What Apple Really Wants From Beats Electronics

It's all about a ready-made retail distribution network for the yet-to-be-released Apple iWatch and a new line of Apple wearables. "What most people are not thinking about is that Beats Electronics has a very good [retail] distribution system," said Raul De Arriz, national government sales manager for Small Dog Electronics, Waitsfield, Vt., one of the top Apple specialists in the country. "It's very selective ... It's very controlled, kind of like Apple. It's a number of different places where you would not see the traditional iPad or iPhone products. Beats has such an interesting distribution reseller channel." In the U.S. alone, Beats has more than 200 retail partners that run the gamut from Skatepark of Tampa to Jack’s Surfboards and retail giants like Macy’s and Nordstrom. Analysts and Apple watchers have been debating what Apple wants with a headphone company run by two music moguls -- producer Jimmy Iovine and hip-hop rapper Dr. Dre. They say Apple is going against the precedent set by the late legendary former CEO Steve Jobs by closing in on the acquisition of such a large and well-known brand. Beats Electronics has been praised for its ability to sell high-end, high-priced products at a premium, and that is something Apple plans to adopt as it brings in the Beats Electronics development team and marketing strategists, said partners.

Partners believe that personnel additions, such as Iovine, through the Beats acquisition will make Apple a more effective vendor of wearable devices and give Apple a bigger presence in the music industry.

De Arriz sees the Apple smartwatches being released before the holiday season, and predicts they will be popular, despite the fact that smartwatches from other vendors that are currently on the market do not have high sales numbers.

"They will sell like hotcakes," De Arriz said. "The iWatch itself is going to be its own market and is really going to be quite different and quite elevated compared to what has shipped so far. Apple will have a channel to sell the iWatch. They won't be able to make enough of them."

Outside of being a key figure in the marketing of a new major Apple wearable, Beats’ streaming service -- Beats Music -- could rejuvenate the 13-year-old iTunes, partners said.

Currently, Beats Music streaming has just 111,000 subscribers, but Apple could drive a huge increase in that number. In 1999, Apple bought SoundJam MP and turned the product into iTunes, revolutionizing the music industry.
A similar reinvention could put Apple back on top of the mountain of the music tech industry, as it was over a decade ago when it introduced iTunes and the iPod, said partners.

"The music industry acumen that Apple gets with Beats is very interesting," said De Arriz. "The Beats development team, in addition to Apple’s development team, is going to lead to more out-of-the-box thinking, and that's always good."
But the real big story from the potential deal, said De Arriz, is the iWatch and a new line of wearables.

"Apple is really entering an era where it will be featuring these wearables and these lifestyle products, and Beats melds rather nicely with that."

PUBLISHED MAY 14, 2014