Why Apple would buy a company that analyzes Twitter data

December 4, 2013, 11:11 AM

Bloomberg

Apple Inc./quotes/zigman/68270/delayed /quotes/nls/aapl AAPL -0.23% hasreportedly bought social analytics firm Topsy for $200 million sparking a debate on what the technology giant is up to.

Topsy allows users to analyze millions of Twitter posts, helping them figure out trends, identify influential Twitter users and measure the effectiveness of campaigns on the social network. According to The Wall Street Journal, Topsy is one of Twitter Inc./quotes/zigman/23556538/delayed /quotes/nls/twtr TWTR +4.47%  partners that have access to all tweets since 2006.

So why would Apple be interested in Twitter’s data?

Because social is hot, according to analysts who call the reported acquisition a smart move.

“It is a savvy acquisition for Apple and is exactly how one would expect the company to employ its fortress balance sheet,” JMP Securities analyst Alex Gauna told MarketWatch. He said the cost is a “rounding error” to Apple, and whether it uses the analytics for its own planning or within technologies such as iTunes, Siri or iAds, Apple should be able to derive economic benefits many times the purchase price.

Tim Bajarin of Creative Strategies Inc. said the move “suggests that Apple is interested in a closer integration of Twitter within Apple’s own software properties and could use it to enhance their own social networking strategy.”

S&P Capital IQ analyst Scott Kessler reiterated a buy rating on Apple on Tuesday citing the reported acquisition of Topsy, telling clients in a note, “We think such a transaction could aid Apple broadly, as it looks to better integrate and leverage real-time information across its offering and pursue a more comprehensive and effective social strategy.”

However, he also noted that the deal is a “kind of acknowledgment by Apple of related shortcomings.”

These shortcomings may have to do with the challenges Apple faces in a more mobile, more social world.

“It’s not crazy that the company would want to make use of social analytics,” Roger Kay of Endpoint Technologies Associates told MarketWatch.  “After all, its competitors do.”

“People should probably not think of Apple as purely a hardware company, even though that’s how it makes its money,” he added.  “In reality, all the major players are converging on a full-line strategy, mixing hardware, software, and services as tightly integrated as possible.  Google in particular represents a threat, alongside traditional competitors like Microsoft.  Social media is the new environment for everybody.”

– Benjamin Pimentel