Apple (NASDAQ:AAPL) is perpetually rumored to be considering an acquisition of Twitter (II). Ex-Apple employee Patrick Gibson made a compelling argument for the acquisition on his blog. While Patrick's case is lock solid from the web services perspective, it totally misses the mark on overall business strategy. Apple should not and will not buy Twitter because it would expose them to enormous business risks in their overseas operations, especially in China.
Twitter is ground zero for social activists that want to organize and topple undemocratic regimes. A recent University of Washington study found that social media played a central role in shaping the political debates during the Arab Spring. A Future Tense forum found that small technologies like Twitter are critical to circumventing totalitarian regimes. If Apple acquired Twitter, it might benefit from the web services engineering capabilities, but it would be buying a potential time bomb that could jeopardize its manufacturing base and its most important growth market.
Imagine some time in the near future when the slowing Chinese economy generates enough social unrest that a new Tienanmen Square - style uprising takes hold. As they have done in Tunisia, Egypt and Syria, activists take to social media to coordinate their activities. The Chinese government asks Apple to shut down Twitter or it will begin censoring posts (Google is well aware there is precedent for this). Apple refuses, and the Chinese government, with its survival at stake, threatens to shut down Apple's manufacturing operations and ban sales of Apple products.
What would Apple do then? It could survive the loss of China as a market - this would be painful but survivable - but the overwhelming majority of Apple's products are assembled in China. A shutdown of these operations would be catastrophic for Apple.
So Apple would have no choice but to accede to the Chinese government's request to disable or censor Twitter. While Apple does prohibit downloads of Dalai Lama apps in China, censoring particular content by individuals or blocking Twitter for an entire country would be a significant escalation of censorship. Any such action would likely have serious and lasting negative ramifications for Apple's reputation as a responsible corporate citizen, and would likely elicit consumer backlash, protests or possibly even boycotts.
Apple knows this risk exists. So while pundits might tout the benefits of such an acquisition, Apple knows the potential risks to its entire business far outweigh the modest benefits an acquisition might provide. Apple might make a fractional investment in Twitter, but an acquisition? It'll never happen.
Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.