UNTETHER Discusses: What should Apple do with $100 billion?
Last week Apple posted a financial quarter unlike any other tech company in the history of the industry. Beyond the impressive sales numbers (36 million iPhones, 15 million iPads), I’m most interested in the cash Apple has been able to generate (let’s save what that many iOS users means for another post). With a net profit of 13 billion, Apple is now sitting on 97.6 billion in cash and cash equivalents. So what does a company hoarding cash as quickly as Apple do with 100 billion dollars?
If I was Apple and I had $100B to spend:
1. I would buy Adobe which means I would own Flash. You can’t hate something you own right?
As an iPad user, I hate that I don’t have Flash support. Apple usually does a good job of bringing its customers to a new level of love and obsession with their products. This is usually how I feel about my glossy white gadgets, but it’s quickly erased when I get an error message on my iPad when surfing the net and clicking Twitter links.
2. I would give out tuition grants.
Just because Steve Jobs couldn’t afford to graduate from Stanford doesn’t mean everyone has to be in that boat. It’s widely known that Jobs had to drop out due to tuition costs, and tuition grants are a tax deduction, which would give Apple more money to pay off the FCC (see below).
3. I would buy Sprint.
Skip the middle man and get a network of your own, Apple.
4. Pay off the FCC so I can buy Sprint.
Joking! But I am sure there is some loophole that would allow me to start putting the FCC on an undisclosed retainer.
5. Affiliate with the Ivey League.
Apple needs to get into the Old Boys Club. Branding a university faculty could be a first step. Apple has essentially become an ideology, and branding it with an Ivey League school could make way for economic models or design philosophies to be named after Apple. A good example of this is BCG (Boston Consulting Group) with their BCG Matrix. I think every university student studying business learns this ideology- you can’t put a price on the intangible ROI that would produce. Also, what student wouldn’t love to say they got a degree in Steve Jobs?
I love that you would start with something Apple would never do with good reason and end with something they would never do for more selfish reasons – it shows some out of the box thinking.
Apple would never buy Adobe because Adobe is killing mobile Flash (HTML5 – the future is now!). As for Apple University… Apple likes to see itself as an outsider/disrupter, so joining the ranks of the Ivey League doesn’t seem to sit right. Also, why own one school when you can be in EVERY school. I think the same thing goes for student grants. It’s been about 15 years since Steve Jobs killed Apple’s corporate philanthropy division, and one might argue that now would be a good time to reassess. But Apple at its heart is a product company, and I think it would much rather help students by providing them great products to use in school than to pay for their education.
Now buying a telecom, that’s very interesting. It’s well known now that Apple investigated building its own network before ultimately deciding it was ultimately easier to partner with AT&T. And while it has built up relationships with all the major telcos over the past five years, I’m sure they’d rather never have to deal with them again, because Apple sees them as impediment to doing things ‘the Apple way’. Could you imagine Apple running its own telco and the dramatic impact it would have in just the US market? Half of the phones Verizon sold last quarter were iPhones, and 80% of the phones AT&T sold were iPhones! In becoming the only game in town for iPhones, Apple would automatically be one of the top three carriers and would have a greater ability to dictate the future technologies used in smartphones.
I’m not sure if they would buy a telco, or if they would choose to build one from the ground up, however. As the insightful Sascha Segan over at PC Mag put it, Apple isn’t set up for major acquisitions because one of its strengths is corporate culture – buying another large company would simply dilute the number of ‘A players’ under its command.
How about you, Rob? Does Apple buy, or does it build? If so, then what?
Why does Apple have to do anything with the money? Seriously. Other companies buying big ticket items today are trying to get out of their core business because they were caught flat-footed as a result of Apple. Apple will shore up its ecosystem – it just spent $500M on Anobit, whose technology is already in the iPhone, iPad and MacBook Air products. This is what Apple does – it buys companies so that it can guarantee shipment and delivery dates without compromise (or competition).
You see companies like Google paring down its offerings since Sergei took over. Google is killing vanity projects and focusing on its core business (which is still search, right?) while spending on patents and smaller companies so it can continue to compete. Apple doesn’t need to do this because it already went through the same process when Jobs came back in 15 years ago. If anything, it will spend small amounts (like the Siri and Lala acquisitions) on young technology companies and nurture them into important future bets. Apple is smart to sit on a pile of cash and if we see it make a big bet (a la Motorola), I would be worried about the leadership.
At first, I completely agreed with Rob. Then I completely disagreed and now I am just on the fence.
I say this is because I can’t help but revert back to the number one investment rule: never stick all your eggs in one basket. It’s important to diversify. I think Apple sitting on a pile of money and buying up smaller undervalued start ups (for next to nothing), whose sole purpose is to push their core business forward, is safe today, but what about tomorrow? It’s a very siloed way of business building.
It also takes years to see ROI on start ups (even if your buying in volume with success rates of 1 for every 100). Stocks can drop hundreds of dollars in a day… you have to proportionately wager your bets in a capitalistic model. Time is usually not on anyone’s side. We have to remember as big as Apple is, its a BABY when it comes to reigning over the American economy and world markets! Everyone keeps forgetting that back in 2002 Apple was only worth $7/share. It didn’t break $100/share until 2007. Apple has exploded in the last 5 years… and as confident as I am in its products, I am hesitant to say it will always be king.
I am biased on two accounts: I worked at Rogers and grew up riding the waves of the auto industry. So I have experienced the pain of a giant falling, and I have had a little bit exposure to the strategic mortar used in the foundation of large billion dollar company.
People were having this same conversation 20 years ago about the big three auto companies – who once were centre stage like Apple is today. Look what happened to them. Of the the big three, the only company that didn’t receive a government bail out was Ford. That was because when times were good, it bought up Jaguar, Land Rover and Volvo. When times got tough, it dipped into its design reserves from these companies and revolutionized Ford vehicle platforms. Say what you want about Ford, but it did a great job of burning the wood of the house to keep the fire going.
At the end of the day, both strategies (1. holding 2. diversifying) are risky. The question is which one is going to provide the best insurance to kept the crown jewels safe in the long run?
Ok, so assuming they have to do something with that money to diversify their business, the question remains as to what type of diversification. So I will offer two different options, both borrowed from people smarter than me.
Via Sascha again, the first, and likely easiest, option would be to diversify into other sectors that would strengthen Apple’s core business, which is making ‘insanely great’ integrated products. Apple loves to own as much of the end to end product experience as possible, integrating hardware and software for the benefit of the consumer. But while Apple builds a large amount of the software for its products (OS, core apps like iTunes, Safari, etc..), it doesn’t fully control the component or manufacturing. Investing here would likely allow Apple to build its products quicker and cheaper (or at least with better margins), and be agile in the creation of new product lines. Greater accountability in their production might even help improve the living conditions of the people that make Apple products.
The alternative would be to jump into an important and developing space where it has no presence, or has to this point failed to make a dent. As one UNTETHER reader asks, why not buy Twitter? Apple would essentially be buying into social media and search in one fell swoop. Also, who wouldn’t want to see some great, deep level Twitter/Siri integration?
Since this email thread has now surpassed 100 billion words, we’ll leave it up to commenters to decide if we’re crazy or not.