Tim Cook’s acquisition is a great first step and shows his initiative to adapt Apple to the changes currently going on in the music industry rather than stagnating on their past success.  However, the streaming music market is still changing rapidly and if Apple is to control this market, Cook certainly has his work cut out for him.


Sources

Girland, Mark. “Here’s How Beats Electronics Will Benefit Apple Inc.”Here’s How Beats Electronics Will Benefit Apple Inc. The Motley Fool, 16 June 2014. Web. 16 July 2014.

Neumayr, Tom. “Apple – Press Info – Apple to Acquire Beats Music & Beats Electronics.” Apple – Press Info – Apple to Acquire Beats Music & Beats Electronics. Apple, 28 May 2014. Web. 14 July 2014.

Wakabayashi, Daisuke. “Tim Cook’s Vision for His Apple Begins to Emerge.” Wall Street Journal [Pittsburgh] 8 July 2014: B1. Print.

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