Acquisition Rationales from "The Outsiders"

Just a short post based on a book I'm currently reading called The Outsiders, by William Thorndike. The book discusses capital allocation processes followed by some of the greatest CEO's, including Warren Buffett and John Malone. The Outsiders, by William N. Thorndike, Jr. (Harvard Business Review Press, 2012). Based on Chapter 9 of the book, titled "Radical Rationality," a good way to look at Apple's prospective Beats acquisition is whether proprietary Beats Music streaming will: (1) enhance the customer experience; and (2) help Apple defend its long term competitive position.

The answer to these two questions appears to be yes. A high quality, curated music streaming service will enhance the average user's experience, especially given Apple's ability to integrate streaming into iOS/OS across all Apple devices.

Apple also needs high quality music streaming to defend its long term competitive position as a leading distributor of music content. iTunes music, and downloaded music ownership, is not the long term future in a world of fast, ubiquitous broadband service. Fast broadband makes music streaming far easier and more convenient than music downloads (leading to much more efficient music discovery and acquisition), and these advantages should drive ubiquitous music streaming.

A proprietary or well-integrated streaming service also enhances the unique, differentiated nature of Apple's ecosystem, thereby reducing two of Michael Porter's five forces, rivalry and buyer power. A Beats acquisition therefore appears to make good strategic sense.

The author owns stock shares of Apple.