Is Tim Cook "blowing it" by not acquiring more companies?
Earlier this week, I stumbled across a rather absurd article parroting a common refrain heard about Apple, namely that they need to take a page out of the playbooks of their less-successful competitors and start making headlines.
Writing for BusinessInsider, Jay Yarow argues that Apple is just plum ole' boring compared to other tech titans. In a bombastic article titled, "Tim Cook is Blowing it", Yarow explains:
There are five technology companies that matter.
In order of influence, they are: Apple, Google, Facebook, Amazon, and Microsoft.
Let's look at what these companies have done in the past three months.
- Microsoft got a new CEO.
- Amazon announced plans to eventually use drones to deliver packages.
- Google bought Nest for $3 billion, sold Motorola for $3 billion, and bought a handful of robotics companies.
- Facebook paid $19 billion for WhatsApp.
- Apple announced $14 billion in share buybacks.
Which thing in that list is not like the others? In case you can't figure it out, it's Apple's boring buyback.
It's pretty ridiculous that Apple is taken to task for not being more bold with its money as if wild moves that make headlines miraculously translate into shrewd business sense.
Let's go through the list one by one.
Microsoft got a new CEO. Okay, sure. Is this exciting? Is this bold? Isn't this merely a reflection that Microsoft has been floundering for years on end as it tries to remain relevant in a world that has largely moved beyond an experience centered exclusively around Windows?
Next we have Amazon's plan to deliver packaging via drones.
Undeniably, it's a pretty cool concept video. It was also unquestionably smart for Jeff Bezos to unveil Amazon's futuristic drone plan before the year's busiest shopping season. Still, anyone who thinks that Amazon drones will see the light of day even 5 years from now hasn't done any research on the matter. Somehow, creating a demo video about a service that may very well be nothing more than a pipe dream is reflective of a bold vision.
Google buys Nest. Okay, finally an intriguing acquisition. But wasn't the acquisition Google's second attempt at shoring up their own hardware deficiencies, coming after the absolute failure that was their Motorola Mobility acquisition? Google bought Nest because the company brings a well of hardware experience that Google simply lacked. But what's a smart purchase for Google isn't necessarily a smart purchase for Apple.
Facebook spends $19 billion on WhatsApp. Call me old-fashioned if you must, but the reason why Apple has well over $100 billion in the bank is precisely because it doesn't go out and spend $19 billion for another company.
Apple's acquisition rate has increased dramatically
Tim Cook has stated time and time again that Apple is not opposed to making big billion-dollar acquisitions. At the same time, Cook emphasizes that is has to be the right acquisition.
Yarow theorizes that Apple should buy Dropbox (it already tried) or Twitter (why, exactly?), while asking why Apple isn't being more bold with its cash.
Again, there's a difference between being bold and being smart. Sometimes these two are one and the same, and when Apple stumbles across such an opportunity, there's no reason to assume Apple won't jump at it.
I'm not sure if Apple pundits are always this lazy, but Apple in 2013 stepped up its game considerably with respect to corporate acquisitions, snatching up more companies last year than any other year in company history.
Remember WiFiSlam? Remember Apple's November acquisition of PrimeSense? Remember the slew of mapping apps Apple picked up? Apple is clearly picking up companies to shore up holes in its product line. And sure, perhaps these acquisitions aren't big-name multi-billion dollar targets, but those types of deals, historically speaking, often result in gigantic busts more often than not.
Big acquisitions don't often yield great results
Microsoft has a long history of big and bold acquisitions and it hasn't exactly helped them out; Hotmail, WebTV and Skype are just a few examples that come to mind. And oh yes, let's not forget Microsoft's $6 billion acquisition of aQuantive. Here's an interesting data point to digest: Microsoft from 1997-2007 acquired 101 companies.
You might even say that going on acquisition-binges is a bad sign, indicative of a company with no clear vision or unified strategy.
Apple doesn't advertise vaporware
When folks like Yarow argue that Apple needs to be more aggressive with its cash, a commonly seen thread is "Look at what Google just announced!" or "How cool were Amazon's drones?!"
The difference between Apple and other tech companies is that Apple simply doesn't advertise vaporware. For example, Google's effort to measure glucose levels in tears with a contact lens is a noble pursuit, but that's not a product that may ever hit the market. The battle to non-invasively measure patient glucose levels has been ongoing for decades, not to mention the fact that previous research shows that tears aren't a prime indicator of glucose levels to begin with. On this topic, Om Malik of Gigaom wrote a thoughtful piece articulating that Google is tackling problems in a less than effective manner.
Apple focuses on products, not headline-making acquisitions
And short of buying companies, Apple doesn't think there's a strategic value in lowering the price of the iPhone to ramp up sales around the world? Really? How much money is enough money? Investors aren't rewarding Apple for a pile of cash, and Apple has no creative uses for it. So why keep collecting so much money?
An excess of money is exactly why Apple just bought back $14 billion worth of shares and pays back billions in dividends to shareholders every three months.
As for lowering the price of the iPhone, that strategy didn't quite work with the iPhone 5c. And why would Apple lower the price of its flagship iPhone 5s when the company can barely make enough of them to keep up with demand as it is.
Also, at the same time Yarow argues that Apple shouldn't engage in stock buybacks -- presumably because they're "boring" -- he calls out Apple for collecting too much money. Apple's capital return program is a tacit admission that it doesn't need to endlessly keep on hording piles of money.
With respect to making creative acquisitions, it'd be one thing if there were specific companies people could point to as viable acquisition targets, but that's not often the case. Dropbox is often floated, but people seem to forget that Apple already tried to purchase them a few years back.
In reality, the companies people often argue Apple should buy are simply well-known companies that would result in sensational headlines, i.e "Apple buys DirecTv!" These assertions underscore a fundamental lack of understanding as to how Apple operates.
This is the worst sort of advice, suggesting a complete ignorance of everything Apple stands for.... Just buy something. Spend, spend, spend. Acquire. Buy all the spaghetti, throw it against the wall, see what sticks. Wrong. Apple's model is about focus. Apple wasn't joking about "a thousand no's for every yes" - that's really how they think, what they believe. That's the DNA.
All the while, Apple goes about its business, ignores the pundits, and snatches up companies like AuthenTec. Next thing you know, we have TouchID.
Would it be interesting if Apple bought Tesla? Hell yeah. Should Apple have acquired Waze? I think so. Nonetheless, anyone who thinks Apple is twiddling its thumbs simply isn't paying attention.
There are a lot of powerful companies growing around Apple. With $159 billion in cash, Apple could very easily take on one or two of them. Instead, it's watching its fast moving rivals make big moves that solidify their future. It feels like Cook is making a mistake sitting still.
Just what these "big" moves are exactly isn't clear. Amazon's Drone commercial? Google buying Nest? Microsoft getting a new CEO? Facebook spending an arm and two legs for WhatsApp?
With Apple purchasing more companies last year than ever before, doesn't it stand to reason that Apple isn't asleep at the wheel? With the bevy of biomedical related hires Apple has made in the last year or so, doesn't it stand to reason that Apple is working hard on some cool stuff?
You would think a company with Apple's track record would be given more of a benefit of the doubt, but as Horace Dediu astutely pointed out a few months ago, Apple is always viewed as being in a "perpetual state of free-fall."
At the end of the day, Apple seems to be an easy target for lazy reporters who seem to take Apple to task for not showing off what it has cooking in its R&D labs.
And if anyone honestly thinks that we'll see Amazon drones flying around before Apple's next big thing hits the market, well, I may just have some bitcoins to sell you.
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