Will Apple Buy Facebook? No, But It'll be More than a Friend

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It's a question that was getting asked as far back as three years ago, and seems to pop up again every time the Facebook stock price hits another new low: Will Apple buy Facebook?

Some tech pundits think that because Apple (Nasdaq: AAPL) has so much cash — $117 billion as of the June quarter – and lacks a presence in social media, buying Facebook (Nasdaq: FB) just makes sense.

Those with more level heads think such a move would be a spectacularly bad idea — and extremely unlikely.

"I can see Microsoft making a stupid decision like this but not Apple – MSFT has a history of overpaying for questionable assets, being late to the game and having lost what truly innovative mojo they had under [CEO Steve] Ballmer's watch," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.

"I think Apple knows that the Facebook model is kaput and that it's not profitable – very similar to Google in that regard, which has held off from really rolling out Google+," Fitz-Gerald added."Shareholders would revolt…and so would the institutional money."

But Apple Chief Executive Officer Tim Cook has strongly hinted at a cozier Apple-Facebook relationship.

Calling Facebook a "great company" at the D10 conference in May, Cook said, "We have great respect for them. I think we can do more with them. Just stay tuned on this one."

Why Apple (Nasdaq: AAPL) Will Not Buy FB

Facebook's shaky business model isn't the only reason Apple would shy away from buying the social media giant.

Even trading in the $20 per share range, far below its IPO price of $38, FB has a market cap of about $47 billion. That's much, much more than any acquisition Apple has ever made. Add in the requisite premium and you're talking billions more.

That's just not Apple's style. One reason AAPL has accumulated so much cash is that it doesn't overspend on foolish acquisitions, unlike many other big tech companies.

Apple does buy a lot of companies, but they tend to be small and offer technologies Apple wants for a specific purpose.

For example, Apple bought P.A. Semi in 2008 for $268 million so it could design its own processor chips. That acquisition resulted in Apple's home-grown A4 and A5 processors used in the iPhone, iPod Touch and iPad.

Most of Apple's acquisitions range from about $15 million to a few hundred million – no multibillion dollar deals in sight.

"No good reason exists for Apple to spend billions of dollars to get something it could get for much less via an in-house effort or external collaboration," said Rocco Pendola in a column on The Street Website.

Beyond that, integrating two large companies with such distinct corporate cultures would be a long and painful process.

Finally, there's the awkward problem of what to do with ambitious Facebook CEO Mark Zuckerberg. Would he be satisfied with any role less than CEO?

Apple and Facebook: More than Friends

While it would be a mistake for Apple to buy Facebook, the two tech titans still have plenty of reasons to work together. A partnership would deliver many of the key benefits of an acquisition minus the headaches.

And much of the evidence cited in support of an Apple acquisition of Facebook shows the pair ripe for a closer relationship:

  • Fundamentally, Apple and Facebook like each other. The late Apple CEO Steve Jobs told biographer Walter Isaacson how much he "admired" Zuckerberg. For his part, Zuckerberg is known to have modeled Facebook's developer conference on Apple's, and thought of Jobs as a mentor. Current Apple CEO Tim Cook told Fortune in May that Facebook is the "one company that is closest to being like Apple."
  • Apple can't do social networking on its own. Ping, Apple's attempt at iTunes-based music sharing, was a complete flop (yes, even Apple lays an egg from time to time). Ping debuted in September of 2010 but has gained few users. The service is expected to be removed from the next version of iTunes.
  • The companies have taken the first step already. Apple announced in June that Facebook would be integrated into iOS 6, the next version of the operating system that runs iPhones and iPads. Apple recognizes that social networks like Facebook and Twitter (already integrated into the current iOS 5) make its mobile devices more useful. Apple also recognizes that it's better off joining forces with Facebook and Twitter than wasting time and money building competing services.
  • Facebook needs to better monetize its increasing number of mobile users. The iOS 6 integration will help with this. In particular, Facebook is looking to derive revenue from promoting mobile apps in its App Center. Facebook is already driving tens of millions of people each month to both Google Inc.'s (Nasdaq: GOOG) and Apple's app stores. Plans to collect a fee on these "referrals" could net Facebook $1 billion a year in revenue. Integration with iOS will allow users to "like" an app from within Apple's iTunes App Store, creating a link to that app in their Facebook feed. Both companies will profit from this.
  • Facebook needs mobile users to become more engaged. The integration with iOS means Facebook sharing will be "always on" once a person logs in. That should translate to more time spent on Facebook, which Facebook can try to turn into revenue with ads.
  • Google: A common enemy. The biggest threat to Apple's mobile hardware empire of iPads and iPhones is devices running Google's Android operating system. And the Google+ social network, while it has struggled, poses at least a minor threat to Facebook just by virtue of being run by Google. And both Apple and Facebook would like to take a bite out of Google's prodigious ad revenue.

With so much to gain and little to lose, it's likely that Apple and Facebook will draw closer and closer in the months ahead.

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  1. bob | August 17, 2012

    I believe some kind of connection either partner or buy of Yahoo or Facebook would certainly position Apple as THE STOCK for the future and would probably drive the stock over $1000.00. Just my opinion.

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