When Will Microsoft or Google Buy Pandora or Spotify?

Apple buying Beats Electronics should find rivals looking at other options.

Jun 1, 2014 at 10:05AM

The rich get richer in tech, and Apple (NASDAQ:AAPL) finally making its $3 billion deal for Beats Music and Beats Electronics official is an event that doesn't happen in a vacuum. Apple, Microsoft (NASDAQ:MSFT), and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) are never too proud to copy one another. Google's success as a search engine eventually led to Microsoft rolling out Bing. Apple's iPod phenomenon led to Microsoft's ill-fated Zune. Acquisitions also trigger reactions when they're not the reactions themselves. Google's purchase of Nest finds many speculating that Apple is about to roll out a smart home platform. Microsoft's acquisition of Skype came shortly after Apple introduced FaceTime.

In a world where playbooks and blueprints are copied, what do you think Microsoft and Google will do in light of Apple's push into audio accessories and an on-demand streaming service? Spoiler alert: They won't be standing still.

Apple's move into acquiring the Spotify-like Beats Music isn't a surprise, and not just because it's been churning loudly in the rumor mill for weeks. Apple is struggling in digital music now that consumers aren't buying downloads anymore. It has clearly benefited from the mobile and cloud computing revolutions, but when it comes to the iTunes Music Store, a nasty byproduct of connected consumers is that they would rather stream than own. Last September's launch of iTunes Radio was supposed to help fans discover new music to download, but that's just not happening. Record label bigwigs recently told Billboard that iTunes download sales have fallen 15% over the past year, and that's with last year's iTunes Radio rollout.

Apple is going to enjoy having the premium high-margin Beats headphones to peddle as its own, but this is largely a deal for Beats Music. Copying Pandora (NYSE:P) with iTunes Radio wasn't enough, so now it wants in on the Spotify model, where premium subscriptions -- not advertising -- bring home the bacon. This brings us to Microsoft, which rolled out Xbox Music in late 2012, and Google, which introduced Google Play Music All Access just four months before iTunes Radio was unveiled. Those are on-demand services just like Spotify and the Beats Music that Apple just picked up, but neither seems to be gaining serious traction. Why wouldn't they want to get their mitts on Sweden's Spotify? It announced earlier this month that it has surpassed 10 million premium accounts, a far cry from the roughly 250,000 Beats Music accounts that Apple is inheriting. 

Google and Microsoft could also go after iTunes Radio by snapping up Pandora, which is the category killer serving up 1.7 billion hours of audio content last month. Apple claims that it has more than half as many of Pandora's 76 million active users, but engagement levels for iTunes Radio are likely well below what Pandora is commanding. Apple has clearly made discovery and on-demand two distinct battlefields in the war of digital music, and its tech giant rivals aren't much of a force in either front. An acquisition is the only way to not only get up to speed but to beat Apple at its own game. It's clear that as successful as Microsoft, Google, and Apple have been that they are not cool or impressive enough to make a dent in streaming through organic means. Whoever snaps up Spotify immediately trumps Apple's Beats Music. Whoever decides to pay up for Pandora has the lone music discovery platform that can look down on iTunes Radio. 

Neither deal will come cheap, but Google and Microsoft have the money. More importantly, this is yet another market that they can't afford to let Apple run away with if they can buy a solution. They can. Now it's just a matter of seeing who buys what -- and how soon.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple, Google (A and C shares), and Pandora Media. It owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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