The tech giant, Apple recently required Beats Electronics for $3 billion and many questioned the move. It wasn’t an interesting choice and it didn’t seem like buying up a headphone company would provide any creative outlets for the future of Apple in developing new products. However, there is more to the acquisition than meets the eye. They may actually turn a huge profit with bringing headphones under their wing.
Remember that with Beats, Apple now has control of a subscription music service as well. They also gain information for 800 million credit cards that they can now leverage. Apple lost a lot of business in iTunes after companies like Spotify popped up. It is much more desirable to pay $9.99 a month for Spotify rather than buying all your music a la carte on iTunes. Now that Apple is in the music subscription service they may be able to win back some of the customers that left them. They also will immediately get the revenue of the 800 million people that already stream music and that’s before they even win new customers back to Apple and iTunes with their new streaming service. KatyHuberty of Morgan Stanley already wrote about how Apple can quickly get back their $3 billion investment, “Spotify, which is generally viewed as the leader in streaming music, has 10M paying subscribers or about 25% of its over 40M active user base. If Apple charges $10 per month, same a Spotify, ever 1% penetration of Apple’s 800M user base, equates to $960M revenue annually, adding 8 point of growth to online services and half a point to total company growth.” Apple has a good chance at winning over customers because they still have the most frequently purchased and used iOS home screen in the mobile market today. They just have to include the beat app on the home screen and the power of suggestion will bring customers to them.