Every company has a story. Learn the playbooks that built the world’s greatest companies — and how you can apply them as a founder, operator, or investor.
Mon, 11 Dec 2017 15:13
Acquired crosses the half-century mark with an instant classic: Apple’s 2014 purchase of Beats, its largest acquisition ever. If you knew Beats as just another headphone company, think again—the history on this one will keep your heads ringin’.
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* David: Wooden on Leadership
Oh man, alright. Too cheesy. Yeah, you should do it. It's going to be cheesy, but you should do it. And I'll make it. I love the cheese. Yeah, I, uh, that's perfect. Then I can make fun of you for dad jokes. Welcome back to the big half century mark, episode 50 of acquired the podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. So today we are doing a classic episode of acquired. So the reason we started the show, it's the original format. It's one we've been talking about doing for a long time, and it's one that we've probably had, you know, 2030 requests for this since we started the show. Finally, we are covering, finally, it's an Apple episodes. We have to say, finally, we are covering the acquisition of beats by Apple in 2014 for $3 billion. I'm so excited about this one. Yeah, yeah, me too. I, um, I wish I wasn't a little under the weather for it, but listeners bear with me. I know I'm a little, little nasally this episode. You're like, this is going to be like Michael Jordan in Game 6 of the finals playing with the flu. You're going to rise to the occasion, Ben. Thank you, David. Thank you, David. Thank you. Our presenting sponsor for this episode is not a sponsor, but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founder. So we knew there's a natural fit. We know the host of founders. Well, David Senra, hi, David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together. And then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of Akyo Marita before we did our Sony episodes this incredible primer. You know, he's actually a good example of why people listen to founders until acquired, because all of his great listeners and investors, they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research to him. But I think this is one of the reasons why people love both of our shows and there's such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders. Listeners, the other fun thing to note is, David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third, fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them because in my opinion, the greatest entrepreneur to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20-year-old Steve Jobs, he's talking about Edwin Land's My Hero. So the reason I did that is because I want to find out like I have My Hero's who were their heroes. And the beauty of this is the people may die, but the idea is never to. And so Edwin Land had passed away way before the apex of Apple. But Steve was still able to use those ideas and now he's gone and we can use those ideas. And so I think what Aquarius doing, what a founder trying to do as well, is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well, listeners, go check out the Founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. All right, David, that is all I've got between us and... No, I can't wait. And Beats. I am ready to start. I almost started talking over you. That would be new. That would not be new. All right, let's do it. So this is probably certainly thus far the coolest founding story on Aquarius. Maybe as long as we do the show, it's going to be hard to find a cooler founding story than the most possible. Yeah, I don't think that's possible. I don't think it's going to be possible. And certainly the coolest founders. So Beats was founded in 2006 by Jimmy Ivine and Andre Young. And those names may mean something to you or they may not, but they certainly will in a minute. So Jimmy Ivine, who is Jimmy? Who is this guy? Well, he's a music producer and an executive. He started as a sound engineer early in his career. He dropped out of college. He grew up in New York City in Brooklyn. His dad was a longshoreman. And he loved music was obsessed with music. He eventually rises and he becomes the head of inner scope records. But this guy, he is a legend. And there's a great documentary about him and his co-found. Who will get into it in a minute. Called the Defiant Ones on HBO. Highly recommend watching. I had a chance to watch some of it preparing for this episode. And Jimmy is the actual coolest person alive. So the first album that he works on is, I think John Lennon's first solo album as a studio engineer. Then he works on Bruce Springsteen's Born to Run album. Then he starts working with Stevie Nicks in Top Head. He actually dates Stevie Nicks in the 70s. How awesome is that? And he's responsible for Stop Dragon My Heart Around. Tom Petty's song. So Jimmy is like, Stevie's doing her first solo album. She needs a single. Tom do this with Stevie and boom, Stop Dragon My Heart Around. But he doesn't stop there. He discovers you too. So that's him. He discovers no doubt. Trent Rezner and Nineage Nails. And then he completely re-events himself. So Tupac, Snoop Dogg, M&M, 50 Cent, Lady Gaga, Kendrick Lamar. These are all products of Jimmy Ibein. Yeah, very similar sound, right? You understand how the same person can be responsible for all these artists. Just amazing. He also does the soundtrack for 16 Candles, many other movies, and then found, you know, Interscope Records along the way that all these artists are on. You could make an argument that there is no more important figure in popular music, you know, of the last seven years. Of the last century. That's how big his impact is. So his co-founder, Andre Young, who's that guy? Well, it turns out, as he says, you know, lots of people say that they forgot about Dre. Andre Young is Dr. Dre. Oh, David. I couldn't help myself there. So probably Jimmy's most favorite or most known for musical collaboration and business collaboration is with Dr. Dre. Dre, you know, started his musical career. He's actually part of the world class, Reckon Crew, I think, originally, and then was a member of NWA. And, you know, they're, you know, huge, right? It's prominent. And there's, you know, many movies have been made about Dre and NWA. There's a great, and I'm sure this is covered in lots of places. But in the HBO documentary, there's a great piece about how Dre basically gets on stage at this, this like, you know, emerging nightclub for West Coast hip hop. And he's the first person after experimenting a ton with a pre-sort of like mixer, turntable combination. He sort of builds all the stuff on his own and assembles it that he's doing it in his house and his mom buys him this little mixer. And he's the first person to basically mix two different tempo songs rather than just like fading one into the other or, you know, lining up to they're very similar BPM. And it's like an old 60s hit with, you know, new hip hop song. And the audience does, like, no one knows what to do. Like he just like created this new thing, which of course we hear all the time now. That's that's sampled and mixed across decades and mixed from different tempos. But he gets up there and like, no one can believe it. No one knows what to do. He just like created this new thing that no one even knows how to dance to. And, you know, as someone that, you know, you know who Dr Dre is, but you don't know what his sort of origin story is. It's just amazing to, it's a great documentary. So it's so great. And I mean, Dre is like, he's the whole image. Like this is why he's Dr Dre. Like he, you know, he goes off in the lab and he cooks up, you know, a beat. And sometimes it takes him a decade to do it. But like he is, you know, one of the greatest, you know, musicians, you know, of all time. I mean, like he just creates like these perfect. So like he's obviously, you know, had his NWA career, you know, he's a rapper and makes music himself. But he produces, he's produced two pockets, produced Snoop, M&M, 50 Cent, Kendrick Lamar. I mean, you know, like California love, like that's him. That's Dre. You know, he's not only rapping on it, but like the beat, like that's Dre. Pretty amazing. So Jimmy and Dre have been, you know, business associates, collaborators, you know, deep friends for a long time. And in 2006, so this is the actual story of the founding of beats, which, according to Jimmy, is completely true. If so, this is certainly the most amazing story. Jimmy's out running on the beach in L.A. He's exercising. And Dre is at his beach house. And he sees Jimmy out there, you know, like they're good friends. He's like, hey, you know, Jimmy calls him over. And they start talking. They start chatting and Dre's like, you know, man, my lawyer called me the other day. And like Nike and Adidas, like they're kind of after me. They want me to sell sneakers. They want me to do a sneaker deal. What do you think? And Jimmy, Jimmy looks at somebody's like, sneakers, like Dre, nobody cares what you wear on your feet. Like, you know, you're a recording artist. You're not an NBA player. You shouldn't sell sneakers. You should sell speakers. And Dre