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By EVELYN M. RUSLI and NICK BILTON
Published: July 27, 2012
While Apple has been hugely successful in selling phones and tablets, it has little traction in social networking, which has become a major engine of activity on the Web and on mobile devices. Social media are increasingly influencing how people spend their time and money — an important consideration for Apple, which also sells applications, games, music and movies.
Apple has considered an investment in the hundreds of millions of dollars, one that could value Twitter at more than $10 billion, up from an $8.4 billion valuation last year, these people said. They declined to be named because the discussions were private.
There is no guarantee that the two companies, which are not in negotiations at the moment, will come to an agreement. But the earlier talks are a sign that they may form a stronger partnership amid intensifying competition from the likes of Google and Facebook.
Apple has not made many friends in social media. Its relationship with Facebook, for example, has been strained since a deal to build Facebook features into Ping, Apple’s music-centric social network, fell apart. Facebook is also aligned with Microsoft, which owns a small stake in it. And Google, an Apple rival in the phone market, has been pushing its own social network, Google Plus.
“Apple doesn’t have to own a social network,” Timothy D. Cook, Apple’s chief executive, said at a recent technology conference. “But does Apple need to be social? Yes.”
Twitter and Apple have already been working together. Recently, Apple has tightly sewn Twitter features into its software for phones, tablets and computers, while, behind the scenes, Twitter has put more resources into managing its relationship with Apple.
Though an investment in Twitter would not be a big financial move for Apple by any stretch — it has $117 billion in liquid investments, and it quietly agreed to buy a mobile security company for $356 million on Friday — it would be one of Mr. Cook’s most important strategic decisions as chief executive. And it would be an uncommon arrangement for Apple, which tends to buy small start-ups that are then absorbed into the company.
But such a deal would give Apple more access to Twitter’s deep understanding of the social Web, and pave the way for closer Twitter integration into Apple’s products.
Twitter has grown quickly, amassing more than 140 million monthly active users who generate a vast stream of short messages about their lives, the news and everything else. An Apple investment would give it the glow of a close relationship with a technology icon, and would instantly bolster its valuation, which, like that of other start-ups, has languished in the wake of Facebook’s lackluster market debut. In fact, word of the talks comes at a time when some are asking whether expectations for the potential of social media companies have gotten out of hand, and shares of Facebook, Zynga and other companies have wilted.
But Twitter does not need Apple’s cash. Earlier this year, Dick Costolo, Twitter’s chief executive, said the company had “truckloads of money in the bank.”
The truckloads, according to people familiar with the matter, add up to more than $600 million in cash on hand. This comes from the $1 billion in financing it has raised over the years and, more recently, from a healthy flow of advertising revenue.
Regardless, Twitter is widely expected to pursue a public offering within the next couple of years, whether or not it agrees to deals with investors like Apple.
Apple and Twitter are logical partners in some ways. Unlike Facebook or Google, Twitter has no plans to compete with Apple in the phone business or elsewhere. And as Apple has found, social is just not in its DNA.
“Those guys are a great partner,” Mr. Costolo said of Apple in a recent interview. “We think of them as a company that our company looks up to.” Mr. Costolo would not discuss any potential investments or anything else related to the company’s relationship with Apple.
Spokesmen for both Apple and Twitter said on Friday that their companies did not comment on rumors.
If an investment were to happen, Twitter’s chief financial officer, Ali Rowghani, would be instrumental in cementing the deal. Mr. Rowghani joined Twitter in early 2010 after nine years at Pixar Animation Studios, where he worked directly with Steven P. Jobs, Apple’s co-founder.
Ties between Apple and Twitter are strengthening at a time of great uncertainty in the mobile market. Battle lines that seemed clear just a year ago are rapidly blurring as companies push into new areas of the market and clash with former allies.
Facebook, the world’s largest social network, is said to be working on developing its own phone or core software for phones. Similarly, Google acquired Motorola Mobility last year and is now in the business of building phones.
The jumbled landscape reflects the rising significance of mobile, as more consumers neglect their desktops in favor of computing that fits in their pockets. Eager to win on such a critical battleground, technology giants are rushing to control both hardware and software on mobile devices.
The turf wars have fortified alliances and pushed companies to choose sides. Apple’s dealings with Twitter, for instance, began after its relationship with Facebook soured. In 2010, the company was eager to integrate its Ping service with Facebook, but discussions broke down. Mr. Jobs, the Apple chief executive who died last year, told the technology news site AllThingsD that Facebook had demanded “onerous terms that we could not agree to.”
Apple, which had spent months preparing to hook Facebook into iOS, its mobile operating system, swiftly reworked it for Twitter. One former Twitter employee, who described Twitter as the “lucky mistress” in this chain of events, said the partnership was essentially “handed to Twitter on a silver platter.” Ping, in the end, never caught on with users.
For Twitter, the union has proved fruitful. The mobile integration, introduced in late 2011, made it easy for iPhone and iPad users to sling photos, maps and other media directly to Twitter. So far they have generated some 10 billion tweets. And, in recent months, Apple has also incorporated Twitter features into its operating system for computers as well as its advertising service.
The relationship with Apple is so prized at Twitter that the company assigned a vice president, Kevin Thau, to work with Apple full time, according to an Apple employee who asked not to be named.
Apple’s relationship with Facebook has started to thaw. Last month, the company said it would add Facebook features to the next version of its mobile operating system. Still, the two companies are wary of each other. Facebook, which recently began its own “App Center” and is intent on bulking up its mobile revenue, is likely to continue to bump up against Apple.
Analysts are concerned that Apple may fall behind in mobile software because of increasing competition and a lack of social features. And as Apple has shown, software and content can make or break hardware sales.
“Content was a key pillar in the success of the iPhone,” said Al Hilwa, an analyst at IDC. He noted that consumer loyalty to the iTunes library, which many used to store their music collections, helped lift early sales of the phone. “Down the road, social engagement may dictate how consumers spend,” Mr. Hilwa said.
- Why the World’s Most Perfect News Tweet Is Kind of Boring (theatlantic.com)
- CHART OF THE DAY: Where Apple’s Revenue Comes From (AAPL) (businessinsider.com)