Since the news broke that Apple (AAPL) might buy Beats Electronics, the prevailing question has been: Why would Apple spend big for this company? But it might also be worth turning the question around trying to decipher why Apple seems so much more hesitant than other tech giants—like Facebook and Google—to spend its vast cash hoard at all.
At a reported $3.2 billion, the Beats deal would be the biggest in Apple’s history. But while it sounds like a lot of money, it’s practically nothing in Apple dollars. The company had $18.9 billion in cash and near-cash items as of the end of last quarter—a period in which Apple managed to add almost $5 billion to that pile. So devoting some $3 billion to the purchase of a headphone maker and streaming music startup won’t break the bank.
Apple Chief Executive Tim Cook seems a bit sensitive to the idea that he isn’t spending enough: He insisted during a recent earnings call that Apple is “on the prowl” and pointed out that the deals team in Cupertino had acquired 18 companies in the last 24 months. But these were little deals, and there’s no doubt that the company has been playing small ball by Silicon Valley standards.
“We look for companies that have great people and great technology and that fit culturally, and we don’t have a rule that says we can’t spend a lot or whatever,” said Cook. “We’ll spend what we think is a fair price. What’s important to us is that strategically it makes sense. And that it winds up adding value to our shareholders over the long haul. We are not in a race to spend the most or acquire the most.”
So Apple’s not joining the contest between Google (GOOG) and Facebook (FB) to hand over billions to ambitious startups pursuing the next wave of technology. The Beats deal could rival in dollar terms Google’s purchase of Nest, the Internet-connected thermometer, or Facebook’s acquisition of Oculus, the virtual reality headset. And, of course, the Beats price is a fraction of what Facebook paid for WhatsApp.
Still, it’s about as modest as a $3 billion acquisition can get. Headphones and streaming music are accessories to Apple’s existing product line. Buying the company that does the best job of making these things isn’t going to transform Apple in the way that a long-shot bet on virtual reality could revolutionize Facebook.
It would be very uncharacteristic of Apple to try to build up an idea it didn’t come up with on its own, argues Forrester Research analyst James McQuivey:
“Most of the acquisitions Apple has made have been in support of Apple’s ideas. Buying WhatsApp, Nest, or Oculus VR would be a tacit admission that someone else out there has bigger ideas than you, and it’s just not in Apple’s DNA to see the world that way.”
“Which is a shame,” McQuivey adds, “because Apple could really do some amazing things with other people’s ideas.”
So is Apple simply more arrogant than Google or Facebook—or more cautious? Maybe both. But it’s also a company with different priorities than the other Silicon Valley heavy hitters.
Google and Facebook make their living by convincing people to use their software and Web services. They want to buy into whatever the new kinds of Internet services will be before they get big. Apple’s core is hardware, and it designs software and services largely to convince people to buy more phones, tablets, and Macs. Apple wants to build the best version of whatever device people start using next. If it decided that it wanted to do that through acquisitions, it would likely spend a few billion dollars on, say, the purchase of Fitbit in order to go deeper into wearable computers. Or Apple could make the same bet by scooping up a bunch of engineers from Nike’s defunct FuelBand division.
But Apple hasn’t shown much interest in buying its way into the future. Even if it does spend big on Beats, Apple will look pretty much the same at the end of the day.