looks at somebody's like, you think we can really do that? And Jimmy's like, yeah, like we can definitely do that. And Dre's like, oh yeah, like we could call them beats. Like, you know, that's what I do. I make beats. We could call those speakers beats. And that's how beats got started on the beach in LA. Legendary. Legendary. Totally legendary. I think Dre made the right choice not going with the shoe deal. Instead going with headphones and speakers. It seems like it. So at this point, is it just beats electronics? There's no beats music. So yeah, the idea, well, we'll get into what happens next in a sec. But I want to step back first. Just give a little bit of context. I have Ian, as we've talked about, he's, he is like the music injuries to executive. And what he's great at, you know, like we're saying is like he reinvents himself. He sees the future coming. You know, he goes from Stevie Nicks and Tom Petty and Bruce Springsteen to, you know, Tupac and Snoop and Eminem and Dre. And he sees, you know, this is 2006. Like he's known for a while that like digital, the music industry is dead as it was once was. It's needs to be transformed. Digital has completely disrupted it. You know, it started with Napster. But then Apple is really big at this point. And you know, with the iPod and the iTunes store. And Jimmy's actually been, he was good friends with Steve Jobs. He got to know Steve and Apple in 2003 when Apple was launching the iTunes music store. So inner scope was a big part of that and all the content. And so Jimmy's been thinking about this for a while. And the thing is that like he knows, I mean, he's an executive, like the whole business model has changed because of digital. It's not just piracy, but it's like now, you know, music is sold as singles, not albums, one, to the entire distribution model. Like it used to be like you needed radio, you know, to get distribution. And then you needed like to get like physical CDs or vinyl like sets into stores and you have a relationship with the stores. And that's all blown up like it's now just, you know, iTunes and other digital platforms. The marketing's totally changed. But what's also happened is that like the channel is much wider in the relationship between like the artist and the music and the listener. Like there's now all those steps that used to be in the middle are now just completely collapsed. So Jimmy's like been thinking about this. And at the same time he's also close to Apple and he's like, he's inspired by, you know, what they've done with hardware and with the iPod. And actually cool said, I don't know if folks remember there was a lot of marketing for the iPod with you too. And you too was like the first product that like you too ever in Joyce, there was the you to it. Yes, right. I had it. It was black with that red scroll wheel. I had that. It was so cool. You know, that's all like Jimmy. Like because Jimmy discovered you too. You know, and he's close with them. Like he's the one who made that happen. So he's thinking about all this. And that's like in his mind as they're having this conversation on the beach. So he's thinking like, think about hardware, think about Apple, the evolving music industry. So they have the conversation and a little over a week later, I guess. Jimmy calls, you know, nothing to have to say. Jimmy calls Dre up and he says, hey, I want you to come over. And Dre comes over and Jimmy has gone out and he has bought every single headphone on the market. He's got him like all on a big table. It's like it feels like a like Johnny I have like product review, you know. And they listen to him and he's like, it's a thing. They all suck. They decide they all suck. And it's not because they're not like good technology. But there's two problems that they realize with the headphone industry. One, you've got like the headphones that come with the, you know, with the iPod. They're like, you know, the, the earbuds. So, you know, and, and other, you know, bundled headphones. And these things cost like a dollar to make like their super low end. And like, you know, they're fine for what they are, but they're just like really cheap. They're not that good. But the other end of the problem at the, at the high end of the market, to Jimmy and to Dre's mind, they're doing it all wrong. It's these tech companies that are making headphones and they're making them as reference equipment. And so the idea like the, you know, what audiophiles want, the pristine audio quality is like reproducing the exact nature of like every sound, every instrument, like exactly as it comes off of the, you know, the guitar, the bass, the drummer, you know, the violin or whatever. But, but they realize like that's not like music isn't technical. It's emotional, right? And so like the experience that most people won't when they listen to music is they want to be like emotionally, you know, they want it to be dramatic. They want it to be taken by the music. They don't want it reproduced exactly as it sounded. You know, coming off the instrument, they want it to sound emotional. And that's not what any of these headphones are doing. And this is the very first point where we, we realize good headphones and the ideal that Jimmy and Dre were shooting for here is not at all the same thing that audiophiles are shooting for. Exactly. They're not a beloved headphone by people that have a certain way to evaluate are these high quality replica of what happened in the studio headphones. Exactly. Exactly. But what they, what Jimmy and Dre realize, and they know from, you know, their experience making popular music, is the audiophile category is like a tiny, tiny, tiny market compared to the rest of the population who wants to experience music, you know, when they're working out, when they're focusing, when they're, you know, whatever, it's part of their life. It's not something they want to like reproduce exactly. It's amazing how there was an opportunity for a brand and a category that was kind of unbranded. The brands there were, oh, well, I also have a stereo that's Sony, so I have Sony headphones. Or I also have a Walkman, so you know, Sony headphones. Or I have an iPod, so I'm using the stock iPod. It was always like, this is the electronics company that I have for something else, so I got their headphones too. I have no emotional connection. And there's not a lifestyle that's, that I have that's defined by this, the headphones that I'm using. And no one thought that that was a thing. Like people always thought, oh, it's a accessory. Or, you know, the very high end people thought, oh, it's a product on its own, but that's not a thing that permeates, you know, life. But it really defined lifestyle and how you wanted to think about yourself when you when you put on beats headphones. Yeah. And it's also like, you know, it's a also unlike a tech device that you keep in your pocket or on your desk or whatever. Like it's on your body. It's also like a, you know, a piece of fashion. And it's an advertisement for the brand that you're walking around with every day. So, you know, Jimmy and Dre, they realize this and you're even says like they decided they were going to market the product just like they marketed an artist. You know, like the product is an artist. And this is totally revolutionary at the time. Like, you know, who who would have thought to market headphones? Like you would market, you know, like Jimmy says, you know, we decided we're going to market it. Like it was two-pock or you two or guns and roses. You know, like that's not that's not what Sony is doing. That's the that's a business plan. They decide, you know, rather than like trying to make all this hardware ourselves and get into the tech game, we'll just partner with somebody. So they partner with Monster, the high end cable company, Beats, Dre and Jimmy and the team, super small team. They design the headphones. They create all the specs. Monster produces them. But what they do, they also do essentially like, you know, what are these guys? They're music guys. They do like artist development. They're treating the headphones like an artist. They do the same thing with the headphones. Like as they're getting prototypes over the next year, year and a half, like they're bringing them all into the office, into the inner scope office, and they're getting all the artists to like use them and give them feedback. So like every, you know, will I am, you know, Gwen Stefani, like all these people, you know, lady guy, they're all like using them, trying them out, giving feedback. That's like the best way to get sort of early customers or early influencers is like make them feel part of the process. Right? That they're involved in, I helped shape this thing. I've known about this since the very beginning, like oh, I've, you know, I have, even though they don't actually have skin in the game, they have some sort of reputational or cool factors skin in the game and reason to be super excited and promotional about it when it finally debuts. Yeah. Well, and it's exactly what they do, you know, with artists, right? Like, you know, what did they do with Eminem, right? Like they brought them in, they paired them with Dre and then like, you know, Eminem's