Apple Could Buy Twitter But It Should Buy Square Instead

by Christopher Paul on March 20, 2012

The highly respected Barry Ritholtz suggested Apple should use some of its cash to buy Twitter. He cites Apple’s lack of experience in social media where Facebook and Google (frenemies of Apple) compete heavily. It’s not a bad idea, really. Apple could do it without much concern for its piles of cash. But I don’t think it’s the best investment. In fact, I think Jack Dorsey’s other startup, Square, is a better acquisition.

Apple is in the hardware business and they develop software to help sell those devices. Products like iTunes Music/Video/Book Store(s) are there to drive sales of their iOS devices; iCloud is no different. Twitter isn’t a product that will help drives sales. And the way Twitter is openly structured, it has apps for platforms that compete with Google. Closing that ecosystem off to just a handful of users wouldn’t do them much good and investing in a $9b company with users of a competing platform doesn’t sound right to me. Of course, Apple could use Twitter to drive sales with its integration into it’s products but I question whether the product ties are worth the price tag.

Square, on the other hand, has a similar model to Apple. Like Apple they have a loss leader product – two actually. The first is the Square Card Reader. Sure, you can buy one but you can also get one shipped for free. And for users, the app itself doesn’t cost anything. They entice merchants to use their ecosystem to charge a transaction fee. Apple gives away (for this argument anyway) software and runs the iTunes Store for free so it can charge for hardware. The second loss leader for Square is the Card Case app for customers. They offer the app and its integration with their main PoS software to fuel easy contact-less payments.

Square is dedicated to the iOS ecosystem – making it a good fit for Apple already. The Square hardware and software could still be free and Apple make money on iOS devices as point of sale setups for merchants; of course, they would still get the transaction fees, too. This makes a $399 cash register and credit card terminal very reasonable for new businesses. It also drives people to consider Apple’s iWork apps though, arguably, that’s a drop in the bucket compared to hardware sales.

I happen to think that transaction processing and banking are ripe for disruption. I’m not alone in that thinking. Paypal did web payments it but they aren’t moving quickly on the point of sale device or mobile; the triangle doesn’t come close to offering what Square does. If Apple can get into that space, they can merge Apple IDs with Square accounts and you’ve got a huge user base to leverage. Think about that. If you walked into a store with your iPhone, checked in with Square’s Card Case, and bought your coffee, lunch, or wares with an Apple ID… no credit card needed. If you have use the credit card swipe, the number can be associated with the user and a receipt emailed to the address on file with Apple.

Apple could include some NFC type of payment system on the iPhone to compliment the Square Card Reader. But the backend systems that power it all would be difficult to build and buying that from Square seems worth it to me. Square, of course, gets access to millions of iOS users (especially if Apple includes the Card Case in iOS) where it has to continually invest effort to sign up merchants and payers. WIth an over-the-air update, Square just grew increased the potential transaction fees exponentially. That has to make their investors happy.

While I appreciate Twitter and probably enjoy it more than Facebook (certainly over Google+), I don’t think it’s the right target for Apple. And trust me, I want Apple and Twitter to succeed in the social media space. It’s just that if Apple were to buy one company, it should be Square over Twitter. But with Apple’s cash reserves, I’m sure it could find way to include both in that new office space Apple is building in Cupertino.

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