How Music Helped Apple Become the Most Valuable Company in the World

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Today’s episode and memo are about Apple and its role on music. Apple’s been the most influential company in music in the 21st century, and music was the key driver in Apple’s comeback. This was a fun deep dive with friend of the pod, Zack O’Malley Greenburg.

I could write a whole book on this topic, but I’ll share a few highlights below from our show on Apple.

You can listen to the episode here or read highlights below.

how music helped save Apple

In 1997, Steve Jobs made his famous comeback to a company in shambles. Apple’s market cap had declined 80% from 1992 to 1997 to a low of $2.3 billion. While Microsoft’s Bill Gates and Steve Ballmer danced up a storm to celebrate their wins, Apple’s leadership, strategy, and product lines were all over the place.

Jobs had two initial goals: improve the software and simplify the products. On the software side, Apple launched Mac OS X and eventually acquired SoundJam MP, a Mac-based mp3 player. This is when Napster, peer-to-peer file sharing, and digital music were taking off. People needed somewhere to listen to all the music on their computer. SoundJam MP was the foundation for Apple’s “jukebox software,” iTunes, which launched January 9, 2001.

The iTunes launched paved the way for the iPod later that year. Its ‘1,000 songs in your pocket’ held more than the flash-based mp3 players at the time, but was more portable than the clunky hard drive-based devices. Despite the iPod’s initial skeptics, the launch was strong. But things really took off for Apple in 2003 when the iPod became available for PC users and Apple launched the iTunes Music Store.

music as a loss leader

At the time, the music industry was in disarray due to the internet. Apple offered it an escape. The music industry wasn’t too thrilled with Jobs’ desire to unbundle albums to sell individual song, especially for just $0.99 per song. But the unbundling happened long before iTunes due to piracy. The music industry was approached by several businesses to sell music online, and even launched its own service like PressPlay, but eventually leaned in and said yes to Apple.

This was the first transition to music as a loss leader. In 2008, Apple sold $9.2 billion in iPod sales compared to $3.3 billion in iTunes Music Store sales. The iTunes store helped the company sell more iPods, iPhones, and other hardware devices. Music was the product that helped consumers become Mac users.

This trend still exists in Apple products today. Goldman Sachs’ 2023 Music in the Air report estimates that Apple Music has 102 million paid subscribers. Even if we assume that Apple has a very generous monthly average revenue per user of $7.50 per month. That estimated $9 billion in annual revenue for Apple Music is less than the $14.5 billion that the company generated from AirPod sales in 2022! AirPods also likely have a much higher profit margin than the near 70% of revenue that Apple Music pays the music rights holders.

You can listen to the episode here or keep reading for more highlights.

when U2 tried to get Apple stock

Bono and Steve Jobs talked about each other the way that Drake and LeBron James do. The “we wanna be them, they wanna be us,” vibes were strong. It was a healthy, middle-aged bromance.

U2’s iPod commercial and the special red and black U2 iPod have a fun backstory. In 2004, the band went to meet Steve Jobs to shop their upcoming song, “Vertigo”

From Bono’s interview in The Guardian:

“Actually, Steve,” I said. “We don’t want cash. We just want to be in the iPod commercial.”…

“Maybe it’s time to shift the emphasis to artists as well as fans,” Edge added. “Don’t you think we’d look quite good in relief ?

“There’s one other thing,” added [U2’s then-manager Paul McGuinness]. “Although the band are not looking for cash, some Apple stock, even a symbolic amount, might be a courtesy.”

“Sorry,” said Steve. “That’s a dealbreaker.” Silence.

“Well,” I tentatively suggested. “How about our own iPod? A customised U2 iPod in black and red?”

Jobs was skeptical at first, but Apple eventually released and launched the product.

It’s a fascinating move, but let’s revisit stock compensation part.

In our episode, Zack brought up a great point. Even if Jobs declined the request for any preferred stock in Apple, U2 could have taken Apple’s cash payment and bought the company’s common stock on any exchange. Apple was publicly traded at the time. Its market cap today is now 250x higher than it was nineteen years ago then the U2 deal happened!

when U2’s album showed up on every iPhone

Ten years later, U2 reignited its Apple partnership. The band was ready to release its Songs of Innocence (2014) and approached the tech company with a proposal.

Bono wanted Apple to buy the album, then distribute it to its users. “Like when Netflix buys the movie and gives it away to subscribers,” Bono said in the same interview.

In 2013, the year before, Jay Z sold his Magna Carta, Holy Grail album to Samsung in a $20 million deal, where $5 million of that was used to buy 1 million copies of the album for $5 each. U2 likely wanted a similar arrangement with Apple (without the Samsung app crash!).

But Bono took it one step further. He didn’t want users to opt-in for the free album. He wanted it Apple to give the album away as a free gift to every. single. user.

From The Guardian:

“But what was the worst that could happen? It would be like junk mail. Wouldn’t it? Like taking our bottle of milk and leaving it on the doorstep of every house in the neighbourhood.

Not. Quite. True.

On 9 September 2014, we didn’t just put our bottle of milk at the door but in every fridge in every house in town. In some cases we poured it on to the good people’s cornflakes. And some people like to pour their own milk. And others are lactose intolerant.”

It was a PR blunder. Tim Cook referred to it as an experiment that “may not have worked.” But it’s the type of mistake that the actual U2 fans probably loved. The band just kicked off a residency in The Sphere, the new state-of-the-art live music facility. Decades later, the Irish rock band is still at the forefront of new technology.

Again, I could write a whole book on Apple’s impact on music, but I’ll cut it off here cause this newsletter is already running long! Here are a few more topics we covered on the episode:

– why Steve Jobs didn’t like music streaming

– how Beats Music led to Apple Music

– the iPod as the foundation for the iPhone

– Apple’s current role and influence in music

Dan Runcie

Dan Runcie

Founder of Trapital

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