Sometimes we go astray by confusing entertainment with value. In sports, it’s a draw or (in the case of last Tuesday in Major League Baseball) a trade deadline that makes for some amusement – who’s going where?! – but ultimately very little nutrition. The noise and fury you just witnessed don’t quite mean nothingbut what they mean will not be known for months or years.
This also happens in business. I’m thinking about it because of an exchange in last week’s Apple conference call with analysts. Piper Sandler analyst Harsh Kumar asked Tim Cook if, as stock prices crashed for many companies, Apple was specifically looking for companies to grow its services business.
“We’re always looking and we wonder how strategic it is,” Cook replied. “And we never buy just to buy or buy just for income purposes. But we would buy something that is strategic for us. To date, we have focused on smaller IP and personnel acquisitions. But I don’t rule out anything for the future. And of course we are constantly monitoring the market.”
Now Apple has a lot of money. It could buy just about anything if it wanted to. But his track record consists largely of buying unknown companies and quietly swallowing them whole, leaving no trace of their existence. In other words, not entertaining. I’m sure Kumar didn’t mean it that way, but so much speculation about Apple potentially buying companies is about how exciting or spectacular it would be, not whether it makes business sense.
And yet… Apple bought Beats in its most notable acquisition since Next in the 1990s. And Kumar’s right to point out that potential takeover candidates for bargain prices can be met at this time. In the interest of balancing entertainment and reality, let’s take a look at what could be on Apple’s shopping list, and what not.
Netflix stock, which was close to $700 last November, is currently trading in the $220 range. It would certainly be a steal for Apple to buy Netflix. And it’s entertaining, because these are two giant companies with well-known brands and products! But I don’t see why Apple would want to buy Netflix. Apple is instead building its own version of Netflix with Apple TV+ — and building it on a much smaller budget.
Netflix struggles to reconcile the billions of dollars it spends annually on new content with its only real source of income, monthly subscriptions. Apple certainly wants to generate revenue from services, but it is playing a bigger game with the Apple brand and the service package as a whole. Does scaling Apple TV+ by turning it into Netflix significantly help Apple’s profits or brand? I do not see it.
In fact, Apple’s name has been gossiped regarding acquisitions of many streaming services. Paramount and Warner Bros. Discovery have been brought up repeatedly. But they fit even worse than Netflix, as they come with studio and broadcast network luggage.
The only thing that makes me dwell on the fact that Apple is making an entertainment purchase is a potential longing for some fancy franchises. Netflix has been trying to build a Marvel, or DC, or Star Wars or Star Trek for years, and still hasn’t succeeded. I’m a supporter of the Ted Lasso Connected Universe, but Apple could buy Paramount and get Trek and Spongebob and MTV and whatever it wanted. Surely it should just unload CBS’s skeleton. It seems to go a long way just to own a few franchises.
I think it’s much more likely that Apple will continue to do what it does to grow its services business, which is investing in sports rights. Unlike a streaming show that you can binge and then cancel after a free trial or a month’s payment, sports seasons are long and you can’t wait for all the games to be played and then binge them all at once. Apple has invested in Major League Baseball and Major League Soccer, and is rumored to be in the running for both NFL and college football. Buying rights makes sense to Apple in a way that integrating an existing streaming service just doesn’t.
Another idea I’ve heard is that Apple is invading to buy out Peloton to support its Fitness+ service. This seems a little more likely than Netflix to me, but again, I have to say, Apple is already building a competitor for Peloton. What does it get in exchange for the purchase price? A customer list, yes. Expertise in streaming live fitness programs that Apple doesn’t yet have. Since Peloton apparently isn’t going to make its own bikes anymore, Apple wouldn’t be burdened with making bikes itself.
It’s not a ridiculous idea, but I can’t help but feel like this is more about people seeing two companies with similar fitness initiatives and just assuming the big one could buy out the small one. Anything is possible, and Apple Fitness+ isn’t quite as far along as Apple TV+ in terms of growth, but it feels like Apple could replicate most of Peloton’s business itself. Would it be worth the cost of taking the short cut of acquisition, plus the pain of integrating the two companies, if Apple could just spend that money building out a broader offering for Fitness+? It’s hard to see it.
Why Apple is so selective
Apple isn’t picky about what it buys because it’s a cheap skater. In part, it’s picky because of what I’ve just described: the fact that it has money to buy companies also means it has money to build things itself. Sometimes buying a company is a really good shortcut — purchasing Beats, for example, allowed Apple to get a subscription music subscription up and running much faster than they probably could have done on their own. And sometimes the shortcut isn’t worth it.
But there’s another important reason why Apple is wary of acquisitions, and it has to do with its very specific corporate culture. If you haven’t noticed, Apple is a weird beast. It’s not like most other companies out there. It’s one thing to include a small team of people bringing expertise in an area Apple lacks — and even then it’s probably quite the culture shock, and talent is probably walking out the door instead of adapting to it. the culture of Apple! But it’s another thing to try to integrate a big company with its own brands and culture and make it follow Apple’s rules. And make no mistake, if you are from Apple, you are shall follow Apple’s rules.
I wonder if Apple took over Intel’s mobile business a few years ago, especially when I hear that Apple’s own 5G modems will arrive later than expected. Integrating a huge team of Intel engineers into Apple sounds easy – slide them in right away and put them to work! – but it certainly isn’t.
If I had to make a wild prediction about a larger-scale acquisition, something that would make Tim Cook “not rule out anything” in an analyst meeting, I would be doing this: an electric car company.
Apple has been trying to make a car for ages. It’s unclear if they even come close. There are several electric car companies, many of which have been battered by the stock market. Is it Tesla, or Rivian, or Lucid, or Polestar, or someone else? I’m not an expert in the auto industry and I don’t know the details of all those companies and their idiosyncrasies. But I wonder if Apple’s final path to building and shipping its own car involves acquiring a company that has already done it.
But it probably won’t happen. It’s nice to think about these things, but the truth is that the best acquisitions are not the blockbusters. They are the ones that you can only appreciate after years.