Tech reporters used to complain that Apple wasn't spending its $100+ billion in cash. Now we're complaining that Apple is spending too much. Journalists really are wretched people.
Apple is buying Beats—a headphones juggernaut with a promising but unpopular streaming service—for $3.2 billion (2.3% of its cash), its biggest acquisition ever. The high and low on Beats is that it controls 70 percent of the market for premium headphones, and its streaming service is just 5 percent the size of Spotify. Still, analysts and tech journalists are flabbergasted and confused. Is this deal all about acquiring the headphone hardware of today or the cloud-based software of tomorrow? It's an interesting question: Digital sales declined last year for the first time ever, and it seems inevitable that the future of music will be streamed. But rather than being about hardware vs. software, I think this deal is more about the value of small advantages in the smartphone market, which now accounts for all of Apple's revenue growth.
Samsung and Apple both make nearly-equally fantastic devices, but the vast majority of high-end smartphone users are buying one or the other. In a zero-sum game between remarkably similar devices, small differences can determine where a consumer spends hundreds of dollars right now — and where she spends hundreds of dollars on future services and hardware once she joins or leaves the Apple family.