Now that Apple has showed 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 one of the things Apple should buy is Twitter, primarily because doing so would add the crucial social component that Apple still lacks, despite its growing dominance in personal electronics and entertainment. But 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 that 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 likely continue to grow, despite the fact that it is now going to be paying out $15 billion in dividends every year, and there’s a good chance that Twitter — if it wanted to sell at all — would accept Apple stock as part of the package.
Does Apple need to become more social?
The biggest roadblock to such a deal, as Ritholtz suggests, isn’t financial but cultural: Apple has so far never 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 CEO Tim Cook is looking for ways to do things differently. The dividend and stock buyback themselves are also a pretty major break with tradition, as my GigaOM colleague Erica Ogg has pointed out.
And what is 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 it 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 or Dell or even Microsoft — they are more likely to be Google and Facebook. [emphasis in the original]
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.
Does Apple need to own Twitter to become more social?
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, a fairly radical — level into the operating system on the iPhone and iPad (and even into 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 of different purposes that Apple has no real interest in.
Furthermore, buying Twitter could actually harm Apple’s attempts to integrate more 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 partnering with Apple, and the two may wind up becoming adversaries as their interests converge; but acquiring Twitter would likely remove any chance of the two ever working together in even a small way.
As Ritholtz admits, Google seems like a much more obvious candidate for acquiring Twitter, since building market share in social services is arguably even more important for the search company than it is for Apple. And while Google+ has large user numbers, it’s not clear whether it is accomplishing what the company needs it to. As for whether Twitter should sell itself to anyone at all, that is a question for another day.