Have you ever wondered how that thing looks like in practice? Now you have a prime example of it in Apple's reported $3.2-billion purchase of Beats. You've got a stagnating company whose cash pile is north of $100 billion, and an acquisition target that is thin on intellectual property but impressively thick on brand and storytelling, and this what you get.
Many observers have pointed to Beats's music streaming service, speculating that while the hardware assets may not be worth all that much at least Apple will be able to jumpstart its own subscription-based content strategy. That's an argument that doesn't hold water at all. That streaming service is built on (the then struggled) MOG, which Beats itself bought for an estimated $10-15m two years ago. Its current, exclusively American subscriber base is most probably in the 100k range, which makes it tiny in a business that's ultimately a scale business. That is nothing that Apple, with its existing streaming technology, couldn't achieve solo in a few months' time for far less money, if it wanted.
So what Apple is buying is an overpriced (i.e. premium) accessory brand and its underlying swagger, with an assumption that this will prop up its ASPs in the medium term. I would imagine that there is a certain, monetarily lucrative, if socially unbearable, customer segment that is key to this move - "the consumer whose passion radar is seeing a significant overlap between Apple products and Beats products", so to speak. That's just imaginary branding jargon I made up for euphemistic reasons, but I trust you get my point. Owning a larger slice of this segment, and expanding it internationally, can be a lucrative move.
But at the same time, it does also invite attention to one rather critical question: What happened to the innovation?
