Why Apple acquired Beats for $3 billion—its largest acquisition

Part 3
Why Apple acquired Beats for $3 billion—its largest acquisition (Part 3 of 5)

Will Apple’s recent Beats acquisition threaten Pandora?

Apple has a long history of disrupting established businesses

Every action of Apple’s (AAPL) meets with a lot of interest around the world—especially from Apple competitors. Apple has a long history of disrupting established businesses with its own innovative products and very rarely gets the first mover advantage. The iPhone is a prime example. When Apple entered the mobile phone market and debuted with the iPhone in 2007, Motorola and BlackBerry (BBRY) had already established themselves in the mobile phone market. The iPhone immediately gained popularity, showing competitors a rough time.

The same story goes for the iPad. Microsoft (MSFT) had introduced the first tablet PC more than a decade ago, but it failed to generate popularity. The iPad again gained instant popularity and is still the leader in the tablet market. Apple’s acquisition of Beats shows that it’s serious about dominating the music streaming service space, which is currently led by Pandora (P). In the last part of this series, we discussed how since the digital music sales market is declining and the music streaming service market is growing rapidly, Apple has taken the right step by acquiring Beats. Whether the acquisition can disrupt the music streaming market and take market share away from Pandora is another question. This would help The iShares Dow Jones US Technology ETF (IYW) and Vanguard Information Technology ETF (VGT), which have about 20% allocations in Apple.

Pandora Listener Hours Apr 2014Enlarge Graph

Pandora is growing fast

Pandora is the leading music streaming and Internet radio service player in the U.S. The service has two subscription plans: a free service supported by advertisements and a fee-based subscription without ads. As the chart above shows, in the last six months, Pandora’s listener hours have increased rapidly, from 1.49 billion hours in November 2013 to 1.70 billion hours in April 2014. In the last part of this series, we discussed how the halo effect can help Apple become a major force in the digital music industry and so perhaps replace Pandora at the top position in this market. This will definitely make Pandora nervous.

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