first, you know, songs they came out, like, you know, Dre's in them. And Dre did the beats and like, you know, Eminem learns from Dre, right? But then also like he gets marketed by Dre. Same thing they do with the headphones. So the first product, quote, beats by Dr Dre studio headphones. No way. It was beats by Dr Dre. It was beats by Dr Dre in the beginning. Wow. Come out late 2008. And this is what they do. They put the headphones in the music videos of all of the artists on, on inner scope. So it's like, you know, when you do like, you know, you know, whatever song, you know, for new artists come out and like, it'll feature Dre on the, you know, the album or whatever, like, you know, this is like a new song, like new headphones coming out and they're featured on the albums of, you know, on the videos of all these other artists. That's awesome. Totally awesome. What great, unique marketing channel that other people just couldn't possibly have. Totally. I didn't even think of like, because they're not thinking of headphones, you know, in this way. So then the other thing that they do pretty early on is they, they give a pair to LeBron James. I think they actually give it to his manager, maybe it's somehow like they get, they get a pair to LeBron. He's like, oh, yeah, these are cool. Like, and he's like, give me 15 of them. Like, all right, LeBron, you know, here's 15, you know, pairs of beats. And this is right before the 2008 Olympics. And next thing they know the MV, the basketball, US basketball team shows up for the Olympics in Shanghai. They are all wearing beats. And that's like, that's a signature of the company now, right? Is like a sports team walking out of the tunnel onto the floor and their warm up stuff all wearing beats. Yep. So they found that they realized that like sports is going to be massive for them. I mean, you know, headphones totally crazy that nobody had thought about marketing headphones and speakers with like musicians before. But, but what about athletes, right? Like, you know, it really is, it goes back to Dre and the shoe deal, you know, like let's market it the same way. So this leads to a couple years later, the awesome, hear what you want commercials that they do, you know, with Richard Sherman and Colin Kaepernick and Kevin Garnett, just so good. And, you know, really a big part of the marketing, especially for people that maybe might not be as much into music or artists, particularly but like are into sports. Or it's like, it really becomes a lifestyle brand. And then we're skipping ahead a couple years. We'll come back. But in 2014, you know, the show beats are so popular in the NFL and all these commercials are hitting the NFL does a deal with bows. Headphones are like, and they ban beats. And Jimmy's like, they actually Jimmy gives an interview about this. Like as it's happening and there's so much publicity and they're like, everybody's talking about it. All the athletes are talking about it. Jimmy's like, this is the best thing that ever happened to us. Like I literally could not plan this any better. It's like the narrative of like these rich guys want to come in and pay money so the people can't have what they want and what they want is beats. It's like, you know, it's like the parallels to when when Facebook tried to copy Snapchat with poke. And it's like, you take a step back and you're like, this is the best thing that ever happened to Snapchat. But okay, so back to the company story. So they launched the first product in 2008. It's really successful. They're growing. But they're still, you know, they've got this partnership with monster. Beats itself is super small company. They're just, you know, they're the brand and they're the design and reference designs. But they decide, you know, they want to grow. So they partner with with HTC. We've referenced this and other episodes on the Android episode and others. What was the one we did? I think it was the HTC Google. Yeah, HTC Google. Right HTC itself HTC ends up acquiring a majority stake in beats in August 2010. And they pay $309 million for a 50.1% stake. So the company's valued at over 600 million. As Jimmy talks about it, it's mostly Jimmy. His drape doesn't talk much like this is a thing like drape. He just he's just in the lab. He hates talking to hates talking to anyone little in the press. But Jimmy talks a lot. So Jimmy talk about, he's like, well, you know, I knew the future of music was going to be, you know, on smartphones. And so I thought like we needed to, you know, we needed to tie up with a smartphone manufacturer to get, you know, our headphones and our technology into these phones. So this is where you have like beats by a drape HTC Android phones that are coming out for a while, which are hilarious. We totally should like we should find somewhere that's like an acquired like museum and put some of these products in there. We can get a next a next station. We get a HTC beats phone. Oh, yeah, they, we didn't do an episode on but we referenced that HP iPod totally totally. Oh, we should get the YouTube iPod. Of course, obviously great. Maybe we can finally get all that YouTube music off my iPhone that was put on it without my permission. Oh, yeah, that's right. I forgot about that. Oh, man. That was a disaster. Yeah. That's actually great idea. We should do an acquired museum. If anyone wants to sponsor an acquired museum somewhere. David. David. You know what? I hope one day this show gets to level where we have an actual physical museum. For now, maybe maybe in one of our houses. You got a dream. Okay, so they do the deal with HTC and company beats continues to grow. You totally overtakes pop culture. I mean, kids everywhere wearing non kids are wearing them. They're growing and growing. 2012 Jimmy and Dre kind of realize like, okay, there's a huge opportunity here. And if we're really going to make this a big company, we got a own, we got a controller on destiny. We got a kick monster out and build everything in house. And again, remember Jimmy knows everybody at Apple. He's super inspired by them. And this idea of hardware and brand and software altogether. So they don't renew the partnership with monster. They moved to producing the hardware themselves in monster. This is just such an example of the competition these guys were facing in the headphone industry. And the monster decides like, oh, we can do this too. We're going to come out with like lifestyle branded headphones and work with artists. So they released Earth Wind and Fire branded headphones. I love Earth Wind and Fire. Great group from the 60s and 70s. But like, are you serious? Like Dre Earth Wind and Fire same resident, you know, same same group people. Oh, yeah, I have reverence. Earth Wind and Fire headphones are totally going to dethrone, you know, beats by Dre and Rich Sherman and Colin Kafernic and LeBron James. Like, you know, are you kidding me? To be fair to monster, they also come out with Miles Davis branded headphones, which, you know, again, like Miles Davis, great. But like, how big is that market process? You know, LeBron James fans. Yeah, I mean, the the market they miss there is not that like, I love Dr. Dre. So I listen to beats. It's that Dre is cool and there's been and he's behind beats and beats of the brand, not that like, I want to represent Dr. Dre every time I go to like beats around. Totally, totally. So then they actually, this is monster. They end up suing after the apple acquisition a couple years later. They end up suing beats and apple. They're like, oh, you deal cheaters out of all this and apples, like, this is such a ball. I move apples, like, okay, fine. So they revoke monsters membership in the like certified apple accessories. Like, you want to play hardball? We'll play hardball. The MFI certified and monster proceeds the case of court eventually throws it out. Like, this is totally baseless case. There are I'm sure a large group of people in Apple that have like zero respect for what monster does as a company anyway. And I think it probably felt good just to like be able to stick it to them there. And for in my mind, the thing that I'll always no monster for is is like complete BS lying to you, marketing about the quality of connectors that are no better than the connectors that you could get for something that is a fifth the price and then charging you $150 for an HDMI cable. I just have to imagine that having having recourse to tell that company to, you know, stick it somewhere is a nice feeling. I feel like there was some, I don't know if this has come out in court cases or otherwise, but there must have been some like massive collusion between best by and monster throughout like all of the 90s about all this stuff. Like, it's digital, right? Like the quality of the kids ones in zero is like, it's not analog. It's gold plated. You don't understand. All right, let's get out of monster land. The other part about kind of controlling their own destiny, you know, Jimmy and Jerry also realize that like tying up with HTC is not the future here. First they get HTC to sell back half of their stakes. They own 50.1%. They sell back 25% to the company in 2012. And then in 2013, the Carlisle group, the big private equity fund, they