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  • Lesson in Strategic Innovation, Brought to you by Dr. Dre

    Here is a pop quiz for you. Who’s the market leader in the $ 2.4 Billion U.S. head phones category?

    The right answer is Beats by Dr. Dre, the head phone company founded by Dr. Dre, the hip hop mogul. Beats is the market leader with about 40 % of all US sales and about 70% in the premium priced headphone sales.  Wow! 

    The value proposition of Beats is simple: getting people engaged with the emotion of sound. A quick look at the head phones industry shows that they seem to have changed the rules of the game. Prior to Dr. Dre’s entry, the head phone market was divided into the professional market and the consumer market. Beats has positioned between these two markets and created a premium-priced, professional quality product for the mass market, the “pro-sumer” market.  Now they have turned their attention to international markets.

    Not being content with just being a global head phones company, they have added several products and services to their portfolio including a retail store, wireless speakers, and is now prepping for a brand new digital music streaming service called Daisy to compete with Spotify and its millions of subscribers. I’m not sure about their specific value proposition that will enable them to mount an attack on entrenched rivals but they feel that the quality of sound provided by Daisy and their reach to existing consumers through their head phones will give them the beachhead to become a significant player. Let’s wait and watch if this strategy bears fruit.

    Interestingly, Beats has also invested in Topspin that specializes in providing musicians with the digital tools to sell its products directly to fans. The software will be integrated with Beats' subscription service Daisy.

    One interesting aspect of Beats is that they seem intent on extending their hardware range to create a complete “music” ecosystem. As their chairman, Jimmy Iovine says “our competition is going to come from another place” and so going after the whole music ecosystem makes a whole lot of sense.

    _____________________
    Raj Echambadi
    Professor of Business Administration and
    James F. Towey Faculty Fellow and
    Executive MBA Academic Director