What's the Value of 800 Million iTunes Accounts to Beats?

In the wake of Apple's acquisition of Beats Electronics, a frequently mentioned fact has been Apple's 800 million iTunes accounts. Those 800 million accounts are important because they can be leveraged to sell more Beats headphones and acquire millions -- or tens of millions -- of subscribers to the Beats Music subscription service. No other music service can so quickly connect with so many potential customers.

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Don't be fooled by that number, though. While there are 800 million iTunes accounts, not all of them are applicable to the Beats acquisition.

1. Not all iTunes account holders buy music. In addition to music, iTunes also sells apps, movies, television episodes and ebooks. It's reasonable to believe a small fraction of account holders buy music in any given years. Take the United States, the world's biggest digital music market. According to NPD Group, only 22% of the U.S. online population purchased music downloads in 2013.  

2. Not all iTunes accounts are linked to a credit card. No credit card is required to create an iTunes account. Apple has not revealed how many credit cards on file, but we know accounts can exist that don't have transactional value. Some accounts were probably created only to download free apps or redeem gift cards.

3. Not all iTunes account owners own smartphones. One can assume iTunes account owners that don't own a smartphone -- they have a feature phone and use iTunes on a PC or laptop -- are not likely Beats Music customers. While Beats does have a web product, the service is mainly a mobile product that requires the subscriber use a smartphone.

There are many unknowns here. How many people worldwide buy digital music? How many iTunes account holders worldwide spend money on music or other media? How many iTunes accounts are mostly or entirely inactive? How many of the 800 million iTunes accounts are in countries least likely to get Beats Music soon or ever?

In spite of the unknowns, it's clear that Apple's huge customer base provides great potential for Beats Music. Apple doesn't have 800 million potential Beats customers, but it has a lot. If Apple can't make Beats Music succeed, who could?

There's one big problem mentioned above: only 22% of the U.S. Internet population bought music downloads in 2013. (The online population was 87% of Americans in 2014, according to the PewResearch Internet Project.) Market research isn't available for other countries, but it stands to reason music buyers make up a minority of iTunes accounts elsewhere, too.

The solution will require turning more people into the paying digital music customers. This is exactly what analysts and experts have been saying to the record business for years.

The big-spending early adopters are the low-hanging fruit of digital music. Apple will need a taller ladder to convince many of its customers to become first-time digital music buyers. That could be a tough sell given the wealth of free options available, including Apple's ad-supported iTunes Radio.

Another challenge will be getting people who typically buy little digital music to spend $10 a month on a subscription service. Even a cut-rate subscription service is far more expensive than a tendency to buy the occasional track. Want customers to drastically increase their music spending? You better give them incredible value in return.