Why it makes sense for Apple to invest in Twitter

According to a report in the New York Times late Friday night, Apple (s aapl) has had talks with Twitter about acquiring a substantial stake in the company — on the order of hundreds of millions of dollars, the newspaper says, quoting “people briefed on the matter.” Although the report provides few details about how serious these discussions actually were, such a combination would make some sense for both companies: Apple would get an even more favored relationship with the real-time social network, and Twitter would get to maintain its preferred status on one of the world’s leading technology platforms.
Twitter is already integrated into most of Apple’s products, including the iPhone and iPad, and its OS X operating system for laptops and desktops — users can post to Twitter from within applications and apps with a single click because these devices are connected to the real-time network at fundamental level. When Apple originally announced the deal with Twitter last year, it marked the first time that the company had integrated any third-party service other than Google(s goog) into its operating systems in such a way. And it has been incredibly powerful in driving usage for Twitter, as CEO Dick Costolo has described.
In effect, this arrangement outsourced the social aspect of almost all of Apple devices and software to Twitter, and was an admission of sorts that social elements and social software have been an Achilles heel for Apple for some time — as lackluster attempts such as Ping and Game Center have shown. The deal was also seen by many as a slap in the face to Facebook (s fb), which had discussions with Apple earlier about integration into Ping but dropped them; then-CEO Steve Jobs said Facebook’s demands were “onerous.”

Getting cozier could help both companies

Since then, Apple has started working with Facebook again, and some form of integration with the social network is expected to be included in the latest version of Apple’s iPhone and iPad operating system, as well as the new version of OS X, Mountain Lion. But Twitter still has the preferred spot inside Apple’s OS so far, and taking the iconic consumer electronics company on as an investor would cement that status. For Apple, meanwhile, becoming an owner would theoretically give it even more sway within Twitter — although it could be argued that the company already has a fairly significant relationship with the network.
Does Apple need to control Twitter completely in order to benefit from that integration? Not really, as I explained in a post after Barry Ritholz argued that Apple should acquire the company — but a sizeable investment would give it some sway in board meetings and in other ways that could give it more control, and if there’s one thing Apple likes to have, it’s control.
According to the NYT report, the investment from Apple would have given Twitter a market value of $10 billion, substantially higher than the $8 billion private valuation it had after its most recent venture-financing round — and some have speculated that Apple might even want to acquire the entire company, something it could easily do with the more than $100 billion it has in cash and marketable investments. Twitter CEO Dick Costolo, meanwhile, has said that Twitter has no need of extra financing because it has “truckloads of money in the bank.” Whether Apple can change his mind on that score remains to be seen.
Update: The Wall Street Journal says that according to its sources, discussions between Apple and Twitter about an investment were held a year ago, and there are no current acquisition or investment talks going on between them.
Post and thumbnail images courtesy of Flickr users Giuseppe Bognanni and George Kelly