Apple's massive $3B bet on Beats a sure thing compared to all-in gamble on NeXT in 1996
Apple's recently-confirmed $3 billion purchase of headphone maker and streaming music provider Beats may be the largest cash outlay in its history, but it's far from the Cupertino company's biggest bet on an acquisition.

Steve Jobs and Gil Amelio in 1996
When then-Apple CEO Gil Amelio announced in December 1996 that his company would buy Steve Jobs's NeXT for more than $400 million, the world was a much different place. Toni Braxton's "Un-Break My Heart" topped the Hot 100, Hong Kong was still a British colony, and Apple was in dire straits thanks in no small part to Windows 95's blockbuster debut.
The $25 million profit that Apple posted in the quarter preceding the NeXT acquisition surprised many analysts, who widely expected yet another loss from a company that had shed nearly $2 billion in market cap that year. The cornerstone Mac was still reeling, and Amelio saw its salvation in NeXT and Jobs, the Mac's godfather.
So Amelio and Jobs agreed on a deal: Apple would pay NeXT $429 million ($648 million adjusted for inflation) in cash and grant Jobs 1.5 million shares of stock, worth about $9 million ($13.5 million) at the time. With a market cap of just $2.9 billion ($4.3 billion) when the acquisition was announced, Apple was betting more than 15 percent of the company on Jobs and his new object-oriented operating system.
A failure would likely have meant the death of Apple, and Jobs was no sure thing at the time. NeXT had burned through hundreds of millions of dollars with little to show for it, and his other company -- Pixar -- had failed in its own bid to sell hardware before stumbling into the feature animation business.
Luckily, Jobs proved equal to the task and Apple is now one of the richest companies on earth. Underpinned by NeXT's technology, the iPhone and iPad are the standard-bearers of the post-PC movement while the Mac is more popular than ever.
Just as Amelio bet on NeXT to save the Mac, current Apple chief Tim Cook seems to be looking to Beats to rescue iTunes. Music sales are quickly being replaced by streaming subscriptions, and Apple's efforts -- even with iTunes Radio's 40 million users -- have been lackluster.
The Beats deal includes $2.6 billion in cash and $400 million in stock, a similar arrangement to the one Jobs and Amelio reached nearly 17 years ago. The $3 billion figure is comparatively staggering, but in reality it represents just 0.5 percent of Apple's now-massive $538.9 billion market cap.

If an Apple employee bringing home $75,000 per year made purchases of the same magnitude, the NeXT acquisition would be like buying a car while the Beats agreement would net a nice lunch.
For that relative pittance, Apple will gain a fast-growing streaming service -- Beats Music is thought to have doubled in size over the last two months -- and add music industry heavyweights Jimmy Iovine and Dr. Dre to its leadership ranks. It also comes with a profitable, $1 billion-per-year accessories business on the side.
Only time will tell whether Iovine and Dre will be good for Apple, but there's certainly no cause for hand-wringing over the price. Apple can afford to eat out.

Steve Jobs and Gil Amelio in 1996
When then-Apple CEO Gil Amelio announced in December 1996 that his company would buy Steve Jobs's NeXT for more than $400 million, the world was a much different place. Toni Braxton's "Un-Break My Heart" topped the Hot 100, Hong Kong was still a British colony, and Apple was in dire straits thanks in no small part to Windows 95's blockbuster debut.
The $25 million profit that Apple posted in the quarter preceding the NeXT acquisition surprised many analysts, who widely expected yet another loss from a company that had shed nearly $2 billion in market cap that year. The cornerstone Mac was still reeling, and Amelio saw its salvation in NeXT and Jobs, the Mac's godfather.
So Amelio and Jobs agreed on a deal: Apple would pay NeXT $429 million ($648 million adjusted for inflation) in cash and grant Jobs 1.5 million shares of stock, worth about $9 million ($13.5 million) at the time. With a market cap of just $2.9 billion ($4.3 billion) when the acquisition was announced, Apple was betting more than 15 percent of the company on Jobs and his new object-oriented operating system.
A failure would likely have meant the death of Apple, and Jobs was no sure thing at the time. NeXT had burned through hundreds of millions of dollars with little to show for it, and his other company -- Pixar -- had failed in its own bid to sell hardware before stumbling into the feature animation business.
Sharing a laugh with Jimmy, Dre, and @cue. Excited to welcome the #Beats team to #Apple. It's all about the music. pic.twitter.com/ZwyWgHFwhO
-- Tim Cook (@tim_cook)
Luckily, Jobs proved equal to the task and Apple is now one of the richest companies on earth. Underpinned by NeXT's technology, the iPhone and iPad are the standard-bearers of the post-PC movement while the Mac is more popular than ever.
Just as Amelio bet on NeXT to save the Mac, current Apple chief Tim Cook seems to be looking to Beats to rescue iTunes. Music sales are quickly being replaced by streaming subscriptions, and Apple's efforts -- even with iTunes Radio's 40 million users -- have been lackluster.
The Beats deal includes $2.6 billion in cash and $400 million in stock, a similar arrangement to the one Jobs and Amelio reached nearly 17 years ago. The $3 billion figure is comparatively staggering, but in reality it represents just 0.5 percent of Apple's now-massive $538.9 billion market cap.

