May 28, 2014 · 3 minutes

Music seems to be where Apple turns whenever it wants to reinvent itself. In October 2001, the company unveiled the iPod, a few months after introducing the iTunes "digital jukebox." Back then, the stock was stagnating below $20 a share, and critics were skeptical of the new products.

As it turned out, even the optimists had little idea of what was ahead. The iPod became not only a bestselling mp3 player and cultural icon, it helped Apple design the best – and for a while, bestselling – smartphone. The stock rose as high as $700 in 2012, marking a 38-fold increase from its level the month the iPod was announced.

Today – with Apple's stock stagnating around the $600 level and critics wondering whether Tim Cook has a vision for the company's future – Apple agreed to pay $3 billion for Beats Music and Beats Electronics. The deal, widely expected, is nonetheless notable. It reveals Cooks vision as a clear-sighted glance into the rearview mirror, reflecting Apple's glory days.

It's not that Beats isn't popular. Last year, its headphones held a 27 percent share of the North American headphone market and a 67 percent share for the premium ($100 or more) market. And it isn't that the company isn't a strong fit with Apple. Both understand the magic mix of product, design and marketing that resonates with a lot of mainstream consumers.

It's more that, while Google improves its driverless cars and Amazon tinkers with delivery by drone, Apple is still trying to win an established market that has limited potential for growth. It's entirely possible that no company - not Apple/Beats, not Spotify, not Pandora, Rdio or any other player – will emerge as the runaway leader in the streaming-music industry. The soil in that market is proving so barren that whoever the leader is may end up living a life of subsistence farming.

Music was a great market for Apple 12 years ago because it was in a tumultuous transition from an aging model to a new, digital one. But the new model is troubled. Many artists are unhappy with streaming royalties. And selling music players like the iPod isn't as lucrative now because most people just listen through their smartphones.

Beats can address that problem, but maybe not for long. Beats headphones are big sellers not because of the quality of their sound but because of their fashion appeal. It's easier to stay on top when people buy your product because of the quality of its technology. Fashion is notoriously fickle, and consumers will even eschew a fashionable brand after a few years once the allure fades. Once the Beats brand peaks, if it hasn't peaked already, Apple will be stuck with an aging line of audioware.

There's also the question of the price Apple is paying. In September 2011, HTC bought a 50.1 percent stake in the company, valuing it at $600 million. Two years later, Carlyle Group bought a comparable stake, valuing the company at $1 billion. No matter how you slice it, the growth in Beats' business doesn't justify a fivefold increase in value over the past two and a half years.

Apple is overpaying for Beats because it has technology that resonates with consumers in ways that Apple's in-house music-streaming offerings have not. Yet early signs were that Beats Music was slow to sign up subscribers. And who knows how popular it will be if it's integrated with iTunes, the software program people use only when they have to, and even then with a sense of dread.

Apple's stock is unchanged in after-hours trading on the news, largely because news that a deal was in the works broke three weeks ago. The stock is up 5% since those initial reports. So investors, who are constantly asking Cook for information on new product categories, are content with an expensive investment in an old one. But if this is Apple's boldest move of the year, that sense of contentment won't last long.

[Photo credit: Raul Joe]