In 2014, Apple made its single biggest acquisition to date, purchasing Beats by Dre for over three billion dollars. But how did such a mammoth deal come about? We’re going to take a trip down memory lane to see where it all started and how that huge sale became a reality.
This is The History of Beats.
Where It All Began
Beats by Dre began in 2006 after a chance encounter between the company’s co-founders. The former music producer and Interscope Records founder, Jimmy Iovine, and Dr Dre, the legendary Hip-Hop artist and producer.
The two friends randomly met on the beach one day, with Dre telling Iovine that his lawyer wanted him to start selling sneakers. Dre asked for Iovine’s opinion on the matter. He said that he thought it was a bad idea and that Dre should sell speakers instead. The rest, as they say, is history.
Around that time…
Most people were using the stock earbuds that came with MP3 players. Think of the substandard Apple earbuds that came with an iPod. These weren’t up to the task of bringing music to life, so there was a big gap in the market ready to be exploited.
Dre and Iovine partnered up with Monster Cable, the audio and video components manufacturer, as well as consulting a host of top artists to produce the first Monster Beats by Dr. Dre Studio Headphones, which debuted in mid-2008.
Dre’s street cred and industry approval helped Beats headphones get off the ground. Despite lukewarm approval from audiophiles who criticized them for their overwhelming bass and hefty price tag. But audiophiles were not the intended market. So, who are Beats headphones for?
The aim of Beats…
Attract young music fans who had never bought fancy headphones before. They did this through a slick marketing campaign, allying the brand with some of the biggest names in sport and music.
In 2008, Beats headphones could be seen adorning the ears of Lebron James and his USA teammates at the Beijing Olympics. They also started popping up in almost every Interscope Records music video, the company owned by Jimmy Iovine.
Artists including Justin Bieber, Lady Gaga, and Will I Am wear Beats headphones. An invaluable source of free advertising for the company. Bieber and Gaga even scored their own headphone lines, JustBeats, and HeartBeats, respectively.
As Beats headphones took off, the broader headphone industry soon came to reflect the success of its newest entrant. From 2008-2009 alone, sales of headphones surged from 59 million units and revenue of $490M to 69 million units with revenues of $648M, a 32% increase in market value.
Boosted by the mass of free product placement, Beats suddenly found themselves accounting for nearly 30% of the market, racking up sales of $180m in 2009 alone.
During the height of Beat’s popularity, Dr. Dre obsessed over keeping the products cool. Weighing in on everything from commercials, font styles, and design details. By 2011, Beats annual revenues were rocketing towards $500m.
It was at this point that Dre and Iovine sold a majority 50.1% stake in the company to HTC, the handset makers, for a $300m cash injection. So, who owns Beats headphones? Despite being the majority shareholders, HTC allowed Beats to still be run as an autonomous company.
Not long after this, Beats severed its ties with Monster Cable. Because their contract stated if there was any major change in ownership, Beats could end the licensing agreement. The HTC deal was exactly that, however barely a year later, Dre and Levine bought back 25% of the company from HTC, thus regaining effective control.
Needless to say, Monster was far from happy about this. Claiming the whole thing was effectively a scam to remove them from the company. They sued but lost the subsequent court case.
With the new cash injection came a whole host of new Beats products, including the Beats Pill speaker range, a Beats branded laptop from Hewlett Packard, and even a Beats deal with Chrysler to put their speakers in the Charger Sedan.
Plowing forward, Beats bought MOG, a music streaming service, for $18m in 2012. And by raising another $60m to transform it into what would become Beats Music in 2013. By the time of the Beats Music launch, industry insiders believed that online streaming had already overtaken MP3s as the dominant music medium.
2014 was a big year in the history of Beats. It’s when Apple bought Beats for a staggering $3.2b. The company was making a lot of headphones, but they weren’t the most well-reviewed headphones or the cheapest.
They could cost as much as $450 whilst only costing $14 to make. A mind-boggling 3,200% mark up. Nonetheless, they sold a huge amount of units making a fortune in the process.
A big part of the acquisition…
Apple gained ownership of Beats Music. They quickly dismantled the platform, taking some of its key features, and merged it with iTunes. Creating what has now become the hugely successful subscription service, Apple Music. Second only to Spotify in the number of subscribers.
The acquisition also made Dr. Dre and Jimmy Iovine incredibly rich. With Dre being able to boast, he was the first billionaire in Hip-Hop history.
It’s unclear where Apple plans to take the Beats headphone range. What is clear, though, their popularity has waned over that time. You couldn’t go anywhere without seeing Beats headphones ten years ago. These days, the most popular wireless headphones in the world are the Apple AirPods.
Apple continues to make Beats headphones, although they’ve toned down the over-reliance on bass. They are also incorporating all their latest wireless technology and chipsets into the new designs to create innovative products that bear little resemblance to the original Beats products.
The Powerbeats Pro wireless earbuds, for example, are a far superior product to the AirPods in almost every way. They’ve also lowered prices across the board, with the most expensive headphones, the Beats Studio3, coming in at just under $250. And their cheapest, the Beats Flex, costing a mere $40.
Looking for Some Great Beats Products?
Then check out our in-depth Beats Solo3 Wireless Review, our Beats EP Review, our Apple Beats Powerbeats Pro Review, our Beats Studio3 Wireless Review, and our BeatsX Review for awesome items you can buy in 2021.
And don’t miss our comprehensive Beats Solo Pro Review, our Beats Solo 2 WIRED Review, our Powerbeats3 Wireless In-Ear Headphone Review, our urBeats3 Wired Earphones Review, and our Apple AirPods Pro Review for more amazing products currently on the market.
The History of Beats – Final Thoughts
The success of Beats just goes to show what a massive role successful marketing plays in creating a brand that people will stay loyal to, even if the product isn’t necessarily the best available.
This is something that Apple is also extremely good at, which makes this a match made in heaven. Either way, it’s a win-win for Apple. They have now gained a huge share of the headphone market worldwide, which will reportedly be worth $127 billion by 2027.
Until next time, may the Beats go on.