actually invest 500 million in beats and use part of that proceed to the market. And use part of that proceeds to buy back all the rest of HTC. So HTC is completely gone by 2013 from the cap table. Did Jimmy and Dre get any liquidity from that initial 50.1% purchase from HTC? I don't know. I mean, I suspect so, but I don't know. But apparently I think when that happened, I could be wrong here. But I think the company was like five people. I mean, it was literally just like Jimmy and Dre. Oh, because all the manufacturing was still contract. Yeah, it was all done by monster. So it was just like, you know, the beats was just doing like the design, the sound tuning and that that was done by, you know, mostly Dre and then the marketing. So it's kind of crazy that like HTC, you know, that you could build such value in that HTC paid, you know, 300 million for half the company with like five people. Yeah, talk about a talent acquisition. Yeah, seriously. Well, we'll get into that in a minute. Actually, that would be kind of a fun. Yeah. I'd probably not another episode, but it's interesting. We should, when we're classifying what type of acquisition it was for Apple, we should also do that for HTC. Yeah, totally. Good point. Let's remember to do that. As part of all this, they start producing the products themselves. They're done with monster. The first in house beats products that come out are the beats executive headphones first and the beats pill wireless speaker, which was a massive successful product is now on multiple generations. The other thing they do as they're doing all this is they acquire a small tech company, a music streaming company called MOG, M-O-G. And this is part of, you know, back to Jimmy's vision about like the whole music industry needs to change like he's always wanted, you know, I mean headphones is great. And that was how they started beats, but like his vision was like much bigger that this was going to be his way of writing the next wave in the music industry. So MOG was fairly struggling. I mean, it was at this point spot if I had entered the US and kind of won the market. But they did some interesting things and they had some some definitely good tech talent. So beats acquires them and starts working on totally redoing the MOG service and rebranding it as beats music. So they work on that for about 18 months. And in the meantime hit over a billion dollar revenue run rate just on the headphones. And then in January 2014 they relaunch MOG as the beats music streaming service. But the thing that beats music has that none of these other streaming service has have that that they think is really important is they have actual involvement by the artists themselves. So there's like playlists that are made. There's recommendation curation by by Dre by the inner scope artist by Jimmy, you know, everybody else is just an algorithm at this point. And Dre and Jimmy think this is the future. Yeah. And this is all I'll borrow from tech themes ahead now. But this is the the Jimmy I have in vision that that manifests in multiple forms that's really respect the artists keep the artists involved. It's all about the artist. In fact, in the defined ones documentary, he's there's a quote from him where he's like people people like to attribute things I did to me and success to producers and producers try and take credit for that a lot of the time. It's 99.9% the artist and you got to respect that you got to understand that now that's what makes a great producer. And it's interesting looking at the streaming service and saying you know the artist need more involvement with this human curation. So foreshadowing the beats one radio, you know, it's it's human curated and that's actually a value proposition rather than algorithmically selected or in fact not even algorithmically selected and just showing you, you know, huge lists of song for you to search and browse through. And then, you know, a tenant of of Jimmy's as beats would grow later is we don't have a freemium tier. And we'll talk a lot about this, but like artists get paid for music and that's final and that's his his party line through and through and really sets them apart from a lot of the other sort of disruption that's happening in the in the space. Yep, yep. Well, and the, you know, just the whole ethos again getting back to the headphones of like music is personal music is emotional music is not technical. And I think that's part of the vision here too is like, you know, your music service, you don't want an algorithm, you know, queuing up what's next you want like drake you up what's next you want Stevie you know queuing up what's next maybe maybe we'll see my discover weekly is really good. Well, totally I'm not saying it's right. I'm just saying this is Jimmy's you know vision and certainly for, you know, for big part of the market. I think that resonates. We'll get to the end of the story here now and the end is just as fun might also be the coolest end to a acquisition story that will ever have unacquired certainly thus far. So May 8th 2014. Remember in January they launch beats music just a couple months before so few months goodbye May the financial times reports. Breaks the news that apparently Apple Jimmy's old friends are in negotiations to buy beats for 3.2 billion dollars and this would be the largest acquisition in Apple's history by literally in order of magnitude. So the previous largest was the next acquisition which we covered which was just over 400 million dollars. This would be you know Apple doesn't do things like this is huge news and it's true negotiations are going on but they're not done yet. And so Jimmy calls up Dre and he's like all right this came out like we got like this is Apple they're so secretive like they could walk in any moment like we know these guys like we got to keep quiet until this is done like can't say anything just keep it on the deal like be completely like do not do anything. So Dre's like yeah got you so Drazen the studio that weekend and he's hanging out with friends and one of his friends is the actor and singer Tyree skipsen they're hanging in the studio and they're talking about this of course like what are you going to talk about like about sell their company for you know 3.2 billion dollars and they're excited and it's late at night they you know they're drinking they get drunk and Tyree's you know pulls out his phone and makes a video of all of them they're celebrating and and and and and Tyree says like the Forbes list just changed just came out they're going to have to like new information they got to change the Forbes list and then dra pop stuff and he's like first billionaire in hip hop right here and they're like you know they're party whatever they got a bit so so that's worthy that night for am so early early morning Jimmy calls up Dre and he's like what the you know a like like what the heck are you doing and and he's like what do you mean and Jimmy's like that video and it's like what do you mean and just like Tyree's posted it to Facebook and this is right when Facebook video was like launching so people didn't really understand like what Facebook video was and so obviously it's on the internet now they don't actually say that Apple is acquiring beats but like it's strongly implied here especially corroborating this this article so there's some rockiness to the deal and honestly I can't believe Apple still went through with it I can either but they do but you know supposedly it was the finished times reporting beginning of May it's close to done nothing gets announced until the end of May so May 28 20 days later and when it gets announced Apple is doing the acquisition for $3 billion not 3.2 billion nobody discusses why and their speculation well it could be that the beats music subscriber numbers were actually a little lower than you know they thought they will maybe it's the Tiger East video will never know but pretty hilarious I mean it really shows a few things one how badly Apple wanted to do what they were going to do with Apple music and how integral they viewed beats in doing that to the power of Jimmy and his relationships the characteristic Apple we know of it's it's done like you messed up we're not we're no longer moving forward with this you proved yourself to be people that we can't you know can't trust to sort of live the Apple way and lead a huge part of the company going from this is the largest acquisition by an order of magnitude that Apple's ever made yep so the day gets announced is actually the recode conferences is going on code conference is going on and so Jimmy and an Eddie Q so Eddie Q's always been the median content guy at Apple and the day the deal gets announced he's scheduled to be interviewed on stage at the code conference by Cara and Cara swish I'm Walt Mossberg and the deal gets announced right so so he and Jimmy come up on stage together and they get in their their interview by Cara while knowing what was this big news but people knew it was coming but the thing that Jimmy you know makes the point and Eddie both several times in this interview is like this didn't happen overnight you know that that Eddie had a Jimmy had been working with Apple and with Eddie for over a decade you