NEW YORK (TheStreet) -- We now accept that Facebook (FB) - Get Facebook, Inc. Class A Report is a social media juggernaut that can't be stopped. But it wasn't at all a foregone conclusion back in early 2012 before its initial public offering.
If Apple (AAPL) - Get Apple Inc. (AAPL) Report had been more aggressive and bought Instagram before Facebook could, the world would be a much different place. There were a lot of reasons why Tim Cook should have done the Instagram deal. But he didn't.
That looks like the most brilliant deal by Zuckerberg now in hindsight for several reasons:
- He paid in stock.
- He bought it for a song (now in hindsight) right before it exploded in popularity.
- He took out what could have been a major competitor to him as an alternative social network either independently or as part of a more powerful competitor.
And it's on that last point that it's interesting to ponder now, especially in light of a recent verbal scuffle between Zuckerberg and Cook. A few months ago Cook seemed to take a swipe at Google (GOOGL) - Get Alphabet Inc. Class A Report when he said, "If [companies are] making money mainly by collecting gobs of personal data, I think you have a right to be worried... And companies I think should be very transparent about it."
While Cook might have been trying to differentiate Apple's iOS from Android as a phone choice, it prompted this response from Zuckerberg in Time:
"A frustration I have is that a lot of people increasingly seem to equate an advertising business model with somehow being out of alignment with your customers ... I think it's the most ridiculous concept. What, you think because you're paying Apple that you're somehow in alignment with them? If you were in alignment with them, then they'd make their products a lot cheaper!"
Despite Apple's recent decrying of advertising, it's interesting to remember that it still has something called iAd, its own effort to sell mobile ads. Isn't that evil, according to Apple?
I recently spoke with one tech executive who told me: "Apple doesn't know what they want to be now. There's a bit of an identity crisis within the company. " Ads -- and whether Apple should be doing them or not -- seems to be part of it.
I recently complained about Apple's (mis)use of capital, saying Apple should not have spent $100 billion in the past two years on dividends and buybacks but spend the money on research and development or on external acquisitions.
As for advertising, I wondered if Apple was committed to doing them or not. If so, start building the area up. If not, kill it. A couple of years ago, before Facebook's 2012 IPO when it was valued at $50 billion, I wondered if Apple should buy the company for $100 billion.
Who knows if Zuckerberg would have sold? Perhaps not, given Facebook's momentum, but the deal would have made sense for Apple if it had been crystal clear that it was committed to doing ads.
It wasn't. It still isn't. So it dithers. And it didn't buy Instagram.
Photos are an incredibly popular feature for all mobile users. We want to share them, and Instagram has become the dominant way to do that publicly.
Back in 2012, though, there was only an iOS version and no ads. I said it at the time that most people didn't peg Instagram as a competitor to Facebook because it looked different. Apple could have probably bought the company for $1 billion cash -- which Instagram probably would have taken because its VCs would likely have seen that as lower risk than accepting a billion dollars' worth of Facebook stock, a big concern at the time when the market was wondering if Facebook would make the shift to mobile.
Had Apple bought Instagram, Apple might have kept Instagram iOS-only. What an interesting twist on the Apple Walled Garden approach to convince millennials to buy iPhones in droves over Android.
Fast forward to today. Even if Apple never pushed ads into the Instagram stream, it would be sitting on a major social network competitor to Facebook. Facebook would look much less cool today as all the teens would be answering third-party surveys saying that they never logged in to Facebook anymore.
Apple might have even learned a thing or two about web services/app services from Instagram founder Kevin Systrom. But this didn't happen.
Apple probably never even considered the purchase, even though it only involved taking on 10-20 Instagram employees, making it much smaller than most Apple acquisitions. Apple probably thought a billion dollars of hard-earned cash was way too much for a simple service it could just build on its own.
So while Tim Cook snoozed, Mark Zuckerberg pounced. The world would be a very different place today had the reverse occurred.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates APPLE INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate APPLE INC (AAPL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, revenue growth, notable return on equity and expanding profit margins. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."
You can view the full analysis from the report here: AAPL Ratings Report