What Apple Really Wants From Beats Electronics


It's all about a ready-made retail distribution network for the yet-to-be-released Apple iWatch and a new line of Apple wearables.

That's the real story, partners said, as Apple reportedly closes in on acquiring Beats Electronics for roughly $3.2 billion, the largest acquisition in the company's history. They insist it is not about the headphones or upping the Apple "cool factor."

"What most people are not thinking about is that Beats Electronics has a very good [retail] distribution system," said Raul De Arriz, national government sales manager for Small Dog Electronics, Waitsfield, Vt., one of the top Apple specialists in the country. "It's very selective ... It's very controlled, kind of like Apple. It's a number of different places where you would not see the traditional iPad or iPhone products. Beats has such an interesting distribution reseller channel."

Apple did not return a call for comment.

In the U.S. alone, Beats has more than 200 retail partners that run the gamut from Skatepark of Tampa to Jack’s Surfboards and retail giants like Macy’s and Nordstrom.

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That distribution channel is ideal for "a product like an iWatch," said  De Arriz. "The Beats distribution channel may be very interesting to Apple because four months from now, they may be putting out iWatch throughout the country in very selective, yet very different, retail outlets than their current ones. The distribution of iWatch has to be different than the distribution of iPhones, iPads and Macs. It's a wearable, so it needs its own channel. It's an excellent addition to Apple."

Analysts and Apple watchers have been debating what Apple wants with a headphone company run by two music moguls --  producer Jimmy Iovine and hip-hop rapper Dr. Dre. They say Apple is going against the precedent set by the late legendary former CEO Steve Jobs by closing in on the acquisition of such a large and well-known brand.

What the blockbuster acquisition really means is that the rumors of an Apple smartwatch coming are real, said De Arriz.

Beats Electronics has been praised for its ability to sell high-end, high-priced products at a premium, and that is something Apple plans to adopt as it brings in the Beats Electronics development team and marketing strategists, said partners.

As a partial owner of Beats Electronics, Iovine has been credited for his ability to negotiate with execs in and out of the music industry for the marketing of his brand. Iovine will be named a top Apple executive under CEO Tim Cook, according to a report from the Wall Street Journal. 

NEXT: Beats Co-Founder Jimmy Iovine's Role With Apple