Apple Takesover Beats Electronics
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[pic 1]Universidad de ValenciaMaster de Estrategia deEmpresa 2014/2015Fusiones y adquisiciones [pic 2]By Alexander BohmAbstract[pic 3]On May 28 2014, the Palo Alto based electronic giant Apple realized the biggest acquisition in the history of the company by acquiring the American headphone maker Beats Electronics for $3bn. Out of the $3bn dollar deal, $2.6bn were invested immediately and the outstanding amount of $400 million will be invest over time into Beats Electronics. The $3 billion purchase also includes Beats Music which is the sister company that provides an online subscription streaming music service. Furthermore, the deal includes that Dr. Dre, one of the world’s most influential hip hop producer, and Jimmy Iovine, a well know record industry executive, will join Apple.inc as part of the agreement. With acquiring Beats Electronics, Apple.inc just spent a mere 2% of its immense $150 billion cash account.[pic 4]It can be assumed, that the real value of the purchase is Beats Electronics’ new music streaming service which represents a relatively strong competition to competing music streaming services like market leaders Spotify or Pandora. This in return, may constitute a quicker way to close the gap between the two highly dominant market leaders. Nevertheless, with its 200 000 user, the Beats Music streaming service is strikingly tiny compared to Spotify’s 10 million paying subscribers. However, the service will run separately from Apple’s.inc iTunes as an additional complementary service offer.
Although, the online music market is booming and offers highly lucrative opportunities in abundance, Apple’s iTunes, the at the time’s dominant force in paid music downloads, has become a minor player in the industry. Statistics show, whereas subscription based music revenues went up 50% to a total industry volume of $1.1bn, music downloads recorded its first decline in history and went down by 2% to a total market volume of $3.9bn.The size and scale of the acquisition may indicate the remarkable degree of determination that Apple’s invests into regaining the strong competitive position the company once had within the online music market. Moreover, it may reveals the company’s strong desire to show to the public and its stakeholders its innovative strength and the ability to launch appealing services and products into a dynamic and disruptive market even without Steve Jobs. The Beats acquisition addresses the issue of innovation in a way that Apple, in addition to the company itself, brings in two industry experts with highly significant industry insights, contacts and experience. In this respect, especially Jimmy Lovine could play a major role in reshaping Apple’s iTunes music strategy as he was one of the pioneers among the industry executives who has foreseen the download business’s decline and advocated for subscription and streaming services as music’s future.