Analysis: Why would Apple invest in Twitter?

Reports are circulating that Apple may shortly invest in Twitter, but how would this move fit into the hardware-focused company's strategy?

Rumours are circulating that Apple, the world's most valuable company, is discussing terms with social networking site Twitter on taking a stake of the company.

The New York Times reported that Apple had talked with Twitter in recent months about making a "strategic investment" in it, which could be worth "hundreds of millions of dollars". According to the NYT, it had been informed of the discussion by people who had been briefed on the matter but did not want to be named as the negotiations were private.

It said that the social network, valued at $8.4bn (£5.3bn) last year, could be valued at more than $10bn (£6.3bn) if an Apple investment was to be made.

But contrary to these rumours, reports from Reuters and the Wall Street Journal suggest that discussions are not currently taking place.

Ovum analyst Tony Cripps said he could see why Apple might be tempted to invest in Twitter.

"Companies like Microsoft and Apple have been on similar trajectories in terms of consumer offerings; they stack up a range of services that look similar to each other and try to leverage the user base of one or more of the services offered to gain traction from their users. They are trying to give fewer reasons for users to look elsewhere for services they provide," he explained.

"Facebook and Twitter have a profound level of engagement with their users, and one thing is clear - Apple is not in the social networking space and so making an investment in Twitter, to some extent, could help deliver that.

"The social glue that encourages users to do more on a device is a key element that makes the ecosystem work properly, and right now it is not the strongest part of Apple's offering," he added.

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Analysis: Why would Apple invest in Twitter?

Reports are circulating that Apple may shortly invest in Twitter, but how would this move fit into the hardware-focused company's strategy?

Cripps conceded that such an investment would be an unusual move for Apple, which has such a strong focus on hardware.

"Apple may be apprehensive as Twitter provides a canvas for many businesses to carry out their own functions, and it is deprived of the resulting revenue, but it may have acknowledged that Twitter has something to bring to its ecosystem.

"The difficulty here is that it is a break from their traditional model as they build hardware, but Apple has always been about being fully integrated; its hardware and software, and therefore social networking could fit into that," he explained.

From Twitter's point of view, Cripps said he would be surprised if they turned down an offer of a buyout or investment from Apple, especially as the micro-blogging service hadn't evolved very much over the past few years.

"It has not changed much from what it was when it started, whereas Facebook has taken enormous leaps in terms of what it has done. Facebook is more of a platform these days as well as an app – it is open to third parties with social gaming for example and it is much more of an ecosystem.

"With Twitter there is a risk associated with not being much more than an app – not putting itself at the centre of the ecosystem – Facebook has done this to a great extent. This is the reason for the downfall of the likes of MySpace – it didn't break away from being a single person app," he said.