What Beats' President Said About Expansion--Before Apple Bought It For $3 Billion
At first, the new offices needed to fit 300 employees. Then it was 700. As Beats Electronics grew and grew, its president Luke Wood kept leasing new space in the Hayden Tract area of Culver City to keep up. This was how he ended up holding leases on five different office buildings, all within a few blocks of each other.
"I feel like I'm the biggest landlord in the neighborhood now," Wood told me.
It was March, and we'd donned hard hats to tour the site of the future Beats Electronics headquarters while I interviewed Wood for a story naming Beats as one of Inc.'s Most Audacious Companies. Eventually, he said, the two largest buildings--roughly 110,000 square feet--would make up Beats' campus. He'd have to sublet the other three, he mused.
Dealing with the vagaries of being a landlord may be the last thing on Wood's mind now, because today--less than three months after he and I checked out Beats' ample real estate--Apple Computer announced it would acquire Beats for $3 billion. That price tag is a bit smaller than the $3.2 billion value placed on the deal when it was first reported, and some reports suggest Apple wasn't thrilled with the streaming service Beats Music's lower-than-expected subscriber numbers. (Or maybe Apple wasn't thrilled with Beats' founder Dr. Dre's now-infamous video prematurely celebrating the deal? Warning: NSFW language at that last link.)
Still, the deal today is but the latest massive shift for an outfit that has transformed itself from little more than a brand name into a full-fledged consumer electronics company in less than 18 months.
When Wood joined Beats co-founders Jimmy Iovine and Dr. Dre (nee Andre Young) in January 2011, he was the company's 11th employee. "We were basically a licensing business," said Wood. Wood had worked with Iovine before, running A&R and strategy for the record label Interscope. At Beats he became President and Chief Operating Officer for a brand whose trendy and expensive headphones were suddenly on the ears of everyone from Lebron James to P. Diddy to Lady Gaga.
Since 2008, Beats had produced its flagship line of headphones with Monster, an audio and video component manufacturer based in Brisbane, California. At the end of 2012, the Monster contract expired, and Iovine, Dre, and Wood decided to set out on their own. They would handle every aspect of the business, from manufacturing to retail distribution to R&D--even though all of them came from record labels and had no experience in those aspects of the electronics business. (Iovine founded Interscope, Dre was longtime rapper, producer, and head of Aftermath Records). Suddenly Wood, the music guy, would need to become an electronics guy too.
"I didn't have manufacturing experience, but I had experience of building something from scratch," he said. "Every time we put out an album, it was basically like building a new business--a unique cast of characters, unique challenges and opportunities, and trying to figure out a unique path to market."
In the ensuing months, as the company built out its sales and marketing staff, it also introduced new products, including a line of wireless speakers called The Pill. Meanwhile headphones and revenue continued to soar upwards--"well over $1 billion" according to the irrepressible Iovine. (Who--interestingly--told me about his interactions with Apple and its founder Steve Jobs when we spoke in March.)
"I think of lifestyle consumer products companies as our peer group, not consumer electronics--like Red Bull, or Go Pro" Wood said back in March. "We think, how do we create pop culture, and how do we amplify culture? We just go with our gut."
Those gutsy moves paid off--for Iovine, Dre, and Wood, at least. Now it's up to Apple to make sure the Beats guys can mesh with its own strong culture.