The rich get richer in tech, and Apple (AAPL 0.36%) 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 (MSFT +1.19%), and Google (GOOG 0.34%) (GOOGL 0.13%) 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 (P +0.00%) 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.
