Seeking Synergies: Beats Acquire MOG

On Monday, July 2, 2012, Beats Electronic LLC, the company most popular for their bass-bumping and market-dominating Beats™ by Dr. Dre™ headphones, announced their acquisition of on-demand music service MOG, a music streaming service that offers users access to over 16 million songs via wired or wireless connection.

MOG users can access their vast library of music and user-created playlists through an internet browser-based website platform, connection to a streaming device on a home network like the Logitech Squeezebox Touch, or by streaming to a mobile device. Speaking of mobile devices, guess who else is in cahoots with Beats? In August 2011, Taiwanese mobile device manufacturer HTC acquired a 51% stake in Beats, a purchase equal to about $300 million dollars. This partnership allowed for HTC to integrate Beats Sound Systems into their phones.

Beats owners Dr. Dre and Jimmy Iovine have a vision. They want to provide the highest-quality listening experience possible to on-the-go listeners everywhere. Doing so will require from their end an emphasis for consumers to ditch those memory-saving and dynamic-stunting lossy files and move over to MOG’s high-quality streaming. MOG founder David Hyman recognizes Beats’ aspirations and is excited for the future: “When approached by Beats, we realized it’s a company as obsessed with sound quality as we are. Both MOG and Beats share a common goal of creating a more premium sound experience and emotional connection with music in the digital era.”

A point of collaboration already feasible by the businesses involved should be installing the mobile MOG application and MOG account on all newly purchased HTC phones. MOG’s 320kbps MP3 streams will complement the HTC device’s Beats-powered audio system and if listened through Beats headphones, achieve a full circle of brand integration on three different levels of the listening process. The HTC’s Beats Sound System is the playback device and amplification. The different Beats headphone lines project the soundwaves and act as the physical recreator of the music as heard by the listener. Finally by providing listeners over 16 million songs to choose from, Beats/MOG is the music itself.

When Beats, the publicly perceived authority on high-quality sound directs consumers to MOG it is a signal of trust to listeners that MOG is the new authority on streamed listening, and hopefully their suggestion motivates those addicted to the Beats brand and lifestyle to lap at the tides of their newly claimed fountain of music.

The biggest issue with the triangular affair between HTC, MOG, and Beats is HTC’s puny clout in the ultra-competitive mobile market. Their mid 2011 acquisition of Beats failed to be noticed by consumers. In Q1 of 2011, HTC started with an 8.9% market share, slowly increased, but then made a drastic dip in Q3 2011, shortly after the Beats purchase, all the way down to 4.8% by Q1 of 2012, losing nearly half of their revenue [Source]. But HTC is hopeful and predicts a 55% increase in revenue for the latter half of 2012. Analysts say HTC’s optimism stems from the release of their HTC One line, but maybe the new alignment with MOG springs hope to entice new customers interested in streaming music as well.

Beats, HTC, and MOG are hoping that synergies between the different businesses will capitalize on each other making use of the different benefits that each organization offers. HTC is already using the Beats brand to promote their phones, although with little noticeable effect to their bottom line, and maybe Beats are using HTC’s consumer electronic manufacturing facilities in Taiwan and Korea. More importantly, Asian business culture requires establishing long-term connections with partners that extend beyond a contract and into the realm personal trust established over years. HTC, a company established in 1997 with 9.5 billion dollars of revenue in 2011, offers their already standing manufacturing relationships to Beats to help establish long-term manufacturing strongholds in the Eastern Hemisphere. On the other hand, MOG adds the music and the capability to allow all HTC and Beats users to enjoy their products to their fullest potentials. Sounds great, right? Yet, Harvard Business Review analysts Michael Goold and Andrew Campbell warn of the dangers of synergies: “The pursuit of synergy often represents a major opportunity cost as well. It distracts managers’ attention from the nuts and bolts of their businesses, and it crowds out other initiatives that might generate real benefits.” Maybe HTC’s push for the Beats Sound System integration was a waste of resources and an ineffective tactic to gain market share. Competitors like Apple or Samsung will both still be compatible with the MOG mobile application and Beats headphones so there is currently little competitive advantage for HTC. Maybe Beats should continue focusing on making different price entry points for their headphone lines, bettering their designs, or maybe even spreading their message of high-quality sound to components other than headphones instead of aligning with the second-place streaming service MOG, which falls vastly behind Spotify in terms of number of users. As of December 2011, Spotify had 7.4 million users while MOG only had 170k. If the people are not there, as they are not for HTC, maybe this is a sunk investment for Beats. Yet, Beats has also aligned with HP Laptops and Chrysler automobiles with more Beats integrated systems, and with simple innovation, they can integrate the MOG software to encourage further use. So let’s not be so dire and, instead, daydream just a little more…

Beats could offer a free MOG account with each headphone purchase. Beats listeners may then purchase a premium MOG account for unlimited listening. Money in the bank.

On the extreme side of things, maybe we will see headphones that are now purely mobile devices in themselves, built for making calls and streaming music. Wouldn’t that be incredible? A literally wireless system where your MOG account is built into your headphones connected to a mobile network, from which you can then stream your music wherever you go and make phone calls as well. Offline syncing and flash drive memory within the headphones could allow for listening in areas where you don’t have access to a network. Yet, this does not seem entirely possible without some sort of interface to control actions and playlists and phone-calls, but in our future world, it could be a pop-out wireless tablet, the size of an iPod Nano that inserts into the outside of your headphone cup. Yes, an audiophile can dream of a world without wires.

Finally, now that Beats has access and record of each listener’s musical preferences and streaming behavior, they could custom create headphones which would best suit the listener’s tastes: whopping bass for dubstep lovers or high-end articulation for bluegrass twangers. The options become endless for sound designers when they know the music the listeners love. Again, a man can dream.

None of the three companies have stated their collaborative plans out in the open yet, but I am sure we can expect something big. Beats Big.

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COMMENTS
Stephen Scharf's picture

I find it ironic that Dr Dre and Jommy Iovine are committed to the highest quality experience because their headphones sound, in a word, dreadful.

Ariel Bitran's picture

I've spent a considerable amount of time listening to the Beats Studio headphones, and I think the term "dreadful" is a bit harsh. While their left/right separation/stereo imaging is a bit narrow for headphones so big, they offer textural playback particuarly with electric guitars and a bass response with bravado that doesn't necessarily overwhelm (believe it or not -- see Tyll's blurb here http://www.innerfidelity.com/content/comparative-review-high-end-noise-canceling-headphones-page-3).

I haven't listened to their Solo headphones with Tyll over at InnerFidelity found dreadful (http://www.innerfidelity.com/content/monster-beats-dr-dre-solo).

 

Here's SM's review of the Studios

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