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[14 comments]

Apple's got the beat(s)

June 9, 2014

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research's weekly analysis on emerging issues facing retailers, presented here for discussion.

By now you know that Apple has agreed to pay $3 billion to buy Beats. The company's main tangible businesses are its high-end speakers and music gear and a streaming music service. Its main intangible asset is something Apple finds itself in need of: coolness.

While most analysts seem to think the streaming service is the core value brought by Beats, I believe the deal is telling us a few other things and it's important for retailers to take note:

1. The rate of social and technological change continues to escalate. It was only seven years ago that Apple introduced the iPhone. Completely transforming the way we communicate, shop and take photographs was good enough for a while, but by September 2013, Samsung was mocking iPhone users as old and out-of-date. That's fast. Financial analysts are clamoring for something new from Apple. Beats is part of that solution.

2. Wearable tech is the next big thing. There's no escaping it. Bose headphones may be the status symbol of business folk on airplanes, but the young'uns are wearing Beats. And the Beats brand is going to move way past headphones into apparel and footwear. While my preference would be to have my clothes change color every half hour or so, sort of like a 21st century mood ring, I suspect wearable tech will be way cooler and useful than that. Fitbit was only the beginning. I see tech embedded in all our exercise equipment, chips monitoring various vital signs. And they are going to look good. Circling back a few months, I think that's the answer to the question, "Why would Apple hire Angela Arendt away from Burberry?"

It's all going to converge. Fashion is fashionable tech.

Food is a necessity of life. Fashion is fun. Fashion can be the cool new device or it can be a cool new outfit. Ultimately, it will be a combination of both.

Tim Cook is a smart guy. He "smelled" the death of Apple's cool coming and started taking steps to change the game. He may not be Steve Jobs, but he's being like an orchestral conductor, bringing together the best people, products and solutions he can find. That's probably the most important trait a CEO can hope to have.

The future is about more than "phablets." That's in-the-box thinking. What's out of the box? Listen for the Beats.

FINANCIALS:     [NASDAQ:AAPL] [ ]

Discussion Questions:

Will Apple's purchase of Beats ultimately be more about tech wearables and fashion than music streaming? Is the opportunity around wearable tech more about the technology or fashion? Does the purchase have much to do with shoring up Apple's "cool" image?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Is the opportunity around wearable tech more about the technology or fashion?

Comments:

Not sure if I agree or disagree on Apple's loss of coolness. Probably disagree. iPhone is still the hottest phone to have in NYC, despite Google's omnipresence. I do believe that streaming was a big a focus of the acquisition. Despite the power of iTunes, streaming services like Pandora have thrived, when all bets would have been that they were to be crushed by iTunes. So Apple buying into Beats gives them both sides of selling a very lucrative virtual product, music, without having to build any infrastructure or market a service.

There definitely is a trend towards big headphones right now that most assuredly came from an urban vibe and in large part, Beats. My guess is that is a secondary win for Apple, but a huge thorn in the side (worry) of headset manufacturers, just as much as Apple/Beats streaming is to other streaming services.

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Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive

God I hope not. Wandering into areas that one is not proficient in is the first downward step in many a corporate death spiral. Apple is in the style business, not the fashion business and there is a difference, even if the author has missed it here.

Wearable tech is more about ... well ... technology. The reason you are wearing it is to get the technological delivered more efficiently.

Apple may think you can buy "cool" but I've yet to see that proposition actually validated in the market. If anything, the deal sends the opposite message to me. Apple has declared itself so uncool it has to go out and acquire cool.

And when an uncool company buys a cool one the results are -- 100% of the time -- massively uncool.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

This is all about finding the "next big thing." It's extremely difficult to create new successful mega categories that change how we carry on in our lives.

Apple did that by combining photo, music, and telephone seven years ago, and today they're betting that Beats has the cool factor for a young and hip crowd - the next business growth engine: igniting the senses vs. meeting basic needs. So, yes this goes beyond music streaming and is all about the next phase of integrating technology behind the scenes into new uses that make a fashion and lifestyle statement.

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Mohamed Amer, Vice President, Global Integrated Retail Unit, SAP

With the number of young people using Apple products continuing to increase, I disagree that Apple is losing its coolness. While the media is frustrated with the lack of new exciting products by Apple, they are missing the details. Before the iPhone or iPad were announced, there were lots of incremental process innovations that were introduced while Apple was perfecting those products before releasing them. Apple has again been making incremental process innovations, and streaming services would be an additional process innovation as is wearable technology. The earphones may be useful and cool, but I doubt if that was Apple's reason for purchasing the company.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

I think it is about fashion, branding, credibility and a little bit of technology. If they are going to push the market to connect the headphone through the Apple Lightning connector, they will need a reference headphone besides the generic earbud to make the user experience superior on the first release.

