Apple's US$3 billion acquisition of Beats this past May sparked a myriad of different conversations about what the company was trying to accomplish with the deal. While many, including myself, believe that Apple is primarily interested in Beats' subscription music service (the hardware business is an added bonus), others believe that the deal has more to do with Apple's desire to solidify and enhance its position as a lifestyle brand.
Included within that group is Spotify CEO Daniel Elk who explained his reasoning during a sit-down interview at Fortune's Brainstorm Tech Conference last week.
My belief, rightly or wrongly, is that Apple is becoming more of a lifestyle company. And they're thinking a lot more about how they can become a lifestyle company. So if you look at some of the executives they've hired, pretty much all of them come out of fashion. I can't think of a consumer electronics company that's more associated to lifestyle and fashion than Beats. So my perception is that although they like the streaming part, I don't think that's primarily it. I think it was because of Jimmy and Dre. And I think it was because of Apple wanting to associate itself more to a lifestyle business and that Jimmy and Dre are great representatives of that.
Elk went on to explain why he doesn't think Beats' streaming service is what prompted Apple to jump in acquire the company.
Being a technologist, I can tell you that the algorithms itself is not the magic sauce. It's the data, the underlying data and Beats had just started so they didn't have a lot of users. There weren't a big user base and an algorithm or data set for them to acquire. And Apple has 800 million customers themselves so it's certainly not what they're looking for.
My view on it is that they acquired Jimmy and they acquired Dre and they're turning Apple in all verticals into more and more of a lifestyle business.
This is where I think Elk is off base. Sure, Beats may not have a lot of users, but I think the precise objective of the acquisition is that it allows Apple to leverage its 800 million customer base to radically increase the number of subscribers willing to fork over $10/month for music streaming. As has been noted before, if Apple is able to convince just 1.25% of its 800 million strong customer base to sign up for a music subscription, it will already have as many paying customers as Spotify.
For anyone with more than a passing interest in the music business, the entire interview is worth checking out as Elk opines on a vast array of topics, including the notion of Spotify going public, the revenue split between Spotify and record labels, early hurdles Spotify encountered while negotiating with record labels and a whole lot more.
One final point: Elk mentions in the interview that record labels now "100% believe that [streaming/subscription music] is the future." This, I think, supports the idea that Apple bought Beats for its streaming music service. If subscription music is the future, that certainly doesn't bode well for Apple's traditional song-download business model.
Put simply, Beats gets Apple back in the music conversation in a major way. And sure, Apple could have tried to develop its own service from scratch, but the lukewarm rollout of iTunes Radio perhaps was proof positive that Apple shouldn't try and got it alone yet again.