The tech world is currently buzzing about Apple’s potential $3.2 billion dollar acquisition of Beats Electronics. In case this is the first you have heard of Beats, it is a high-end headphone maker started by a few famous names in music (most notably rapper and record producer Dr. Dre). Beats by Dre, as the brand is best known, has branched out from just headphones and speakers and purchased MOG, a streaming radio service. It then launched Beats Music, which is its own streaming music service.

So why would Apple purchase Beats?

This is a good question, especially because Apple historically only acquires technologies in order to create their own iBranded products. Beats by Dre is a very strong brand, and stands out among other high-priced audio equipment because of its youthful, stylish marketing. But Apple might be willing to change its strategy a little. Apple has not produced a world-beating technology in the last few years, indeed since the late Steve Jobs completed his tenure at the helm. Plus, Beats speakers and headphones have secured a place on Apple’s exclusive retail shelves. The combination between Apple’s iconic and stylish brand and Beats by Dre’s youthful influencer marketing can help Apple stay cool with the next generation of affluent Millennials.

Is $3.2 Billion too much money?

While some market analysts warn that we are currently in another tech bubble, by current metrics this acquisition is very reasonable. As a point of comparison, look at Facebook’s recent acquisitions of WhatsApp and Oculus VR. WhatsApp is an instant messaging service for smartphones. In February 2013 WhatsApp raised funds and was valued at $1.5 billion. Facebook acquired it a year later for $19 billion while it still had not turned a profit and only had 55 employees. One month later, Facebook continued its string of acquisitions by buying Oculus for $2 billion without Oculus ever launching a mass market product.

Beats Electronics does hundreds of millions of dollars in revenue every year and has around 300 employees. Beats is also thought to have very strong margins on its hardware sales. As such, Beats would represent a far less speculative acquisition than Oculus or WhatsApp.

Don’t Apple and Beats both have streaming music services?

Yes, they do, and this is another reason why the acquisition is important. iTunes downloads sales have decreased slightly and streaming radio is gaining in popularity, especially with younger music listeners. With iTunes Radio facing stiff competition from existing popular products like Pandora and Spotify, the Beats Music streaming service acquisition presents the opportunity to align Apple’s brand with famous artists and producers.

Why is this important for the tech industry and music industry?

This acquisition might signal the new direction for Apple. If Apple chooses to start acquiring strong brands that produce other high-end products, it might lessen the need for Apple to launch their own iProducts. This opens Apple up to more big brand acquisitions that have historically not aligned with their strategy despite being the largest company in the world (by market capitalization). This acquisition also signals that Apple is determined to maintain its central position in the music industry. As consumers increasingly accept streaming music, Apple positions itself as a major player in audio equipment and the digital music space.