know going back to the launch I teens music store into you know so to your point that I mean the relationships like that's got to be what saved the deal here yeah God to be a fly on that wall to understand the phone call that Eddie Q makes to Jimmy or did you know that Eddie is just a great yeah well it's quite and I kind of hope that Eddie just called Dre up I know right in the defiant ones they do talk a lot about and I haven't finished it yet but in the at least in the the first part of they talk a lot about the how how Jimmy finds out and talking with Dre about it we don't hear at all the communication from Apple is like and so you know it's very it's there still there's still the core of Apple in there. The really like somebody someday should do like a book and like going and research like all like the actual stories behind all this stuff at Apple it start it leaks out you know a little bit over the years as things get older but there's so many of these that you know there should be there should be a little bit of an actual story and go it and like do this at some point yeah great point so so at this point the acquisition it's actually two LLCs it's beats electronics LLC and beats music LLC and I remember when I first heard the news it not being totally clear to me which which was more valuable more strategic why Apple was actually doing this I mean to me it seemed like the beats music was yeah had some people using it but like clearly not going to be a winner like spotify was going to be a winner didn't it pale in comparison to people still doing the 99 thing from Apple like the headphones were super popular and and permeated pop culture and soon to be doing really well so I think in my head at the time of the acquisition before Apple music was announced I'd sort of chalk that up to like okay they bought the headphones company. Yep totally you know the sort of code here is just over a year later Apple music launches Apple's first streaming service and it is a you know rebranded and rebamped beats music including the beats one radio station that's part of it that's hosted by Dre and other artists and and so that long said that becomes you know Apple's primary music offering but then also as we know that is wearing them right now Apple has gone much deeper into headphone technology over the last couple years yeah you know I say we did a good amount of research not totally clear how much the beats folks were involved in the air pods design I mean I think there's a little bit of crossover but but Apple actually doesn't influence the beats hardware stuff very much I think it's there they're taking advantage of some economies of scale and some innovation where they're they're sharing things between those two for example the W1 ship that's in the in the air pods appears also in the most recent beats wireless headphones but for the most part I believe it's apples existing hardware teams continuing to work on the air pods and beats hardware teams continuing to push the ball forward on on beats headphones and there was some layoffs in the consolidation they they laid off I believe 200 people in combining the companies but yep well this probably good segue into acquisition category and we can get into some of the numbers of analyzing the deal later in in you know grading and other seconds but I think it comes down to like what what was this acquisition you know I mean for me I was thinking about it like it actually kind of fits a bunch of our categories like it's a business line for sure like you know Apple now owns beats they're selling beats headphones which in itself is over a billion do I mean even before the acquisition I think this 2013 2014 numbers but over a billion dollars in revenue just on the headphones yep totally and that's you know when Apple acquired the company you know it's also an asset it's the brand of beats for sure as we talked about you know that that's was at the time and still is a huge part of pop culture that Apple's getting access to but I think it's also like if I had to choose one I think it's actually people and I think you know there's there's a lot of really in some ways kind of funny and unexpected parallels to the next acquisition here and you know Steve Jobs coming back to Apple I wouldn't put Jimmy and Dre's impacted Apple anywhere near the level of Steve Jobs but it is an impact for sure and and there's that long relationship and I think it comes back to the airpods to like whether or not the beats team was involved in the airpods it is this like view of what is you know audio what is music is it something technical or is it something that's like part of your life yeah I mean it's definitely a scattering of categories the way that I was thinking about this acquisition and how to do the analysis I sort of discarded I did discard the headphones line of business I mean yes it's it's a it's a brand and it's a great great source of revenue and it's it's only continued to improve since they bought it though they don't break it out I think it beats has become more more more prominent over the years what they in my mind bought was two things it's it's one an existing app and service that was well done so that you know they didn't have to start from scratch in house you could imagine Apple being you know they were going to do Apple music and knowing that they wanted to compete with Spotify in this world where there a thing they pioneer music over the internet was being largely disrupted and they needed to become a player in the changing world they totally could have done it on their own yeah what but but also Apple I mean in the sound jam episode which is like totally the precursor to this episode you know they made the same decision like let's buy a good technical service and like you know use that as a starting point right and so that's not worth three billion dollars for sure totally that's all that's where you know sound jam is worth what was sound jam is is a talent and like yeah like 10 million or less yeah one piece of analysis that I read was like well consider if they had decided to do it on their own to compete you know let me paint this picture a competitor if there's rises to prominence using their own devices as distribution in a thing that a service that people consider court of their lives and this analysis was talking about Google maps Apple decides to do something on their own to compete and comes out with Apple maps and there's you know a large debate over how that's going that's all that I think a lot more people use Apple maps than like you know at least in the tech world we give a credit for right there's also an element of apple they're not great at social they're not great at services compared to other companies so there's a lot of risk in them having complete in total control to shape the product of what does this service look and by buying you know beats music they had a really good starting point now again none of this is is worth three billion dollars some of that is because the headphones business was already doing great so anybody who wanted to just buy that thing would have to pay a billion or more for that on its own then when you layer on okay great we're going to get this scaffolding of a great music service so call that a technology I'd say product but I really well let's say product what you really need on top of that to make the whole thing tick and to really start competing with Spotify is is Jimmy's relationships and Jim and and beats you know Dre and Jimmy's position within the industry and so to and to enable that sort of technology product that they built to really start to to be differentiated and and scale you know is is the talent there I totally agree but I would even go one step farther I think maybe this is heresy given you know like we're talking about the way audio files view you know beats and what not have funs but I actually think there are a lot of parallels here to the Instagram acquisition of Facebook I'm just going to paint this picture who knows what have been successful how long it would have taken I think beats could have been a serious threat to Apple in the long term Jimmy and Dre and particularly Jimmy well maybe Dre too he just doesn't talk much so we don't know but they had a vision right of like what was beats and what was this combination Jimmy talks about it all the time in this interview is like how much he idle you know he respected Steve jobs is view of like technology plus liberal arts and you could argue with like how well beats did on that but like that was the driving vision it was like we're not just a headphones company we're not just a tech company we're also not just a music company we are like part of your life and like the relationship that we have to our customers is super deep and that's exactly what Apple is to right like so maybe we're bleeding into what what happened otherwise now but like say this acquisition hadn't happened like what does beats look like now what does beats look like in 10 years as a standalone company like just like Apple started with you know let's take you know Apple version to you know after Steve jobs comes back starts with like a MP3 player you know like yeah that's nice apples doing consumer electronics now