Apple is one of the most recognised brands around the world. It is known for its innovative products, “guru-founder” Jobs, brilliant engineer and co-founder Wozniak, and many other things. However, the company’s acquisitions are an absolute masterclass of its own. As of the end of 2021, it is believed that Apple acquires a company every three to four weeks. Mind-boggling, isn’t it?
Considering the number of acquisitions that Apple (Apple Inc.) undertook over its lifespan, this case study has been split into three parts.
In Part I, one of the company’s less-talked-about, ground-breaking acquisitions will be examined. Part II will look at Apple’s largest acquisition and how it compares to other similar-sized acquisitions.
Finally, Part III will analyse Apple’s latest acquisitions and what they might mean in terms of where the company is heading in the near future.
Let’s dive into Part I.
Short overview of Apple:
- Founded in 1976 by Steve Wozniak, Steve Jobs and Ronald Wayne (a far less known co-founder who 12 days later left and sold his 10% share back to two Steve-s for $800).
- By 1980 the company netted over $100 million and had more than 1,000 employees
- The company launched such well-known products as: Apple’s personal computers, iPod, iPhone, iMac and iPad.
- Steve Jobs rose to fame due to his eccentric personality and having an unconventional (viewed by many as revolutionary) approach to promoting and marketing Apple’s products.
- Apple’s number one product is iPhone (57.8% share of Apple’s revenue as of Q1 of 2022).
- iPhone’s global shares in the smartphone market account for 23.4% as of the 4th Quarter of 2021.
- As of March 2022 Apple has a market cap of $2.499 trillion (subject to market correction).
One of Apple’s most “timely” acquisitions was their deal with Emagic in 2002. Have you heard of this company? If you have, kudos to you. However, at the time, it was a niche but very advanced technology company. Its focus was on music production and software that facilitated that production.
Here is a quick overview of Emagic before its acquisition in 2002.
The company existed since 1992. It provided patch and sound management software solutions. Its best-known product in the industry, Logic, was used by 200,000 musicians at the time of its merger. Logic was a sequencer, or in other words – a mixer. It helped add sound effects to your composition and recording tools.
January 9th 2001 – Apple’s iTunes Store is released. October 23rd same year is when the first iPod is shown to the world.
July 1st 2002 – Apple acquires Emagic, and drops the Windows version. The price paid was not released, but it was reported to be around $30mln.
July 17th 2002 – 2nd generation of iPods is released.
April 2003 – iTunes Store is introduced with the latest release.
October 2003 – support added for Microsoft Windows 2000 and Windows XP (i.e. Windows users now get access to iTunes, too).
What did Apple achieve with this acquisition?
In my view there were multiple objectives here:
a. Enhance music production and experience for users through the current and later versions of iTunes. While Apple never confirmed this, it did something similar with their previous acquisitions. For example, Apple improved its QuickTime versions in 1998, when it acquired Macromedia. A year later, in 1999, Apple released the first version of a video application called Final Cut Pro.
And what about the timeline in Emagic’s case? Emagic was acquired in July 2002. In 2003 new versions of iTunes was released and in October of the same year it became compatible with Windows. Coincidence?
Most likely it is not. Seems like there is a similar turnaround time here. A pattern starts to form.
b. This was a direct attack on Microsoft. Apple accounted for 60% of users who had Logic, but a large proportion of the software’s clients were Microsoft users. By taking over the company, Apple was weakening Microsoft and its presence in the music industry. It is unclear what happened to the 35% of users who had Logic on their Windows machines. Whether some flocked to Mac OS or chose other software remains unknown. It was, no doubt, a serious assault on Windows though.
c. Judging by all the reports the company was also profitable. $30 million for a tech company that was profitable? In today’s numbers that is laughable. At the time, it was a big number. However, if the company was profitable, then Apple wouldn’t have passed on an opportunity to add its top line to its balance sheet. Logic was later bundled with other products, so pricing considerations here are difficult to establish.
d. Talent acquisition. Let’s not forget about this one. Dr. Gerhard Lengeling, who previously worked on Logic, would later develop… GarageBand under Apple. The app was announced by Steve Jobs in January 2004 (only a year and a half after Emagic was acquired).
The above illustrates how Apple used the acquisition of Emagic to build on Apple’s dominance in the music and personal computers markets. When you have Steve Jobs at the helm, you must move quickly. Development takes time and your competition doesn’t seat idly. Use the existing technology and talent from the acquired company to build out new products. Shut out competition. Attract new users, and grow your revenue.
This concludes Part I of our case study that discussed one of Apple’s key acquisitions in the last 20 years. Make a note of this one, because it will help you understand where the company is heading with its latest additions to its “portfolio” of companies.
Part II talks about some of Apple’s biggest acquisitions in the last 20 years, that “made waves”. What did they achieve? How did they compare to similar-sized deals? Are such deals worth it long-term?
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