Apple Inc. Should Have Done What Google Wants To Do

Google could be putting together a bid for Songza. Could Apple have saved a pretty penny by picking a smaller start-up instead of Beats?

Jun 9, 2014 at 12:30PM

Songza Android

Songza for Android. Source: Google Play.

Curation. That was one of the key driving forces behind Apple's (NASDAQ:AAPL) acquisition of Beats Electronics. One of the selling features of Beats Music is its human curation team, which is a department that iTunes Radio needed to beef up. A recent BuzzFeed report even suggested that Apple's iTunes division arrogantly ignored streaming services for quite some time, which is in part why the company is scrambling to catch up in the streaming game.

Now, the New York Post reported over the weekend that Google (NASDAQ:GOOG)(NASDAQ:GOOGL) is looking to scoop up music streamer Songza for $15 million. Songza's growing service is similarly built on curation as the flagship feature, and now boasts an estimated 5.5 million active users. Songza is dead simple to use. You make just a few choices based on what activity you're doing, what mood you're in, and what genre you prefer. Songza does the rest.

Google's offer may actually be higher and other suitors could be lining up to bid, according to the report.

Still, even if Google's reported bid is materially higher, it likely doesn't compare to the $3 billion that Apple is spending on Beats. Of course, Apple is also getting a strong consumer brand and a headphone business, but it's possible that Beats was in horrendous financial condition. Even if just $500 million of the total Beats purchase price was allocated to Beats Music, as has been reported, that's still orders of magnitude more than what Songza may fetch on the auction block.

Apple investors are still confused about the Beats acquisition, since it was out of character for the Mac maker in so many ways. In fact, a Songza acquisition would have fit Apple's historical acquisition strategy perfectly.

Apple has bought music start-ups before to integrate into iTunes, including LaLa back in 2009. There were conflicting reports at the time, saying that Apple paid anywhere from $17 million to $80 million. The company subsequently shut down LaLa's service and used the underlying technology to launch iTunes Match shortly thereafter. Doing likewise with a start-up like Songza would have looked awfully familiar.

It now seems that Google wants to use Songza's curation prowess to bolster Google Play Music All Access, the search giant's streaming offering. All Access offers both on-demand service and curated radio stations.

All Access Radio

Google Play Music All Access. Source: Google.

Beats Music does have as its chief creative officer Nine Inch Nails frontman Trent Reznor, who will remain onboard following the acquisition. Songza doesn't have any well-known celebrity ears on its team. Still, does that difference warrant such a premium a price tag?

Manually putting together playlists is on the way out, with curation becoming the next big musical battleground for tech heavyweights. Curation offers ease of use and music discovery, and users save time by letting a music expert do the picking and choosing. With Beats, will Apple get what it's paying for?

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Evan Niu, CFA owns shares of Apple. Evan Niu, CFA is long a bullish call spread on Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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.

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