that's that's cute now apples the biggest company in the world and like the most personal relationship with like billions of people around the world maybe headphones was the way that like beats could have done that too. Especially in the future that we've like painted out other episodes where where headphones and a watch or headphones and awareable in some way are the new phone but you sort of do need to be the ecosystem owner of all of those things in order to do that and Apple I think it's pretty hard to be a new enter into commute with Apple there yeah totally well I think beats would have had a really hard time to be able to do that and then it's like a very logically doing it on their own without Apple right but this is where comes back to the air pods right and like where is computing going whereas technology going but also where is like you know where is society where the liberal arts going like and that's why you're back to the people the relationships like you're saying like Jimmy and Dre like they understand why people use things like people by headphones and listen to music because of the effects you know like and I think that's what Apple got so right about the iPhone right like it's not about like you know like you know the talk show talks about this all the time like Apple doesn't market on speeds and feeds like it markets on like how this impacts your life to me that's like the biggest thing here is a people deal and and that's why this is a three billion dollar acquisition and Apple's largest ever and that's why it was a you know aqua higher wow bold statement if you were to attribute that I'm sure there is actual models with attribution to this if you were to attribute that three billion dollars allocated across beats electronics and beats music how would you do it I just see I don't think Apple would do that and I don't think that's how you should think about it because it's about like again it's about like the air pods you know like which isn't beats at all right but it's about like what this vision can get to and how beats as a company beats as a brand Jimmy and Dre as leaders can help Apple you know get there and they just happen to bring a lot of really helpful assets along the way yeah and ask but you can value the assets right like again back to sound jam like sound jam had no like they had customers who who like use the product and liked it right but like it wasn't like beat like the NFL wasn't banning sound jam you know right yeah if I'm definitely out on a limb here but I think it's true right like because the question is why did Apple pay three billion for beats and you know three million for sound jam right all right I'll roll with you there before we go into what would have happened otherwise why don't I catch us up a little bit on how is Apple music doing and what did the world of streaming services had that evolve so let's rewind to before the the beats acquisition so Spotify had collected 20 million paying subscribers well Apple had no offer you know no offering in the market and you know they're the pioneers of digital music and or the the yeah of of you know legal legal digital music and here they are sitting there while they're being completely disrupted in fact Pandora even grabbed 80 million active listeners and it looks like about 4 million paying subscribers still Apple is doing nothing so Spotify's got this huge free tier with 20 million paying Pandora has got 4 million ish paying if you fast forward to today what what has sort of happened with Apple music they've obviously launched in 2015 they now have 30 million paying subscribers no free tier just I think free trial that's right 30 30 day free trial and where Spotify is is that Spotify has about twice that they've got about 60 million paying subscribers and over 60 million who are free so Spotify has about double the listener base that that Apple does if you consider and there's this amazing chart on Asimco that will link to in the in the show notes called growth of music subscribers Apple music has basically been growing linearly since launch after 12 months they were at about a look so about 14 million subscribers after 24 months they were at about 26 and here we are around 36 months where they're they've just crossed the 30 threshold and so they're they're growing much faster than then Spotify who took years and years and years to get to 30 million but now Spotify is is really starting to sort of hit their acceleration in their in their exponential curve so still a very fierce battle well while Apple if you consider a number of months since launch is way out ahead but obviously Spotify launched way earlier and is now accelerating it at sort of break next speed to actually convert their their free tier to paid tier you know we're in this world today where Spotify is preparing for some kind of liquidity a lot of people are speculating that it's going to be a direct listing and go go public there's talk of it being a 20 billion dollar market cat for that company when they do a direct listing and they are accelerating faster than then Apple music is in terms of paid subscribers right now and there's a very philosophical difference between Spotify's ad supported sort of freemium tier that converts to paid or Jimmy I have finds we don't give away music we had we we charge for music and we give it to the artist and Apple is sort of okay with with growing more slowly or it's sort of taken the position that we're okay growing more slowly because we have a more sustainable model that rewards everyone fairly and honestly Apple's got the cash pile where you know it can be a loss leader for Apple and you know of course they make money on it if you if you look and see what the margins look like Apple music it looks like operates around to 42% gross margin when you're just working off of the fees that they're paying to the record labels so there's obviously other costs in there so they pay 58% to the record labels Spotify actually pays less Spotify pays they've dropped it from 55% down to 52% and so Apple's Apple's paying 58% to the record label so the labels look at Apple music and at Jimmy as hey this is a thing that's better for us they have a strategy that's better for us where Apple doesn't need to make as much margin on this thing they're doing better by the artists so it'll be really interesting to see how this whole thing plays out between Apple music and Spotify with different philosophies Apple way late to this market but obviously with a huge cash pile to be able to fight well I'd say two things I mean one it's also interesting to just think about the numbers and relative to me were foreshadowing ahead of it to grading but Apple music has 30 million subscribers right now at $10 a month now some of them are on the free trial and whatnot so like you know at discount hyper aggressive discount of like say the you know two thirds of that is like one third is not paying the full $10 a month they also have family plans where you can get the whole family on for $15 a month so so we'll be aggressive I'm sure it's not quite a third that they're losing but say it's third so they have 20 million people paying $10 a month that's $200 million a month at a roughly 50% gross margin so $100 million a month gross margin contribution to Apple that's over a billion a year like that's pretty good for paying you know three billion for for beats so financially like that's pretty good but also be I think like I do really believe there's this other part of the story to music like it's not just music it's not just Spotify versus Apple it's the whole ecosystem and the impact on your life so like Apple music is smaller than Spotify for sure but like with Apple music you know you have like there's beats right and like if you're a beats if you use beats headphones like that's partially maybe important to you at least from a brand standpoint but then there's also just like you know things like the watch you know right like and now Apple music on the watch and it's like and with AirPods and so now you can just start to get this integration into your life like I was talking about earlier in a way that's just part of a whole larger product and being part of your customers life that Spotify will never be part of it's very Steve jobs of you is very like I mean this is Apple's largest acquisition ever right yeah it's all about the music and another interesting thing I should point this out what when I was diving into this is there's a great courts article that's called 90% of revenue comes from 30% of Spotify's you Spotify's users if you look at it like they probably have about twice as many free as they do paid so that's sort of a one third two thirds thing 90% of their revenue comes from that smaller group of paid subscribers so if you're ever thinking like boy it really seems like they want me to upgrade to this paid tier they're not making jack off of you as a you know listening to ads that's really just a way to subsidize like you know we don't want to lose too much money on on giving this away free yeah interesting interesting the other player we absolutely should you know mention here is Amazon like Amazon's making a huge push with Amazon music and including so there's two tiers