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Summary:

Now that Apple has showed it plans to spend some of its massive $100 billion cash holdings, some argue it should acquire Twitter as a way of bulking up its social features. But just because it could buy Twitter, does that mean it should?

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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.

Post and thumbnail images courtesy of Flickr users Rosaura Ochoa and See-ming Lee

  1. A poll from after Mountain Lion was released show many Apple fans are against such a buyout http://9to5mac.com/2012/02/16/poll-how-long-until-apple-buys-twitter/

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    1. Thanks, Seth — it’s interesting that most people don’t think Apple needs to worry about adding more social elements. Do you agree?

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      1. I, for one, agree. Apple doesn’t need to do social at all. They’re in a different business as Twitter and Facebook. The integration of Twitter into iOS and OS X is a great feature for Apple’s devices, as would an integration of Facebook be, but it’s not Apple’s business. Twitter would lose much of it’s appeal if it were owned by Apple, same goes for FB. Apple builds hardware to run it’s core software with an unparalleled UX. That’s what they’re great at.
        I don’t mean to sound like “stick with what you know”, because they obviously do new stuff all the time, but it’s all connected to their ecosystem.
        I know I’m stating the obvious, but how would Apple benefit from buying any social network – none of which have proven to be a sustainable business, read: making money, yet?
        Apple boosts it’s appeal to the masses by integrating social into their core services, but if they fail (remember MySpace, Google+, Wave, etc.?) it wouldn’t take them more than a software update to get rid of the service.
        http://scottsscripts.wordpress.com/

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  2. Partnerships are free, ownership costs money. Besides, twitter is only successful when it’s integrated into everything, and it’s not as if they can just shut it down and only allow it to be used on Apple products. That’s suicide.

    What’s more likely is a friendly agreement like so: Twitter will get direct integration into iOS 5 and OS X 10.8 in exchange for right of first refusal should some other company start waving around tons of cash to the point that investors would want to cash out. Those new owners may not have the most agreeable terms with Apple, but Twitter integration isn’t something you can just yank out after being integrated in (users would complain).

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  3. Apple should just buy Kodak… atleast on what’s left of the company

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  4. Reblogged this on ChunkyBrain.

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  5. I heard they considered it, but realised they didn’t have the bandwidth available to read and approve every tweet.

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    1. Aaron Gilliland Tuesday, March 20, 2012

      Bless you, sir :)

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  6. You’re right Matthew… Acquiring a 10 billions company goes against Apple’s culture. Even though Cook has started to do things differently I also don’t see how Apple could become more social. They’re too closed for that.

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  7. No they should be buying a company that makes OLED’s and Pinterest. Twitter is a waste of money.

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  8. I don’t understand how the acquisition of twitter would help Apple. It doesn’t cost Apple a dime to integrate twitter there are no royalties and it’s not a paid service, and Apple isn’t looking to own it to generate additional profit. Twitter isn’t making itself any more or less easier or better to integrate with anything.

    Apple isn’t Google – Google throws millions of darts on the wall and invest into those that seemingly stick, or not. Apple knows what they’re shooting for and prepares for the ones that only count. Purchasing Twitter is completely irrelevant and pointless unless they plan on making it proprietary to Apple devices, which they won’t.

    On the other hand Google might, ’cause they’re basically playing Internet Monopoly. They see something that’s generating hits they’ll 1. try to do it themselves, and if it fails, 2. they buy it out. e.g. youtube, android, motorola. As long as they dominate the web traffic and search they win, and it’s end game basically.

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  9. Altavistagoogle Tuesday, March 20, 2012

    Death and taxes. Jobs failed at one, but succeeded at the other. Bringing back the money to the USA to buy Twitter is not an option.

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  10. Twitter is already on a slow trend towards increased censorship. I can only imagine how a “wall garden” type of Twitter would be.

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  11. Twitter is already on a slow trend towards increased censorship. I can only imagine how a “wall garden” type of Twitter would be. But perhaps that would be for the best, and a more open alternative will rise up if that happens.

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  12. Seems to run counter to the culture of Apple. As others have noted, the twitter integration into iOS works as it is.

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  13. They need to buy Pinterest! A much better fit for a design driven company.

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  14. Hi,

    The problem with the Digirati is impatience.

    Ping might look like a dead duck now, and iTunes completely closed, but Apple, in software, has been far more evolutionary, generations after first acquiring software to re-brand as its own, inc. iTunes itself.

    Ping, expanded as a broader/media social network will happen, because it retains Apples own proprietary data-set. it’s just a question of how aggressively it’s pursued. Just as iTunes will one day expand beyond downloadable content, to streamed content, to physical and local content/purchases.

    Then there’s iMessage. This is the the actual nearest comparison to twitter. It’s started slow, though integrated, yet again. It’s also walled-garden within Apple devices, and with that, they might be learning from Blackberry Messenger which has its value, acting with its own halo-effect in attracting users to RIM’s platform and hardware.

    With twitters integration, it’s not that different to Google being integrated into Safari – it costs it nothing, the device is social-platform-agnostic and any upside gets shared (one way or another). Apple doesn’t need to waste thinking on a solution that clones twitter. If things change, Apple will be ready for offering more users more options, or replacing with something entirely of its own through a forced iOS update!

    How many years did Apple continue to develop OS X for x86 processors before providing it publicly, Apple had no problem using Portal Player at first – and off-the-shelf solution, etc…….

    Yours kindly,

    Shakir Razak

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  15. Nope, you need to focus more on Apple’s core business: Selling devices, primarily for content consumption. Everything else they do, and every acquisition they make, is to drive device sales. Even AppStore and iTunes are to drive device sales, they’re a minimal part of Apple’s revenue or profit.

    A big acquisition that makes sense for Apple is STMicroElectronics. Smaller acquisitions include Glopos, P2i, HzO, Eyesight, Omek Interactive or SoftKinetic.

    Read more about the logic and predictions here:
    http://grizzlyanalytics.blogspot.com/2012/03/apple-acquiring-twitter-heres-why-not.html

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  16. Bennet Bayer Friday, March 23, 2012

    Why? From my perception vastly differing cultures; so who would they integrate and who steers the boat? I suggest this would be a failed business idea. Like Google, Apple has not done overly well with its acquistions.

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  17. “Partnerships” should replace “Buying” to preserve and promote the essence of each component. The information age is catalyst for distribution, not monopolies. Partnerships could include wireless access, services etc.

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  18. Juston Payne Sunday, March 25, 2012

    This article (written last month) argues that it’s most likely Apple will strategically invest in Twitter to help them scale. Those investments can take the form of deeper and continued inclusion in their platform, and also in things like helping fund a dedicated data center. Through these deals, Apple should be able to lock Twitter in to Apple in ways they care about, and obviate the need to take on the risk of buying the company outright.

    Here’s the original article: http://bit.ly/wSgkEG

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  19. As I commented on Ritholtz piece, I’d be more interested in seeing Apple sell or give Ping to Twitter and have Twitter maintain and improve it for Apple. Helps lure in Spotify and Rdio users to both twitter and iTunes, improves the iTunes experience and reduces music social networks fragmentation by making Twitter the go-to music social network

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