The debate about what Apple should do with its pile of cash continues. This week, Eric Jackson attempted to explain the reasoning behind why he thinks Apple should purchase Pinterest, Twitter, and Tesla. His major point is Apple's $100 billion stock buyback program is a waste of return, and should instead be used to make more "beach front" acquisitions like the ones mentioned above. As I've written before, stock buybacks are a controversial topic, so you shouldn't be surprised to see everyone sharing their opinions on the subject. That said, most of Jackson's advice is not realistic for the following reasons.
Apple does not get social
Purchasing Twitter, Pinterest, or even Path could be a profitable move for Apple, long term. But the chance of that is slim-to-none. Everything a company does regresses to the mean, which means the company's strategies will likely play out like they have in the past. Apple has tried social before, with the notorious iTunes Ping music sharing network. To say it was a colossal failure would be wholly appropriate. Without a doubt, Apple would love to have a successful social network in its portfolio, but its strengths are not in social. In fact, I would argue social is Apple's competitive weakness, because the company almost always places privacy over sharing. A social network made by a company that is fundamentally private is a magnificent act in futility. Apple could surely purchase Twitter or Pinterest, but I would expect that to destroy value, not create it. There is no historical evidence that says otherwise.
Apple isn't a portfolio company
Some companies have huge portfolios of products that range from refrigerators to televisions. They diversify, spreading risk over multiple industries, so if one operating segment flounders, the others could keep the company afloat. Apple is not such a company - it's actually the direct opposite. Apple's competitive advantage has always been differentiation, which allows it to focus on a few products that dominate the market. This intense focus only works when there are few products to focus on. Inevitably, purchasing a large company like Tesla will result in a loss of focus. Some companies are conglomerates that are able to spread their focus, but Apple is not such a company. Perfection runs deep in the culture, and spreading it over too many products will be a risk they shouldn't assume.
Wall Street professionals, most of which have a classical business education, have never understood Apple. The company continually engaged in strategies that would make a business professor squeal with disbelief. Steve Jobs famously blocked Adobe Flash from all iOS products, despite a huge demand for it. Today we know this was a good idea. Apple has also been opinionated to the point of aggression, engaging in unprofessional marketing feuds with Microsoft and Samsung. Moreover, the company has cannibalized its own products voraciously: the iPod was replaced by the iPhone, the iPad initially stole from Mac sales, and now the opposite has been true with Mac sales eating into those of the iPad. As long as people are buying some Apple product, Apple remains content. All of these actions by Apple are not traditional, and they have flustered analysts since the beginning. Sometimes these actions actually hurt the company. But overall, Apple has always remained an enigma, which probably doesn't fully understand itself. Advice by those classically trained in business should be taken with a grain of salt by Apple, since its success has come from being different.
I should mention I myself have this classical business education, so my biases are evident. But I would also highly encourage everyone else with this same education to appreciate its shortcomings. Business strategy has a huge element of luck, timing, and other uncontrollable factors which cannot be reasonably predicted. Let's not forget that.