of Amazon music there's prime music included for free in prime which is streaming of a couple million song so nowhere near as large a library as Spotify or Apple but like enough for people who don't care that much about music like I could pay ten bucks a month or I could get this included in my prime subscription and then Amazon also has unlimited music unlimited which is a direct competitor to Apple music in Spotify which is also a priced cheaper and I think seven or a bucks a month and this is where right like I would rather be Apple than Spotify in this situation because Spotify has to now deal with competing directly with Amazon but Apple and beats don't compete directly with Amazon yeah Spotify is in the unfortunate middle here either compete with Apple had our compute with Amazon had on but you don't want to be kind of caught in the middle all right well I feel like we've done category and what would happen otherwise should you tech themes quickly what would have happened otherwise could Apple of successfully created Apple music without acquiring beats oh yeah of course they could have what what would be missing let's look at like what apples you're starting to do in video or Amazon to like right like the best Apple I think could have done without beats is what Amazon's done is like you know totally serviceable service right and that's part of the large ecosystem and that's great but by bringing on beats they got a couple things like we've talked about they got the existing customer base now most of those were headphones right but like millions and millions and millions of people that identify with the brand and have a relationship with the brand but Apple music is definitely not the beats brand like you don't get that for you don't but like but they could draw a lot of that customer base into it but then also they get like you know they get a vision for it right like in what Jimmy you know has articulated and again like has it been as successful as far as it could be or will be in the fullness of time I don't know but I don't think they would have that without a leader you know like leaders like Jimmy and Dre to come in and do it again because it's all about the artists and the marketing and so you need to be like like any cue going and being that leader in the music industry is incredible you know yeah yeah in fact he's he's feared in many ways by by what he did last time around to pin that down a little bit more is the service worse so there is more churn so there is I guess what I'm getting at is they already had like the best channel you could possibly have to try and sell people a music service by being baked into the platform would they be sitting at 30 million subscribers today if they tried to do this without Jimmy and Dre yeah I don't know maybe they would maybe they wouldn't but I don't think they would have you know as you pointed out like apples relationship with the music industry and with artists was tenuous at times and now it's much much better right well they waited a couple more years I guess they they could about tidal they could have that's true yeah all right tech themes that would be a fun show tech themes all right so one one for me is just like technology in the liberal arts and obviously as you guys can tell from this episode I'm drinking the cool aid here I mean how could we not it's an apple show but but to one I want to talk about is this actually is totally similar to the stitchfix IPO for me like that that Jimmy and Dre saw something that was overlooked in the market and and built a business around that and had an insight that nobody else had and this is really like going back to business school one of my professors was Andy Rackliff who was one of the founders of benchmark and and he talked about he took this from Howard mocks Howard marks it oak tree this idea of like a two by two matrix when you think about investing or building companies you can be right or you can be wrong in what you're doing that's like you know one of the axes of the two by two matrix and obviously you want to be right not wrong if you're wrong you lose money no matter what but if you're right you only make money in one circumstance you could be right and it could be consensus that that's what's going to happen you actually don't make any money in that scenario because you're not doing anything like different or outsized or you know what not where you make money is when you're right and it's non consensus and and that's what stitchfix did right like women don't need a you know personal shopping closed service well actually turns out they do you know and and with beats and headphones it was like well you know people who are audiophiles like you know the high end music market they want totally fidelity you know accurate reproduction of the sound well turns out they don't you know so I think this is like a great illustration that yeah I love that I think that's a great great parallel and it's it's a better dive into something that that I was thinking about is is defining a lifestyle brand where there previously was no lifestyle brand like realizing that a category is something that can it played important role in define people's lives rather than just being throw away it's certainly worth looking around and considering where are there other opportunities to do that and Jimmy talks about this he's like you know he says he refers to it as he and Dre they look for holes out there like where is there a hole and this is the same thing cat they're great VCs man totally well that's what they did I mean like you know Jimmy his old career and then Dre has become more of a producer and and less of a you know direct artist himself like that's what they do they find talent and they identify it you know this is like found you too right like they found M&M and then they give it the resources to succeed I mean that's like these guys are VCs they are great VCs well here's another one and that it it was something we've been talking about in a previous show but the content is king narrative where yeah well you know we're talking about it's these guys and it's their vision and their relationships what that really leads to is having the best content yeah yeah well and that's what Apple music wouldn't have right right right and does this now put us in a world you know fast forward to today apples you know investing a billion dollars into original programming first of all I'm very curious to see if that will be released it's it's obviously video original programming under the Apple music moniker much like are they going to overload it the same way that they did iTunes and make iTunes your rich multimedia hub when it was originally about music you know Apple is is now well positioned with a subscriber base of thirty thirty million people to actually have a credible offering of hey you know pay X dollars per month the way that that you know you do to Netflix and we'll be able to put great content on your device it's interesting to see Apple spanning across modalities doing this they may have a service much like prime that is you pay X dollars per month to Apple and you get the full Apple music you get all of our original programming you get access to other videos or other TV shows that are on demand it's Apple taking advantage of the vertical integration that they have and saying look everybody we're just going to we're going to pour a new for pay services to your on top of everybody that's already in our massively integrated Apple ecosystem yeah it's interesting to think about like Apple versus Amazon here because they're taking the total opposite approaches and like they'll both be very this is why they're perhaps the two most valuable companies in the world right now I think like Amazon is like we're just going to like you know you the Jeff Bezos your margin is my opportunity right like I'm going to fly so close to the ground on all of these things that in aggregate like I make a ton of money but nobody can compete with me on any individual aspect like you know I would be we will cover Spotify someday in another episode but like I should be I would be terrified if I'm Spotify like apples Amazon is now giving away what most of my users you know pay me for and Apple takes the opposite approach which is like I'm going to create this entire ecosystem you're going to pay a lot of money for access to you're going to get an iPhone 10 you're going to get an Apple watch with cellular you're going to get AirPods and then I'm going to have all these services to and content around it and like but I'm going to be your like your best friend and constant companion in your life you know you know it's just occurred to me so I mentioned Apple you know Apple is a highly highly vertically integrated company unlike you know Google or Amazon that's that's going across devices and and not necessarily married to the specific hardware that you pay them for so Apple's business model has always been make really great devices that are differentiated by their software and services and sell them for an excellent premium they've been selling the services narrative recently that is on their earnings call every time it's Apple is transitioning to a services company look at all these