There is a lot less here than meets the eye, or ears. I think it is largely neutral for the business, as the headphones niche is a drop in the bucket for a company the size of Apple, and the streaming music service created by Beats is even less remunerative.
It mostly an amazing admission that iTunes Radio has been a failure, which is true. And it is an admission of sorts that the iTunes download business is dying.
Think about how much the world of music has changed since the original innovation of the iPod and the iTunes store. Back in the early 2000s, it was hard to get digital music, and very few devices were set up to play it. This was the heyday of iTunes, the only good software for the acquisition of songs, and the iPod, which was the best playback device. The world changed when iTunes disintermediated the old logistical chain of artist-producer-label-store, and allowed consumers to buy songs a la carte for 99 cents rather than in album form for $16.
Now music is plentiful for free or cheaply from a dozen sources, ranging from Spotify and
Considering this sea change, Apple had to make some kind of change in its business model. It's going to try to persuade people that the Beats music service is somehow better than Spotify and Pandora (which it emphatically is not) and that the Beats headphones are special (they're not).
I really don't know how this opens a wedge for Apple in the smartphone market share battle in which it is losing ground every day to Android devices, and even Windows.
And thus in my view, this was largely an "acquihire," in which Beats founders Dr. Dre and Jimmy Iovine become full-time Apple employees. Apple chief exec Tim Cook seems to think that this was a coup, but the annals of business history are filled with such deals that don't turn out well; it is very hard for strong-minded executives to merge their capabilities. They typically end up in divorce court.
Maybe this one will be different, but the bottom line on this deal for now, for me, is an emphatic "meh." Apple is not growing much anymore, and its dated product lineup is in shambles after two years of no innovation. Yet the stock is so cheap and over-hated that it can advance anyway just because it is a good value.
If that makes no sense to you, consider the opposite: There are plenty of great companies whose shares go down, seemingly for no reason, when they are over-loved and thus overvalued. By the same token, non-great companies can see their shares rise, seemingly for no reason, if they are over-hated and thus undervalued.
I said in September two years ago that the over-owned shares would need to spend at least two years in the dog house to shake off their super-rich valuation, and strangely enough here we are, around 20 months later, and it is finally peeking again through the windshield at its old high.
The excellent Parallax Financial model of intrinsic value now pegs Apple shares on a fundamental basis at $1,100, which is 70% higher. As a result, no matter how much you may sniff at the company and snort at the deal, the company's shares are still worth owning.
Disclosure: I own Apple shares.
