The impact on the industry was tremendous. Premium-headphone sales have increased to make up nearly half the total dollars spent on headphones, up from less than one-third when Beats launched in 2008. In fact, 95 percent of revenue growth in headphones has come from that category. "Beats came in and timed the growth of mobile perfectly," says Arnold. The boom in smartphones and tablets helped drive sales of premium headphones over $1 billion for the first time last year, of which Beats got a whopping 61 percent. And the most important factor when choosing which product to buy, according to an NPD study, was brand, with sound quality a close second.

So what about that sound? It’s probably the most controversial aspect of Beats' success. Many critics have panned Beats as being too loud and focused on the low end, and overall far below the quality of similarly priced competitors. "Is it just all the things that people think, at the superficial level?," asks Grewal rhetorically. "Oh it’s the hip-hop headphone. It’s the artist-endorsed headphone, or whatever. That’s why it’s so popular. That’s not the reason why."

Grewal argues that the signature acoustics critics have disparaged is actually a very conscious choice on the part of the company, one that comes from the DNA of its creators, Iovine and Dre. "So if you’re an audiophile, the curve is very flat," says Grewal, describing how other high-end headphones treat sound. "You’re taking whatever format, whatever curve is coming at you, and you’re pushing it to flat, or what we call reference."

In every recording studio there is a pair of reference speakers the producer uses to get a baseline for how the recording sounds. But Grewal says Beats takes the opposite approach with its headphones. "There is a role and purpose for reference in the world, but that’s not how people enjoy music." Beats’ headphones are meant to have the biggest emotional impact on the widest array of consumers, the same hit-making principles that its founders employed in when mixing tracks. "Our approach to sound is different from everybody else," says Grewal. "Instead of an acoustical engineer doing a reference curve, this was, how can we get the same sound and impact as radio?"

There have been a number of competitors that copied Beats' approach, but just like it's hard to predict a hit record, the formula of hip-hop, celebrity, and headphones doesn't always equal big sales. Both Ludacris and 50 Cent have put their names on headphones with the same urban aesthetic and bass-heavy sound. "The formula has been tried, but nobody has had much luck recreating the success of Beats," says Arnold. With Apple as their new partner, he expects Beats may pull even further ahead of the competition. "That combination, I think in terms of quality... you’re only going to see them take a big step up."

Additional reporting by Dan Seifert. Photography by Sean O'Kane.