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Why it makes sense for Apple to invest in Twitter

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According to a report in the New York Times late Friday night, Apple (s aapl) has had talks with Twitter about acquiring a substantial stake in the company — on the order of hundreds of millions of dollars, the newspaper says, quoting “people briefed on the matter.” Although the report provides few details about how serious these discussions actually were, such a combination would make some sense for both companies: Apple would get an even more favored relationship with the real-time social network, and Twitter would get to maintain its preferred status on one of the world’s leading technology platforms.

Twitter is already integrated into most of Apple’s products, including the iPhone and iPad, and its OS X operating system for laptops and desktops — users can post to Twitter from within applications and apps with a single click because these devices are connected to the real-time network at fundamental level. When Apple originally announced the deal with Twitter last year, it marked the first time that the company had integrated any third-party service other than Google(s goog) into its operating systems in such a way. And it has been incredibly powerful in driving usage for Twitter, as CEO Dick Costolo has described.

In effect, this arrangement outsourced the social aspect of almost all of Apple devices and software to Twitter, and was an admission of sorts that social elements and social software have been an Achilles heel for Apple for some time — as lackluster attempts such as Ping and Game Center have shown. The deal was also seen by many as a slap in the face to Facebook (s fb), which had discussions with Apple earlier about integration into Ping but dropped them; then-CEO Steve Jobs said Facebook’s demands were “onerous.”

Getting cozier could help both companies

Since then, Apple has started working with Facebook again, and some form of integration with the social network is expected to be included in the latest version of Apple’s iPhone and iPad operating system, as well as the new version of OS X, Mountain Lion. But Twitter still has the preferred spot inside Apple’s OS so far, and taking the iconic consumer electronics company on as an investor would cement that status. For Apple, meanwhile, becoming an owner would theoretically give it even more sway within Twitter — although it could be argued that the company already has a fairly significant relationship with the network.

Does Apple need to control Twitter completely in order to benefit from that integration? Not really, as I explained in a post after Barry Ritholz argued that Apple should acquire the company — but a sizeable investment would give it some sway in board meetings and in other ways that could give it more control, and if there’s one thing Apple likes to have, it’s control.

According to the NYT report, the investment from Apple would have given Twitter a market value of $10 billion, substantially higher than the $8 billion private valuation it had after its most recent venture-financing round — and some have speculated that Apple might even want to acquire the entire company, something it could easily do with the more than $100 billion it has in cash and marketable investments. Twitter CEO Dick Costolo, meanwhile, has said that Twitter has no need of extra financing because it has “truckloads of money in the bank.” Whether Apple can change his mind on that score remains to be seen.

Update: The Wall Street Journal says that according to its sources, discussions between Apple and Twitter about an investment were held a year ago, and there are no current acquisition or investment talks going on between them.

Post and thumbnail images courtesy of Flickr users Giuseppe Bognanni and George Kelly

13 Responses to “Why it makes sense for Apple to invest in Twitter”

  1. Peter Mullen

    The last thing I would want to see if to give Apple any advantage over other platforms, hardware, software or web/SaaS/Social services. Apple is the epitome of a closed system, the evil dictator if you will, and has decided choice is something they decide for you. That is one of many reasons I own exactly zero Apple products and likely to stay that way unless and until they change their ways. Twitter has evolved to be a important and relatively open platform for communications. It is an alliance I would not trust, not take advantage of. Apple doesn’t understand social because social implies open, social implies the power to the users which is the exact opposite of what Apple is all about. Apple is a dictator and you do it their way or you are an idiot. I guess I’m an idiot. So be it.

  2. Anuj Agarwal

    I think it makes sense for Apple to cement their relationship with Twitter. Be it by investing or by some other channel.
    Have a look at the staggering numbers released by Tim Cook during the recent WWDC

    1. There are 400 million App Store accounts.
    2. 30 billion apps have been downloaded from the App Store so far.
    3. The App Store has generated five billion dollars in revenue for developers.
    4. More than 10 billion tweets have been sent from iOS 5.
    5. About 47 percent of all photos posted to Twitter are sent from devices running iOS 5.

    Apple doesn’t know who my friends are. So, if i download a free or a paid app on my iPhone/iPad, my friends do not come to know until i explicitly tweet or post it on FB which i never do.
    If my friends are notified, i’m sure some of them will download the same app and their friends will be notified. and so on and so on.. Just imagine the VIRAL effect. More downloads means more dollars for Apple. Apple is missing the Network effect that plays a vital role because they don’t know who my friends are. They launched their own social network ‘Ping’ to do the same thing but it never took off.

    That’s why I think it makes solid sense for Apple to get more closer to Twitter.

    • Excellent points made. I tweeted earlier that I thought there is a lot more for Apple to gain from this strategic partnership than Twitter. If twitter changes from being smart phone agnostic then that would certainly hurt their overall market share. If I use an Android phone and a twitter-Apple partnership makes it less enjoyable for me to be on twitter then I will switch to another network. Nothing currently exists to compete with Twitter but I am sure another network could easily rise that works across all smart phones.

  3. What’s 10 billion to Apple anyway? go buy it. and no, I don’t believe Twitter has truckload of cash in the bank, I think they’re looking for a buyer.

  4. I honestly hope Apple does not waste time investing $10 billion into Twitter. Yes, Twitter is one of the most popular social networking sites as of today but there’s going to be something better and what are they going to do… Invest in that to? There is no correlation between getting more sales & investing into Twitter at all! Seriously, there has to be a bigger motive behind it all.

  5. BongBong

    This would easily be the biggest, dopiest thing ever done by Apple. Steve Jobs would come back from the dead to personally strangle whoever made the decision.

  6. keninca

    If Apple owned twitter, would they sell more hardware? Not likely. Would they be able to charge more for their hardware? No. Would it generate income that is anywhere near justifying the price? No. So why do it?

    • Mobile Phones Fan

      Easy: to spite Google, both professionally and personally.

      And if you think this kind of thinking is somehow beyond — or beneath — Apple, then you haven’t been paying attention.

      • keninca

        I don’t see how it would spite Google, if Google wanted it, twitter would take their $10 billion in a second. They know they can’t go public at that valuation, and nobody is going to pay that much for a company with profits of maybe not even $10 million.

        I don’t think spiting other companies is beneath Apple, but I don’t see Cook spending $10 billion to do that. And I don’t see twitter selling out for a few hundred million.

    • That’s a fair point, Ken — although if Apple believes that social elements are becoming an increasingly important part of how people use mobile phones and tablets, then doesn’t it make sense to control as much of that phenomenon as possible? Thanks for the comment.

      • keninca

        Twitter’s value would be reduced if was optimized only for iOS devices, and I don’t see Apple being willing to get such a small return on such a big investment. While lots of people might like the endless stream of minutiae and noise that twitter provides, I don’t see how Apple owning it could stop people from buying android (or even Windows) phones.

        I don’t get the impression that people would choose a phone or tablet solely on how easy it is to use twitter, it’s just one of several considerations.

        If Apple is truly talking with twitter, I would bet it’s to find out what twitter’s plans are, and who else might be interested in buying them. I’d like to think Apple has better uses for $10 billion. If Facebook’s valuation has taken a > 30% hit in the last 2 months, and they are able to monetize their page views far better than twitter, I can’t see how twitter’s valuation would increase at the same time.