Apple’s looks at Beats Electronics for streaming and wearables

Business news | May 11, 2014

By eeNews Europe

There is also a lot of commentary about Apple paying too much for the company. However, USD3.2 billion is small change for Apple and Beats Electronics is not that small either.

Martin Scott, Head of Analysys Mason’s Consumer Services research practice, has this to say: Apple are not just buying a headphone business – it’s a streaming business too. Apple’s investment makes sense. We’re talking about a strong higher-end headphone manufacturer – industry estimates tend to put their 2013 sales at USD1.5 billion. Beyond that, however, Apple are also buying a strong brand and an interesting burgeoning online streaming music business. Beats Music is well integrated with AT&T handset plans, and its ‘curatorial’ approach to music recommendation (getting musicians and celebrities to recommend tracks and playlists, not just an engine) should have good synergies with the Apple brand.

Martin Scott, also alludes to a second aspect: Apple is likely to do a lot more with headsets, and wearables, possibly around health. In February 2014, Apple was successfully awarded a patent for a health-monitoring earphone system. These earbuds would monitor temperature, heart rate, perspiration and potentially act as a controller, as well as delivering audio.

Apple’s potential purchase of Beats Electronics would help the company increase its footprint in two hot consumer markets centered around the smartphone — streaming music and wearable devices. If Apple could gain a strong foothold in both these markets they would drive more people to the iOS platform and widen the moat on an already powerful ecosystem. The wearable devices market opens up the next frontier in innovation for the mobile and communications market. IoT and LTE will also play a large role in taking the wearable devices market mainstream by providing connectivity that is fast and responsive enough to make use of such devices and apps practical.

Today, with the smart watch buzz, wearable devices for the fitness market, and health apps and devices, we are seeing the beginnings of a new market, akin to that of the early smartphone market. At the moment it appears that the smartphone and the mobile connectivity that goes with it will be the enabling platform and ecosystem to leverage in developing a wearable devices and a truly mobile healthcare market. Here, companies like Apple will need to innovate or attract such products into their ecosystems to stay relevant.

As hardware tends to become a commodity item fairly quickly as the market matures, value is then added through software and ecosystems. IBM is a prime example of a company that has transitioned from hardware to software and services. While Apple will probably not let its hardware go, its future lies more on the ecosystem it has to deliver what consumers want.

One pertinent example of how the smartphone can become centric to wearable devices and healthcare is the recent announcement by LionsGate Technologies (LGTmedical), a Vancouver-based social enterprise, that it had secured its first major financial backers to scale up development of the Phone Oximeter™, an app and medical sensor that turns a non-specialist, community-level health worker’s smartphone, tablet computer or laptop into an affordable and simple but sophisticated medical-grade diagnostic tool typically available in the developing world only in some hospitals.

Apple would benefit from purchasing Beats Electronics, it is not just the price tag, but part of wider battle to make their ecosystem central to consumers and all their requirements from smartphone, to TV, games, fitness and even healthcare and finance.