As a music industry analyst, my post last Friday on the rumoured Apple / Beats deal focused squarely on the Beats Music part of the equation – if you are a hammer everything looks like a nail right? There are of course much bigger pieces in play than an unproven music service, so to illuminate some of the bigger picture, here are some of the broader product strategy implications of what the deal could mean if it does close:
- Wearable tech: Apple is a consumer tech company whose reputation for innovation was dented in recent years while it grappled with the challenge of retaining relevance for the mass market with a limited device portfolio while at the same time trying to nudge the innovation needle forward. Wearable technology is an area in which Apple can innovate bravely while leaving its more mainstream phone and tablet product lines to evolve at more conservative paces. The nascent nature of the wearable tech space means that there is much that Apple can do to both push the boundaries and gain innovation kudos. Beats is a wearable products company, Apple is a portable technology company. It is a wearable tech partnership waiting to happen. Beats could even conceivably be the Apple brand / division for wearable tech, keeping it cleanly differentiated from the core device business.Whether the outcomes would be smart headphones, fitness devices, smart watches etc. almost doesn’t matter. The important implication would be that Apple would have a fantastic platform and brand for opening up new markets. For more on the wearable tech angle, watch this fantastic video blog from my former Forrester colleague James McQuivey
- Segmenting music consumers: When Apple’s portable device business portfolio consisted of iPods alone it was immediately obvious who the music fans were within its customer base. Now it is far more difficult for Apple to identify the media preferences of potential customers until they have actually started using an Apple device. That is one of the retailing implications of producing multi-purpose devices. But start selling device-headphone bundles, or even device-headphone-music service bundles and Apple will find itself with a highly effective tool for targeting the music aficionados. These super fans can be sold premium music products without the risk of alienating other customers with premium price points in the main product portfolio.
- Reinvigorating the brand: Apple is not a high-end brand and never has been. Instead Apple plays in the same brand space Sony did in the 1980s and 1990s, namely that of the aspirational premium mainstream: the top end of the mass market and just scraping the lower reaches of the upper echelons. But the price Apple has paid for large-scale success is that its user base and brand have crept downwards. No product can take more blame than the iPhone: the smartphone market is the most commoditized of sectors, with fixed replacement cycles, carrier subsidies, fierce competition, aggressive marketing all reducing brand loyalty and value. Beats, for all the criticism of the technical quality of its headphones, has created an aspirational, youth focused brand built on the foundations of the aesthetics of quality. Like Apple, Beats is a brand focused on the upper end of the mainstream and would be a great strategic complement, presenting the opportunity for Apple to reinvigorate its core brand values and at the same time enhance youth resonance.
- Putting cash to work: Apple is a very cash generative business with an investor community that has consistently higher expectations than Apple is able to deliver on. Consequently Apple has had to face the paradoxical situation of delivering results of unprecedented quality only to see tepid investor response. Couple that with ever growing demands to redistribute its vast cash reserves to investors in the form of dividends and it is little wonder that Apple has been on something of a spending spree of late. Spending big on Beats kills two birds with one stone: it puts cash to work and sends a strong message to investors.
Whatever happens to the prospective deal, what it clear is that there are countless potential benefits to Apple. And if the deal does not transpire then it is equally clear that Apple either needs another such partner quick, or instead needs to put its cash to work right away on addressing each and every of these strategic permutations.
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