This article is the first of a two-part series that will explore the wisdom behind Apple's acquisition of Beats Electronics for $3.2bn.
The news that Apple (NASDAQ:AAPL) was buying Beats Electronics for $3.2 billion sent shockwaves throughout the tech community, as it was a departure for the long adored company that made sleek, beautiful devices and innovative advances in technology its image. In stark contrast, Beats founder and rapper Dr Dre has presented Beats as an extension of the hip-hop and streetwise rapping community, which proudly disconnects itself from the mainstream, delivering lower basses in their line-up of premium headphones as its primary marketing identity. It seemed like an odd marriage, to say the least.
So why is Apple buying Beats at all, much less to the exorbitant tune of $3.2 billion? Assuming Tim Cook was making a rational decision and not merely fulfilling a lost bet at billionaire poker, Apple's management must be assuming that the headphones company is worth what Apple is paying for it. To be fair, other recent tech acquisitions, such as Facebook (FB) paying $16 billion for the practically revenue-less chat messaging service Whatsapp, and Google's (GOOG) $3.2 billion deal for digital thermometer company Nest makes Apple's consideration look somewhat down to earth. But the fact remains that Beats' primary revenue generating source is its premium headphones, and at first glance it appears puzzling why Apple would spend $3.2 billion on it.
Background
A full history of material events revolving around Beats can be found in this Venturebeat article.
To understand the rationale behind Apple's acquisition, I'll take a brief look at the history of Beats Electronics. Formed in 2008 at Santa Monica, California, Beats Electronics ambushed the traditionally serene premium headphone market with a vivid outpouring of colour, celebrities and the now-famous bass impression on its premium line-up of
