Beats $3.2B Sale Proves It's Great, But Not Necessarily at Headphones

Why did Apple really acquire the Dr. Dre-led company, which audiophiles argue develops inferior products?

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By Chris Kocek

Opinions expressed by Entrepreneur contributors are their own.

In the weeks since Apple bought Beats Electronics for $3.2 billion, I have been forced to listen to a number of audiophile friends rant about the technical superiority of other headphones, such as Sennheiser, Bose and JBL (just to name a few).

Inevitably, at the end of their long-winded diatribes, they always ask me the same question: "Why did Apple pay so much for such an inferior product?"

In a word: branding.

Related: Was Apple's Beats Acquisition Smart or Desperate?

When Apple bought Beats, they didn't just buy a collection of products. They bought a brand. They bought street cred. They bought a beautifully wrapped up pop-culture icon that had an incalculable amount of perceived value.

In 2012, just four years after the first beats headphones hit the market, Beats had 40 percent market share, with estimated revenues of around $500 million. Two years later, Apple bought beats for more than six times that amount.

How exactly did that happen?

"It's like this and like that and like this and uh."

Powerhouse partnerships. From the very beginning, Beats got its product into just about every music video, mixing studio, locker room, dressing room and runway. From Lady Gaga to LeBron James, from HP to Swarovski, Beats connected itself to taste makers and conversation starters around the globe.

Of course, it probably helped that Dr. Dre and Jimmy Iovine had been building these relationships for more than 20 years prior to starting Beats, but still, at the end of the day, when every major athlete and musician is wearing your product, people take notice.

More importantly, customers didn't ask questions about product specs and technical details. They figure if it's good enough for Li'l Wayne or Nicki Minaj, it must be the best that's out there and worth the $300 price tag. Right?

Related: See The Hidden Meanings Inside 17 Tech Company Logos

Don't believe me? Here are two ads -- one for JBL headphones and the other for Beats -- that are essentially trying to do the same thing -- gain credibility through celebrity endorsement. Which one grabs your attention and holds it longer?

Limited editions. From Spider-Man to Transformers to just about every sports league -- NFL, MBL, NBA, NHL -- Beats has created a staggering number of limited editions. Maybe the reason Apple took such a liking to Beats in the first place was because Beats took a page out of Apple's own playbook with their use of color.

As Apple can attest, when you're in a category dominated by black and silver, a simple splash of color can make your product stand out.

Pillboxes with personality. As Samuel L. Jackson's character said in Pulp Fiction, "Personality goes a long way." Beats clearly understood that when it designed its pillboxes. In this case, the accessory is so entertaining it almost eclipses the product that it's accessorizing. While some may argue that the Beats Pill doesn't hold a candle to the Bose Sound Dock, those Pillboxes definitely have a way of holding your attention.

Compare those ads with this one-minute commercial for Bose Mini.

There you have it. Both products are made with a slim-lined, portable design. Both are equipped with Bluetooth and can be customized with color. So what, in the end, is the difference? Why did Apple buy Beats for $3.2 billion instead of Bose?

In a word: branding.

Related: Finding a Voice for Your Brand

Chris Kocek

Founder and CEO of Gallant

Chris Kocek is the Founder and CEO of Gallant, an Austin, Texas-based strategy and design studio dedicated to building brands for a better world. Chris is a public speaker whose talks on creativity and innovation have been featured at strategic symposiums around the country as well as TEDx. He is the author of The Practical Pocket Guide to Account Planning (Yellow Bird Press, 2013).

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