To: Apple CEO Tim Cook
Dear Tim,
If weeks of reports are accurate, and Apple is days or possibly even hours away from announcing its largest-ever acquisition — a multibillion dollar purchase of Beats — then I suppose congratulations are in order. Forgive me if I only offer the half-hearted hand-grasp of an old buddy at a wedding who wants to support his friend, but can't shake the feeling he's making a grave mistake, and could yet be stopped at the altar.
Then again, if this more recent report is accurate, the deal is still on rocky ground (partly because of that video where Dr. Dre prematurely mentioned being the first billionaire in hip hop, a kind of braggadocio utterly at odds with Apple's culture of disciplined secrecy).
That suggests you've still got misgivings yourself. Listen to them, please. If you're planning to announce the arrival of Beats at next week's Apple developer conference, WWDC, there's still time to change your mind.
Wall Street may have shrugged, but we know why you might want to buy Beats, Tim. You think it completes Apple to bring in two entrepreneurs, Dre and legendary producer Jimmy Iovine, who are bold, brash, hip, Hollywood-connected — perfect foils to your cool, cautious, polished, quiet Silicon Valley inventory-guy self.
You're also interested in the dowry: not the overpriced headphones that sell like crazy because they have souped-up bass — because you're smart enough to know they could just be a fad — but rather the streaming music service that has some teething troubles, but shows promise. You probably think that will revive the flagging brand that is the iTunes ecosystem; that all this bloated, habitually slow-to-connect music software needs is a Dre-style makeover.
Maybe you're even planning some big generous reveal at your WWDC keynote next Monday — every iTunes Match subscriber gets Beats Music for free, that sort of thing. That would certainly make a splash in the media, and it would explain why you've announced a keynote live stream so unusually far ahead of time.
But we all know there's another service more deserving of your affections. It's been right there under your nose all along — recently valued at a mere billion dollars more than the price you're reportedly paying for Beats, and worth it at twice the price.
I speak, of course, of Spotify, the little streaming service that could. Spotify is adored by its subscribers, whose numbers just crossed the 10 million mark. There are 30 million more who listen to a free online-radio version of Spotify, though that version of the service is, like iTunes Radio, little more than a poor man's Pandora. It's when you pay $10 a month, and gain access to an insanely large music library, that Spotify shines.
I'm a formerly loyal Apple customer and a relatively recent Spotify user, so I guess I have the zeal of the convert. But listen: For years, I stuck it out within the iTunes ecosystem. I defended the iTunes desktop player against all detractors, even as each new bloated version of it found some way to irritate me. That's because I loathed the whole concept of streaming.
Fundamentally, I wanted to own my music. I wanted access 24 hours a day, every day, online and off; I needed to play mashups and other random recordings I acquired over the years, alongside commercially available fare. It was my library, and I didn't want to pay $10 a month for the privilege to use it.
When I finally signed up for Spotify, however, it instantly overcame my misgivings. The ease with which you can download tracks and playlists for offline listening shocked me. The speed of the whole service reflected thought, care and expert engineering; it was a world away from the Apple Music app's frustratingly slow load times on the iPhone. The iTunes playlists I'd constructed over the years were available in an instant. And Spotify's ability to offer similar-sounding tracks makes iTunes Genius, which seems to take an age every time it analyzes my library, a laughable embarrassment.
These days, the only reason I open my iTunes library, my 200GB pride and joy carefully curated over a decade, is if I need to play a particular mashup or a Beatles track (the Fab Four being one of the few artists you have that Spotify doesn't). And it seems I'm part of a trend; last year was the first where digital downloads of music declined, by 13%, as streaming services continued to rise.
No wonder Spotify has raised $250 million in venture capital on a $4 billion valuation. It's worth every penny.
That said, Spotify is still in trouble. It has not made a dime of profit. Analysts estimate it has lost $200 million over its lifetime, 10 million users paying $10 a month not withstanding. That's because the streaming business hasn't scaled for them, at least not yet. They still have to pay 70% of their income as royalties; such fees are on the rise, and artists are still complaining that Spotify doesn't pay them enough.
This is where having Apple-sized muscle in the music business would be an enormous boon for the Swedish company. And if you were looking to junk the bloated mess of iTunes, and start over again with a service that combined streaming and downloading into a single streamlined library, there really is no better player on the planet than Spotify. You'd be buying years of exquisite music-engineering expertise.
You evidently think that Beats Music can do the same job, so let's look at that. It's not a bad little app, as I previously noted, though it is a little gimmicky. I'm not sure I'm going to want to select little bouncing circles or play a game of mad libs every time I want to listen to music, but maybe I'd get used to it.
Users, however, have largely yawned at the Beats app so far. It launched in January with a massive marketing campaign, a Super Bowl ad featuring Ellen and a promotional tie-in where AT&T customers got a 90-day free trial rather than the regular 7 days. For all that, Beats has signed up fewer than 200,000 customers, music industry analysts estimate. That's 2% of Spotify's total.
But hey, if that's the service you want to bet on, if you think it isn't popular because enough people haven't heard about it yet, if you'd rather buy a service that just launched on one platform rather than one that's been ironing out every last wrinkle on every platform for six years, go nuts.
Maybe you think Spotify wouldn't look twice at an Apple offer. Founder and CEO Daniel Ek is a pretty cool customer, and he makes all the right noises about building a company for the long term.
To which I say: You're Apple. You have $150 billion in the bank, against the advice of all longstanding business wisdom telling you to reinvest it. Everyone has their price. Find Ek's. You could practically buy all of Stockholm with that hoard, and still have money left over.
Besides, if you wanted to buy Spotify, time would be on your side. The company appears to be hemorrhaging cash. Ek may be betting that he can somehow find the magic formula to make money; maybe if he can make it to 20 million users worldwide, the economics of royalty payments would start to make sense. But in this situation, each quarter will wear away at his patience.
From where I'm sitting, there's only one path to Spotify profitability, and it goes through One Infinite Loop, Cupertino, California.
So if Dre's behavior has given you pause, call the wedding off. You really can't make Apple appear youthful and hip by bringing Beats on board; that's the kind of thinking that makes middle-aged men suddenly start buying Air Jordans, skateboards and Eminem albums. Apple may have recently lost ground to Google in terms of being the world's most valuable brand, but that's exactly why you don't make a Hail Mary pass at this moment. There's nothing that looks less cool.
Instead, keep your powder dry and your head down. Save your money and find happiness with a company that's quiet, industrious, not at all flashy and just strives every day to make its product better — just like you, in fact.
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