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Now that Apple (AAPL) has shown how it plans to spend some of its staggering $100 billion cash hoard—by paying a dividend and buying back its own shares—plenty of people have ideas about what else it could do with that growing mountain of money. Barry Ritholtz, a widely followed financial analyst and blogger, argues that Apple should buy Twitter, primarily because doing so would add the crucial social component that Apple still lacks, despite its growing dominance in personal electronics and entertainment. Is he right?
Although Twitter’s market value is estimated to be about $9 billion or so—based on the company’s last financing round—there’s no question Apple could buy the company quite easily (along with a huge number of other things, including Research In Motion and Facebook). According to some estimates, Apple’s massive cash pile will continue to grow, despite the fact that it is now going to be paying out $15 billion in dividends every year. There’s a good chance that Twitter would accept Apple stock as part of the package if it wanted to sell.
The biggest roadblock to such a deal, as Ritholtz suggests, isn’t financial but cultural: Apple has never yet spent more than about half a billion dollars on an acquisition (that we know of), and the vast majority of its deals have been small, tactical purchases of specific technology. A $10-billion-plus deal for Twitter would be extremely unlikely, based on that track record, although it could be argued that new Chief Executive Officer Tim Cook is looking for ways to do things differently. The dividend and stock buyback themselves are a pretty major break with tradition, as my GigaOM colleague Erica Ogg has pointed out.
What would be the main benefit? Ritholtz argues that one of Apple’s biggest Achilles’ heels—and one of the biggest risks for the company in the future—is that it makes great devices but has virtually no presence in the social software end of things: “Apple does software and hardware really well; they do the integration between the two outstandingly. But they haven’t really done Social particularly well … Twitter automagically makes Apple a defacto player in social. Apple’s biggest competitors over the next decade are not HP (HPQ) or Dell (DELL) or even Microsoft (MSFT)—they are more likely to be Google (GOOG) and Facebook.”
Ritholtz is right on that score: Although Apple fanboys and devotees may wish to deny it, Apple’s track record with social features is fairly pathetic. ITunes itself is almost a throwback to the days when software seemed hermetically sealed off from other users, and efforts like the almost-universally panned Ping network and even the Game Center service are mostly sad attempts at bolting on some social functionality. In an age when virtually every business arguably has to become more social in order to maintain its market share, Apple is woefully behind.
Apple’s best effort by far at adding those kinds of social elements came when the company integrated Twitter at a deep—and for Apple, fairly radical—level in the operating system on the iPhone and iPad (and even in its new desktop OS, OS X Mountain Lion). Never before had Apple built support for a third-party service into its devices and software in such a fundamental way. This helped fuel rumors about an Apple acquisition, just as Ritholtz and others have used it to justify such a deal: If Apple wants to integrate Twitter so deeply, why not just acquire it, so Apple has full control?
The fact that Apple likes to control things from end to end is well-known, which is just one of the reasons why the deep Twitter integration was a bit of a surprise. But does it really need to own Twitter in order to get the benefits of that integration? I don’t think so. It can get all the positive aspects of Twitter support without having to own the company—and it doesn’t have to worry about the hassle of maintaining a third-party service that is used for a wide variety purposes in which Apple has no real interest.
Furthermore, buying Twitter could actually harm Apple’s attempts to integrate social aspects into its devices because it would make it even less likely that the company would ever strike a similar deal with Facebook, something it has tried to do a number of times. It could be that Facebook has no intention of ever teaming with Apple. The two may become adversaries as their interests converge, Still, acquiring Twitter would probably remove any chance that they would ever work together, even in a small way.
As Ritholtz admits, Google seems a much more obvious candidate to acquire Twitter because building market share in social services is arguably even more important for the search company than it is for Apple. While Google+ has large user numbers, it’s not clear that it is accomplishing what the company needs. As to whether or not Twitter should sell itself to anyone, that’s a question for another day.
Also from GigaOM:
Facebook’s IPO Filing: The Opening Shot Heard Round the World (subscription required)