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Apple Buys Beats: Who Do I Want to Be When I Grow Up?

2014-06-21 6 min read Electronics Anonymous marco

It was easy to dismiss Apple when Steve Jobs took back the reins in 1997. It seemed for a while that the company’s only reason for existence was as a fig leaf, allowing Microsoft to claim Windows was not a monopoly. Redmond even bought a substantial amount of Apple stock, maybe as a gesture of support.

But Steve Jobs turned the company around completely. First, he decided the fundamental question: software or hardware? Software was going to be the ticket, from now on. Apple would buy off-the-shelf components to create best-of-breed hardware, but the focus was going to be on functionality and integration, not on capabilities and differentiation.

2001 was the landmark year. Jobs presented the iPod, the world’s first decent digital music player. Better than just that, Jobs presented an entirely new business: the $0.99 song. He had successfully found the weak spot of the music industry, caught between its old (and cheating) ways of bundling crappy songs with good ones (“albums”) to upsell, and the new ways of consumers to ignore paying altogether (“Napster”).

In that sweet spot, he created a revolution. Around that same time, Google revolutionized advertising and Amazon selling. It was a good time for the Internet.

But Jobs knew there was more. He had found that the market for useful hardware can be enormous, multiples of what existing “markets” can be, as long as you give people what they want.

The next project on his list was the smartphone. The world over, there were Internet-connected phones everywhere. They were mostly made by Nokia and Blackberry, companies far from Silicon Valley and hence automatically vulnerable to disruption.

The problem Jobs saw with smartphones was two-fold:

  1. Americans didn’t have any. Seriously, American wireless providers were completely ignoring the Internet, making it hard and extremely expensive to connect to it.
  2. Strangely, smartphones were complicated. This was true of all of them for different reasons. Nokia’s phones had incoherent software suites and no decent software standards in their Symbian repositories; Windows Phone was completely new with every release, which made it really hard for developers to keep up; Blackberry’s famed ease of use petered out when moving from “beepers” to smartphones

So, he decided, the world needed a phone that would run on an American network, have a predictable cost structure, and be serious about the Internet. He also saw that people would soon stop using phones as voice communication devices.

That’s always been Apple’s sweet spot: introducing people to a particular technology. People have much derided skeuomorphism, or the idea of making things on a computer look like a real life counterpart, but for Apple users, that was vital. They didn’t have any idea of how computers or smartphones worked, they needed folders and desktops to keep things tied to reality.

Jobs’s final stroke of genius was the iPad. What was so genius about the iPad was not the hardware or software. It was the price. Until it came out, a tablet was a specialized (read: more expensive) form of a laptop. You could buy them for upwards of $2000, and they ran desktop operating systems, which made them really awkward to use.

Jobs decided what people needed was a consumption device. In essence, he thought, it would be like a really big smartphone they would not use for voice communication. But they would use like a smartphone: poking at it with their fingers, and using mostly for reading and gaming.

After that, Jobs passed away, and Apple was never the same again. You see the imprint of a man in what changes after he leaves, and it is becoming clear that Jobs had a profound influence on Apple’s success.

Apple prices have been going up, especially relative to the competition. While the original price of the iPad shocked everyone because it was so low, recent iPads are priced much higher than Android competitors, and a factor higher than no-name tablets. The same is true for Apple laptops and desktops. iPhones, despite the lack of price transparency in the American market, can also be assumed to be priced higher than comparable Android phones.

It is here that the acquisition of Beats by Dre makes sense. Gizmodo has an incredibly insightful article on the history of Beats: formed as a joint venture between Dr. Dre and Monster Cables, the hardware part (Monster) gave up pretty much all rights in the contract and Dr. Dre ended up the winner in the deal.

Monster, of course, is the company made famous by astonishingly expensive cables. There was no Best Buy in town you could enter without a wall of Monster cables greeting you. The price tags on those were absurd, especially considering that the newer ones were all digital, which meant there was absolutely no advantage in buying bells and whistles: with digital, it either works or it doesn’t. (To be fair, the company was created at the time of analog signal transmission, where attention to details paid off.)

Beats had the signature quality of Monster cables: hardware that didn’t really do much at an astonishingly high price. $300 for headphones powered by an MP3 player is simply stupid, since the MP3 player itself generally generates more artifacts than headphones would ever.

Unlike Monster, which always remained a very geeky company, Beats benefited from the media savvy of Dr. Dre. Through wise marketing and product placement, Beats became a fashion accessory. Wearing Beats was a brand statement analogous to owning a Bose Sound System. The fact the price was ridiculous was a selling point: you showed that you had the money.

In this context, Apple buying Beats makes sense. There is a piece of it that is simply righting a historic wrong: Apple always shipped the iPod with substandard earphones. But there is a much bigger message here. Apple wants to be the Beats of gadgets. It wants to capitalize on the brand by selling ever more overpriced phones, music players, tablets, and computers. It wants to make owning Apple a statement of wealth and success.

And that’s really sad. First, because Apple under Jobs was more than that: it was a company that created new markets just by looking at the tragic inefficiency of existing ones. Second, because it’s exactly the thing that almost killed Apple the first time around.

The problem really is that there are tons of places where Apple’s particular brand of magic would have worked wonders: smartwatches, in-car computing, home automation, alarm systems and health monitoring, internet-of-things: all of these are in desperate need of help, be it in feature definition or hardware specification. But there is no Jobs, and Apple doesn’t seem to have anyone hungry enough to actually think about these things any more.