The other part is the streaming service from Beats, which is in its infancy, but gives Apple a way to cannibalize iTunes without officially doing so on the iTunes brand.

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Kenneth Leung, Director of Enterprise Industry Marketing, Avaya

Apple doesn't have problems shoring up '"cool." What Apple does have is a higher price point than the competition across all the platforms. Apple product are perceived as too expensive for some consumers -- especially younger consumers currently purchasing Samsung and other lower priced options. The Beats brand provides Apple a sexy way to shore up a comprehensive portfolio, across all consumer segments.

Wearable tech and music streaming are important trends, but Apple doesn't need Beats to learn anything in those arenas.

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Carlos Arámbula, Managing Partner, MarcasUSA LLC

I agree the "cool" factor was a part of the motivation Apple had, but the other issues mentioned in this article all add up to package win:

1. Streaming services - Pandora and Spotify captured many users and challenged the notion that we need to purchase music. Steve Jobs didn't believe people wanted to rent or subscribe to their music & movies, but he may have missed the mark on this one. With Beats Music being one more emerging player in the market, Apple was able to neutralize and control the course of that service's impending market disruption.

2. Hardware - Near and dear to Apple's heart is hardware that is perceived by the market as leading tech and worth a premium. Good fit here.

3. Music Industry credibility - this was cited by some as a factor in the deal. While I do believe Apple is no slouch in this area, having folks like Jimmy Iovine, Dre, and Trent Reznor in the fold could further embed Apple into the biz.

4. Fashion - how much will Apple focus on leveraging the Beats brand as a fashion effort, possibly extending to other wearables or products? Don't know about this, but will be fun to watch.

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Matt Schmitt, President, Chief Strategy & Innovation Officer, Reflect

It appears Apple's strategy is to ensure it's at the forefront of wearable tech. Tim Cook's genius move was to hire the CEO of Burberry, as she's spectacular at the strategy and execution of relevant, industry-leading retail merchandising, design and operations. Blend this with an expanding universe of cool, wearable tech, and Apple will remain hard to beat.

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Jeff Hall, President, Second To None

This move is a good way to migrate (force) iPhone users to Beats headsets once the lightening port is the only jack available on new Apple devices. And they need a high quality partner to make that work and can't afford the time to build it all from scratch. Plus, this is the evolution of the music business...who "buys" music when you can stream anything you want, whenever you want? Despite the fact I have a large CD and purchased digital music collection, now I can't even recollect the last time I "bought" a song or CD anywhere.

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Brian Numainville, Principal, The Retail Feedback Group

It's always about fashion! I think that most people misinterpret the word as meaning all things apparel, but that's not true. Fashion is the study of what people want, and technology has been THE fashion for years now, with Apple being the leading purveyor of said fashion.

So it makes sense that they'd buy Beats. I guess you just have to wonder though, if Jobs were alive, would they have done a better Beats themselves? They are most likely buying some great fashion thinking as well as a hot product line, but it speaks volumes that they didn't already have that.

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Lee Peterson, EVP Creative Services, WD Partners

I have questions: Regarding only the Beats headphones, will Apple emphasize their ownership of the product? Will it be "Beats By Apple?" Will that help Beats? We've been discussing how Apple will benefit by an association with Beats, but will Beats benefit from an association with Apple?

If/when the Beats technicians begin contributing to Apple wearable technology, how will that be marketed? Beats products with Apple applications? Apple products with Beats technology? If Apple is so uncool, will either of those approaches increase their "cool factor" or will they instead decrease the cool factor of Beats products?

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

I believe the key point is about rate of change. My daughter's first word when she started speaking was "iPad," not mom or dad. I can't imagine what will happen to these iPod babies in next 10-15 years time....

While Apple is still cool, it can't hold onto this image for long. These are the right moves (Beats) which Apple is making and should continue to do so. Of course, this is applicable to others as well and leaders will be differentiated if they get this right. Technology is fashion.

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AmolRatna Srivastav, Asst. General Manager, Analytics and Insights, Tata Consultancy Services

When you examine the crowded field of music streaming, you have to come to the conclusion that something else would be necessary to justify the 3 billion dollar price tag. Even the cool image could be acquired for less money than that. I think the positioning of Beats and the movement into wearables is the only way that such a purchase makes sense.

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Mark Price, Managing Partner, M Squared Group, Inc.

No. It is certainly about being cool. However, cool is a fickle identifier, and this purchase may not be the intended benefit that everyone thinks it is. In the end, only time will tell and the impact of technology and fashion is still some distance away from converging....

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Kai Clarke, President, Kowa Optimed, Inc.

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