Dr. Dre Is Taking SKUL to School

All of this is superficial -- predictable, manageable competition. Skullcandy has these challenges well in hand. True, the company was headed in the wrong direction and needs to make the corrections outlined by Alden. But the changes are being made; the business is regaining focus.

A deeper problem -- Alden refers to it lightly as "storytelling" -- may be beyond its control. Beats is a great story. Skull is more like a list of solid one-liners. Turning a once-successful stand-up routine into a scintillating Broadway show -- not easy.

Mind you, the most popular Skullcandy headphones are probably better for most kinds of music than the most popular Beats products. Dre's products are geared to the type of music he produces, which tend to be bass-heavy and beat-heavy. For listening to just about any hip-hop and even a lot of contemporary rock and some popular country artists, you couldn't do better than Beats.

On the other hand, if you're like me, your idea of party music is the Ensemble Intercontemporain performing Edgard Varese. OK, maybe that's just me. Let's just say classical music fans are not going to be happy with Dre's mix. For James Taylor, jazz, old-timey country blues, indy rock, world music or dozens of other styles, the sound might actually be better on the Skullcandy products.

And did I mention Skullcandy is also less expensive? Yet, Beats continues to gain popularity and steal market share. The reason is this: Beats creates a user experience, even if that experience is purely psychological.

Long before he was a star businessman in the field of audio equipment, Dre was a star producer and recording artist -- famous for the way he hears things and famous for being famous. Beats marketing is hitched to that star. Doesn't everybody want the same high-quality audio experience? Doesn't everybody want to be part of Dre's music tribe?

Like Apple (AAPL), Beats sells users a new way of looking at themselves, a new way of belonging to a cool class. Each sale is one part fashion statement, one part technological quality and one part counterculture.

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