The buzz of the morning is Apple is considering Buying Beats, the fashion-driven headphones company founded by producer and rap artist Dr. Dre and music mogul Jimmy Iovine. And lots of people think Beats headphones are terrible, with mediocre manufacturing quality.
There are a lot of critics out there. The Beats-hating is so real that there is a Website called Beatssuck.com. Check it out.
Of course, the deal is just a rumor at this point. Reports say Apple is considering offering $3B+ for the company, which also has a streaming media service. What’s interesting is that almost every news article makes a reference to the universal disdain for the quality of the product.
Beats start at about $200 and run up to $400. I wish I had known business was so easy: You can to come up with a crappy headphone, charge $300 a pop for, then have Apple want to buy it for $3B?
Despite the criticism, Beats is real because the Carlyle Group invested $500 million in the company when it had about $1B in revenue. That was last year. Assuming that Beats has grown a lot since then, and makes a nice profit margin (at that price, the margin must be quite nice), $3B is not a crazy number. Also, Beats are sold in the Apple Store so Apple clear has insight into the buying patterns and possible the margins.
Let’s assume that the revenue has grown is at $1.5B or so. The profit margin has got to be at least 20% or more. So Beats is earning, say, $300-$400M a year. $3B would be cheap, it’s less than 10X profit. On a financial level, that wouldn’t be an extravagent price at all.
But yes, there are many conflicts and ironies to this story — namely, Apple, maker of some of the highest quality products in the world wanting to buy one of the crappier headphone producers — but maybe there is a lesson in marketing here.
That’s right: The best product rarely wins. The best marketing can win though.
If you are in fact looking to buy headphones and you are more concerned with listening to the music than how you look, you might want to check out the Beatssuck.com web page, which has some good product analysis. It points out that you can buy a quality headphone in the Sennheiser HD 518 which is listed on Amazon at $79, less than half the price of Beats.
Or how about Audio-Technica ATH-M50 Professional Studio Monitor Headphones? They are listed at $126. The cheapest Beats are at Best Buy or Target for $200, in comparison. They list on the Beats website for $299.
Go Apple. Go Beats. Apparently I have a lot more to learn about business.