In Search of Differentiation: HTC Acquires Stake in Beats by Dr. Dre

Mobile electronics company HTC Corp. is shelling out $300 million to acquire 51 percent stake in Beats Electronics, best known for the high-performance line of headphones backed by hip-hop artist /producer Dr. Dre.

HTC is expected to officially announce the deal on Thursday.

The partnership with Beats will help the Taiwanese smartphone maker, best known for devices like HTC Thunderbolt and HTC EVO 4G, gain a foothold in the U.S. market.

With the likes of Apple, Samsung and Motorola ruling the roost in U.S., the partnership with Dr. Dre will give the company the brand cache it lacks in the U.S.

Apart from the brand-value addition, HTC will be able to incorporate Beats Electronics' high-performance headphones technology into its line of smartphones.

The Beats by Dr. Dre line of headphones sell for as high as $600 apiece. Its Artists series includes headphones designed in partnership with celebrities like Sean "Diddy" Combs, Lady Gaga, Lebron James and Justin Beiber.

Dr. Dre, also known as Andre Romelle Young, is an American record producer, rapper and actor. He is recognized to have launched the careers of high-profile rappers like Eminem, 50 Cent and Snoop Dogg.

Dre designed his range of headphones to surpass the limitations of standard equipment. He states: "Artists and producers work hard in the studio perfecting their sound. But people can't really hear it with normal headphones. Most headphones can't handle the bass, the detail, the dynamics. Bottom line, the music doesn't move you. With Beats, people are going to hear what the artists hear, and listen to the music the way they should: the way I do."

Fortune reported that the deal increases Dr. Dre's net worth by $240 million. Forbes last valued him at $125 million.

HTC is attempting to differentiate its products by joining the content delivery bandwagon. In February HTC acquired Saffron Digital for $48 million, a company which specializes in mobile video content delivery.

With thinning possibilities for product differentiation among Original Design Manufacturers (ODM), companies are attempting to differentiate on the basis of services like content retailing, cloud services, email, video conferencing, instant messaging services, location-based services and advertising.

However this pitches them directly with the platform providers like Apple, Google and Microsoft, who have necessary infrastructure to deliver content. For example Apple, with its iTunes trajectory, has the required infrastructure to make content discovery and transaction possible.

Also most of the hardware makers lack the DNA of a service company and are not focused on building an ecosystem of developers and partners. They also do not interact with customers enough to build lasting relationships. ODM's lack a service company's DNA.

HTC's partnership with Beats Partnership highlights the idea that what ODM's cannot build, they can buy.