Apple had figured that with iTunes Radio, it could use a consumer's buying history on iTunes, to determine which songs they would want to listen to on iTunes Radio. But this led to jumbled playlists with songs that didn't fit together. An iTunes Radio listener who selected a particular style of music, might hear the same song twice, or have rock tunes mixed in with show tunes and country numbers.
One former Apple employee says that Apple has lost touch with the younger generation. "The Apple coolness is kind of fading away," he says. Still, iTunes Radio has over 40 million listeners according to Senior VP Eddy Cue. But iTunes is supported by ads, and is free to the consumer. Beats Music has 250,000 paying subscribers after four months. Spotify, on the other hand, has 40 million listeners with 10 million paying subscribers.
"The management in particular were pretty much tone-deaf in what Spotify was and that’s why they’re panicking now. They didn’t understand how Spotify worked, which is why they thought iTunes Radio would be a Spotify killer."-Anonymous source
With the purchase of Beats, Apple picks up people who are more knowledgeable about the music industry and how streaming works. Apple thought it had a "Spotify killer" with iTunes Radio, because it didn't really understand the business. For example, Apple figured Pandora was not a threat due to its lack of revenue. With Dr. Dre and Jimmy Iovine on board, Apple might believe that it has purchased some of its lost cool, while at the same time it has the people it needs to become a success in streaming music.
source: BuzzFeed via AppleInsider