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Apple: I've Got the Beats

It's been widely reported that Apple is in advanced talks to acquire headphone manufacturer Beats Electronics LLC for $3.2 billion, roughly 2% of Apple's current cash horde. Beats was founded by music industry exec Jimmy Iovine and hip-hop artist Dr. Dre. While the recognizable part of the deal is Beats' headphones that sell for as much as $450 and have been hawked by the likes of basketball great LeBron James and San Francisco 49ers quarterback Colin Kaepernick, the real prize seems to be the Beats Music service the company started earlier this year. For a $10 monthly subscription, users get unlimited access to all songs in the company's catalog.

According to Canalys, while Apple still leads in worldwide tablet sales, shipments for the first quarter dropped below Q1 2013 levels, and its total share dropped from 20% to 17%. In the meantime, the iPhone is still rocking along, as unit sales for the second fiscal quarter were up 17% from the same period last year.

However, Apple still needs more fuel to keep the engines running, and its own iTunes Radio service introduced last year is reportedly dragging along. The late Steve Jobs reportedly was not hot on the idea of subscription music services, favoring the outright sale model of iTunes, but the success of offerings like Spotify was enough to get Tim Cook to whip out the checkbook. Overall, Beats is a good fit for Apple as it is a high-end product (at least from a price standpoint) that's heavy on design and boasts a significant "cool factor." That means they will fit in well in the Apple store.

It also shows that Apple is still focused primarily on the consumer market, and Beats Music, like Pandora, has a great way of creating custom playlists. This "semi-random" approach to listening to music is clearly a hit with Millennials. My son has a copy of my 5,000+ entry iTunes library, and rather than using playlists, he typically uses the whole library on random and just advances past any song he doesn't like. The idea of introducing the listener to new but similar offerings along with familiar songs is really pretty creative and also creates exposure for new artists.

In the meantime, the entire smartphone industry seems to have run out of new and exciting ideas. Apple's last big addition was the iTouch fingerprint reader--hardly an earth-shaking addition, but the offerings from Samsung, HTC, Nokia and the rest aren't much better. The next iPhone is rumored to be coming out in September, but I'm not expecting much more than incremental improvements. The "action" has clearly shifted to the stuff that surrounds the smartphone, while the smartphone itself has just become "part of the furniture."

And enterprise users remain the low people on the mobile totem pole.

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