If an Apple employee bringing home $75,000 per year made purchases of the same magnitude, the NeXT acquisition would be like buying a car while the Beats agreement would net a nice lunch.
For that relative pittance, Apple will gain a fast-growing streaming service -- Beats Music is thought to have doubled in size over the last two months -- and add music industry heavyweights Jimmy Iovine and Dr. Dre to its leadership ranks. It also comes with a profitable, $1 billion-per-year accessories business on the side.
Only time will tell whether Iovine and Dre will be good for Apple, but there's certainly no cause for hand-wringing over the price. Apple can afford to eat out.
Comments
The price or the amount has never been my main concern, and it shouldn't be Apple's main priority either, if I am to believe what Apple has said in the past.
It's never actually made clear in the news reports I've read whether that billion dollars is profit or sales.
But, I have a hard time believing it in either case.
My original negative take was based off of a headphone purchase a young friend of mine made several months back. He often consults me about any tech type questions and asks my opinion. He wanted some high quality headphones and was trying to decide between a few different Beats models. I did some research and gave him a few suggestions for models by Shure and Sennheiser instead were actually cheaper but seemed to get far better ratings from some pro review sites. He would have none of it. He would not consider those brands for even a second. It was Beats or nothing. So even though he knew review sites rated Beats poorly and thought they were overpriced, that is what he wanted and would not even consider superior sounding and cheaper alternatives. That says a lot. Imagine how sticky the consumers will be once Apple engineers get a chance to actually make Beats headphones sound far better.
My original negative take was based off of a headphone purchase a young friend of mine made several months back. He often consults me about any tech type questions and asks my opinion. He wanted some high quality headphones and was trying to decide between a few different Beats models. I did some research and gave him a few suggestions for models by Shure and Sennheiser instead were actually cheaper but seemed to get far better ratings from some pro review sites. He would have none of it. He would not consider those brands for even a second. It was Beats or nothing. So even though he knew review sites rated Beats poorly and thought they were overpriced, that is what he wanted and would not even consider superior sounding and cheaper alternatives. That says a lot. Imagine how sticky the consumers will be once Apple engineers get a chance to actually make Beats headphones sound far better.
That's the beauty of "peer pressure".
...a headphone purchase a young friend of mine made... was trying to decide between a few different Beats models. I... gave him a few suggestions for models by Shure and Sennheiser instead were actually cheaper but seemed to get far better ratings from some pro review sites. He would have none of it.
When considering a smartphone a few years ago, I inquired about iPhone, but got recommendations that another brand (Palm Pre) was cheaper, had better reviews, and so forth. Okay, I took the advice, and got shackled with a dead-end OS, hardware that was difficult to use, couldn't do simple navigation without paying a fee to the carrier, and ultimately withered and died.
I can't blame your young friend for choosing the models he sees in actual use, doing what he wants.
You can get Beats Executive for $199 at Costco
http://www.frugalhotspot.com/2013/12/beats-executive-by-dr-dre/
Hire that man!
It's never actually made clear in the news reports I've read whether that billion dollars is profit or sales.
But, I have a hard time believing it in either case.
I have heard it many times, in fact, numbers as high as $1.5B (http://www.crunchbase.com/organization/beats-by-dr-dre). And, it would be revenue.
When considering a smartphone a few years ago, I inquired about iPhone, but got recommendations that another brand (Palm Pre) was cheaper, had better reviews, and so forth. Okay, I took the advice, and got shackled with a dead-end OS, hardware that was difficult to use, couldn't do simple navigation without paying a fee to the carrier, and ultimately withered and died.
I can't blame your young friend for choosing the models he sees in actual use, doing what he wants.
But headphones are not like a smartphone because they will work with any phone you have. No OS upgrades, contracts, or anything like that. I still think the Shure and Sennheiser sound better because since that time I ended up buying a pair of Sennheiser myself and we both tested them out compared to his Beats phones and even he agreed mine sounded better. He regrets his decision now that he actually had a chance to compare them side by side but even now would probably not change his decision because he views the Beats logo as a status symbol among his peers. They have never heard of Shure or Sennheiser but they know Beats are expensive. It is not unlike gold necklaces or any other bling.
I have heard it many times, in fact, numbers as high as $1.5B (http://www.crunchbase.com/organization/beats-by-dr-dre). And, it would be revenue.
I've seen numbers from $150-300 million in profits.
These are all fancy acquisitions. First Apple should fix cloud and work on it for better pricing models!
But headphones are not like a smartphone because they will work with any phone you have. No OS upgrades, contracts, or anything like that. I still think the Shure and Sennheiser sound better because since that time I ended up buying a pair of Sennheiser myself and we both tested them out compared to his Beats phones and even he agreed mine sounded better. He regrets his decision now that he actually had a chance to compare them side by side but even now would probably not change his decision because he views the Beats logo as a status symbol among his peers. They have never heard of Shure or Sennheiser but they know Beats are expensive. It is not unlike gold necklaces or any other bling.
Exactly, they're fashionable and good enough for the masses. They're not what I would choose, but I tend to require more from my tech devices then your average user so performance trumps style everytime. If I can save money in the process, then that's a bonus!
These are all fancy acquisitions. First Apple should fix cloud and work on it for better pricing models!
Honestly, I'd still like to see free iCloud storage equivalent to the individual device's storage.
http://gigaom.com/2014/05/29/heres-how-apples-smart-home-program-will-work-2/
Well this is disappointing. Apparently the home automation rumors that the Financial times reported on are nothing more than a Made for iPhone program for connected devices in your home. Essentially all of those devices would still be controlled by their respective individual apps. I hope Apple isn't considering that some big announcement for Monday. I don't see anything exciting about that. It's about as exciting as the MFI game controllers. Zzzzzzz
http://gigaom.com/2014/05/29/heres-how-apples-smart-home-program-will-work-2/
I've no interest in "connected home" solutions. That's something that would be better controlled by Siri or some kind of artificial intelligence that learns from the home dweller's patterns.
Exactly, they're fashionable and good enough for the masses.
Good enough for the masses is not a benchmark that Apple should be aspiring to. I hold them to higher standards than that, or at least I used to.