Branding Expert Christopher Johnson Shares His Opinion on Apple’s Grand Plan for Beats Electronics Apple recently announced that it was in the process of acquiring Dr. Dre’s Beats Electronics for $3.2 billion. Until now, Apple has been buying startups at a price lower than what they claim to be offering for Beats. Branding expert Christopher Johnson, CEO of Whitehorn Group in New York says, “Given the scale of Apple’s offer for Beats, it may become their biggest acquisition to date. Apple has historically bought companies that are largely unknown to consumers, who produce new technology that can enhance their products -- not existing consumer brands. So this is important and interesting to consider – from a business and also branding perspective.” Many who expect Apple to continue to acquire unknown technology companies do not yet understand why they would buy Beats. In fact, some music lovers say that the Beats headphones sound just like most high-end headphones in the market. Some analysts in the tech industry have totally dismissed the acquisition as a direct indication of Tim Cook’s lack of innovation. Others have stated that Apple’s CEO is simply on a shopping spree, now that the company is sitting on a cash hoard of $150 billion. Apart from that, Apple is capable of making headphones themselves -- so what is the true value here? Johnson counters this thinking, “From my perspective, this is about the brand. Arguing that Apple’s $3.2 billion deal shows lack of vision this early after their announcement is misguided. This isn’t the first time Apple has shown interest in the Beats brand.” This is true. Last year Apple held talks with Beats Electronics, on a potential partnership involving Beats’ planned music service. The talks were about Beats “Project Daisy,” a music subscription service the company had announced in January that year. Even though the two companies did not strike a deal then, they did discuss the Daisy business model and its rollout plans. Apparently, this dynamic has existed for some time. Johnson says, “Steve Jobs himself knew and interacted with the top executives at Beats Electronics, so terming Cook as a non-visionary because Apple is buying Beats isn’t fair. In fact, the highly influential Jimmy Iovine at Beats -- after trying out a demo of Apple’s iTunes store from Jobs -- became a major advocate for the service when it was launched in 2003.” In many ways, Steve Jobs drove Apple’s relationship with the entire music industry and many executives at Apple and Beats know each other well so there’s a comfort level there. Johnson says, “In my experience handling global mergers and acquisitions -- compatibility within management is key to a transition that delivers the value imagined in the transaction in the first place. Apple is right on the money here.” Some insiders indicate Apple’s interest in doing a deal with Beats was heightened when the latter came up with Beats Music, the online music streaming service that was unveiled earlier this year. This makes sense because Beats has quickly gained ground. Johnson explains, “The Beats brand itself is beloved by the music industry’s core audiences, and therefore has become exceptionally valuable -- even more so to a company like Apple who’s core audiences seek premium experiences -- similar to Beats.” The smart devices industry is saturated so Apple can’t afford to waste money on acquisitions that won’t further its own brand. The relationship between the two leading music products brands is a partnership that started years ago. Johnson says, “Beats has built a large and loyal following and has begun to extend this to adjacent products and services in a way that aligns both brands. So its not surprising that a deal like this would happen one day.” Though we may not know exactly why Apple has made this move, we can make a few educated guesses. For example, Beats is now a leader in the headphones industry and its music streaming subscription service is already a success story. The Beats brand is also recognized all over the world and the company has vast experience in the music industry -- which is inherently valuable in itself. Of course, Apple’s brand has few equals in terms of global recognition, so any cobranding arrangement, which brings Apple and the Beats brand together for consumers, is advantageous. But for $3.2 billion there must be something deeper going on. It could be that Beats Electronics is just part of Apple’s master plan for something soon to be revealed. Johnson says, “BeatsAudio branded technology can now be found in some automobiles, demonstrating potential for acceptance beyond headphones. So the brand is elastic and also stands for a better music listening experience that meet the standards of acknowledged experts Jimmy and Dre who are respected worldwide. Apple delivers other stages of the music experience very well, but not audio so acquiring Beats clearly can deliver a tangible advantage -- but only if the brand is handled correctly.” Following Steve Jobs death, Cook has been under tremendous pressure to deliver. Most expect that he has a lot going on behind the scenes with his teams. The world is watching and waiting for Cook to become a brand ambassador capable of carrying on Steve Job’s legacy. With rumors about the “iWatch” getting louder every day, maybe this acquisition could have something to do with it. Johnson says, “Some Beats fans are concerned that Apple may do away with the Beats brand entirely, leaving the world with Apple headphones. This would be a mistake and would reduce the value which may be gained from the deal.” Johnson continues, “One approach is to handle this transaction in a similar way to Microsoft’s acquisition of Skype by retaining and growing the brand by successfully integrating Skype across its various products. Apple will have the same opportunity with Beats as the music industry continues to evolve.” So it’s very likely that Apple will retain the Beats brand if and when this deal goes forward. The fact is that right now, nobody really knows why Apple is planning to buy Beats Electronics -- but one thing is for certain, this deal will certainly affect how the world listens to music for some time to come. Christopher Johnson may be reached at (212) 537-9129, [email protected] or on Twitter @Chris4Whitehorn. About Christopher Johnson Christopher Johnson is CEO of Whitehorn Group. He is a highly regarded authority on tech branding, business management and on creating global brands, like JetBlue Airways and Infiniti Motors. He attended Carnegie Mellon University where he won the Tholenheimer Award and McCurdy Prize. He can be reached at (212) 537-9129, [email protected] or on Twitter, @Chris4Whitehorn. About Whitehorn Group Whitehorn is a premier brand strategy firm. They create what's NEW and NEXT through global branding, design, product innovation, political and celebrity brands, business strategy, global marketing and distribution. www.whitehorngroup.com and celebrity brands, business strategy, global marketing and distribution. www.whitehorngroup.com.