October 19, 2010

Apple buying Facebook, and other speculations

Apple has over $50B in cash and investments.
Apple has no meaningful social presence yet.
Steve Jobs mentioned yesterday that Apple might use the cash for a strategic acquisition or two.

This immediately led to speculations that Apple is preparing to buy Facebook.

Facebook leads in social networking and gives tremendous visibility in user behaviour. With strong revenues from digital ads and digital goods, Facebook’s momentum will continue for a long time. Definitely a buy on these measures. However, Facebook is also valued very highly. And is it a good fit for Apple?

If not for buying Facebook, how else could Apple focus its resources?

Apple shines in delivering an integrated user experience, across hardware, software and apps. With the iPod, iPhone and iPad they have shown that they can deliver a delightful experience in different product categories.

There are many such large product categories waiting to be transformed. Each new area shares a common thread with Apple’s previous products
  • is a physical device purchased by consumers
  • is waiting to become Internet enabled
  • requires an integrated hardware+software experience to delight the customer
  • will use iOS
  • each is a $10B + revenue stream for Apple
  • will have strong margins for Apple
  • products can be delivered within a year
  • will play to Apple’s strengths

The new product categories will enable Apple to lead in new areas while adding large revenue streams. And with only incremental effort.

Compare this to the option of buying Facebook, an existing and mature service.

Perhaps Apple should do both.