services blah blah blah the numbers on that look like you know if we say that Apple music revenue is about three-ish billion dollars a year based on their 30 million subscribers their last four-quarter of services revenue have been about 28 billion dollars so Apple music still small the vast majority of that still comes from from iOS app downloads when you think about what their total annual revenue looked like it was 216 billion so you know most of their I know these numbers are just laugh at that but most of their revenue still still comes from their core business model but certainly a fast growing segment of services revenue the number one thing that really drives that home for me is there's an Apple music Android app and it's not you know nearly as widely used I don't think as the the one for iOS like if you have if you're in the Android ecosystem or you really likely to pay for Apple music and make that your your choice instead of Amazon or Google or Spotify but that still is very puzzling to me and a very interesting hedge on their classic business model to build and maintain an Android user based on Apple music yeah it's super different even from all the things we were just talking about right like and I'll say you know this is like I think it's a departure from and I love this this is like always a hilarious thing of people bring this up and I usually mad at them but I'll do it anyway like a thing about what would Steve jobs have done or what Steve jobs have done this if he was still alive I mean there was a windows iTunes app but that was all about and a window Safari app but the windows iTunes app was was all about being able to get people's foot in the door in the Apple ecosystem get them to buy an iPods they could see the Apple you know see the Apple light and then perhaps buy a Mac and you know they made good money on the iPods to and really a foot in the door in the Apple ecosystem is that the same thing that we're seeing here with Apple music where if you're an Apple music customer on Android then it's a foot in the door in the Apple ecosystem and maybe you'll go buy some of their high margin hardware I don't think so I think it's more like we see an opportunity to have a great business as a services company it's a little more muddled but there is some element I mean like you might go buy some beat head beats headphones or AirPods like AirPods you know work with Android too not as integrated or as well I'm how many people have you seen with AirPods that have an Android show I haven't seen many but but how often do you you know meet somebody in your work life who doesn't have an iPhone in eSports a lot I need sports a lot but yeah all right she bring this one on home let's do it so let's see I'll go first on grading I've been been I think pretty lotatory of this deal thus far for Apple and I'm gonna continue to do so I mean as I think about some of the acquisitions I compared it to I compared it to Instagram and and next which are our references for an A Plus on the show I think the only do we give Instagram an A Plus when we did it we got to go back and redo that episode so is our first one yeah that one if we didn't we should have I think that would actually make it the third time that we've done it including the unreleased pilot oh yeah and the unreleased pilot oh man that goes in the that goes in the acquired museum right so I think this is kind of in that category I don't think the execution though has been as good as Instagram and next and specifically well next was its own piece just you know that was Steve like Instagram like the thing that made Instagram all these dynamics where it play there it's like reinventing like what is Facebook right like well Facebook it's photos right and like like let's make Instagram that and all the grids like and how much Instagram is worth now I'm plugging into the ecosystem blah blah blah the thing about beats it's not as we've been talking about it's not as clear like what the vision isn't how it evolves like the vision was there Jimmy and Dre had the vision and it's now gotten a little bit diluted as part of Apple like I think it's still there but it's not like this is not an A plus like you can't point to this like you can point to Instagram be like Instagram is now like you know worth a hundred plus billion dollars you can't say that with beats for sure so I think I go a minus thus far I'm going to go a minus two just from a basically from a cash flow perspective will this thing pay for itself and has it paid for itself in a reasonable time frame yeah yeah I feel great about that has it been absolutely transformative to their business no but has it been has it helped Apple evolve their digital music to this decade of what digital music means when digital music is a core part of Apple and their business and their their what their customers do with their devices absolutely I'm between it be plus a minus but I'm going to go a minus because I'm I'm encouraged by the fact that we're a few years in it's still growing strong you know they they did manage to very quickly get 30 million paying subscribers on this thing I think it's a lot of well and I think maybe maybe we just where this is where we disagree I think it's I everything you say but I think it's also it's not just digital music it's it is there is this element of like what the vision is for the future of you know computing and society here and like I don't want to say that like certainly as we've talked about like the beats team did not like directly lead to the AirPods but it's all just part of the mindset right like audio quality and music is a big part of that but also podcasts you know also everything like this is this is part of people's lives and was being more so and like the more you can integrate technology and that whether you know Steve Jobs called it liberal arts or you know when Jimmy talks talks about culture and cool and I just like the more you can integrate that like and understand it like the more successful you're going to be all right there we have it carats are 50th episode yep go carats I go quickly my the same theme you know Jimmy and what an amazing person he is and I talked about their cream Abdul Jabbar book about his relationship with John wooden I think last time or the time before I also read John wooden on leadership book by by John wooden where he talks about his pyramid of success just so cool and I think like John and Jimmy are both people that have like been incredibly successful at the very very top of their industry across multiple complete sea changes in what that industry is around them to super cool to like learn about those people and how they did it so John wooden Jimmy Ivan separated of birth awesome David are you playing HQ no you heard about this no so it's this incredibly fast growing consumer phenomenon that has a quarter of a million people concurrently playing when it's live it is a game show that happens interactively through your phone that comes on twice a day and it is from the creators of vine and it is it is basically a host who comes on ask you questions very simple awesome UI to answer the questions and you you progress to the end where there's a cash prize they get split the number of ways of whoever many winners there are and there will be like 250,000 people can currently in and this things like a month or two old it's crazy 250,000 people concurrently in there answering the questions you basically see how far you can get and the questions get progressively more difficult and they go from like piece of cake to quite very impossible very fast but if you're left standing at the end then you use put the cash prize in that community were from 250 to I think the biggest they've done is like two three thousand dollars and it's like who wants to be a millionaire it is and I there's so many like start up things to take from it like they they have this great I mean it's a great acquisition hack of literally giving away money and the number of people that it's it's bringing on relative to the small amount that they're giving away even let's say it's 2500 bucks super low cost of customer acquisition and it's really fun really poppy the founders not only created vine but had a couple of failed things in the interim that this is sort of pivoted from so it's really cool to read the backstory there's been there's been a lot of controversy if you want to look up HQ news there's been some all sorts of interesting controversy about the company that I won't go into but the their backstory of of trying really new interactive models that are fun on your phone with with video it's just cool to watch and it's cool to see that they found something that's like really really hitting and it's super fun so every day at noon you can you can go in and play the the live interactive game show on your phone cool I'm gonna have to check that out I heard that there was something new from the founders of vine but now I know what it is yeah well I'll play it and tell me how far you get probably not far unless the questions are about John Wooden and Jimmy I've had that's right all right listeners thanks so much for for joining us today if you like the show rate us on iTunes and have a great day see you next time