What should Apple do with all its extra cash?

Much has been made about Apple's cash. The company, which operates with no debt in its financial structure, is one of the most financially sound organizations in tech, with $24.5 billion in cash on hand, even more cash than Microsoft.

But now that it has all that money, what should it do with it?

Some say Apple should simply hold on to the cash and be prepared for what could be a difficult few years, as the economy continues to feel the pressure of a credit crunch, while others think Apple should start spending while the targets are cheap and do what it can to expand its role in the industry.

I can't help but agree with those in the second camp. Why should Apple, one of the most profitable and powerful companies in the industry, sit on its hands while other companies with strong properties and technologies in their own right need to worry about the future? For the first time in recent memory, tech companies can be acquired for a relatively affordable price, and a company in the position that Apple is in needs to capitalize.

So what can it do? Quite a bit. Instead of spending all its time on cell phones, PMPs, and Macs, maybe Apple should try to become the company that offers products that tag along with you throughout the day. Or maybe Apple should get into the video game business and start solidifying its position in that market. Or maybe Apple should start putting real pressure on Microsoft and build an operating system that not even Ballmer & Co. can match.

It's all about gaming
Apple should use some of its cash to get into gaming. But before it can do that, it needs to realize that there are three core components it needs to address, if it wants to be successful: build solid hardware that's affordable yet capable; have a strong first-party developer studio; and have an online platform that's better than competitor offerings.

Sounds tough, huh? Think again. Apple is the king of making outstanding hardware, and there's no reason to suggest that it can't do that with a video game console. Granted, the company shouldn't jump into this console war--it's too late for that--but with the help of its cash, mind share, and power over suppliers, there's no reason to suggest that Apple can't develop a console that bests Microsoft's and Sony's best next-generation game hardware.

But it doesn't quite end there. Apple needs to acquire Take-Two Interactive Software and Sega. The reason why is quite simple: there's no differentiation in the video game market, unless first-party games or exclusives make their way to particular consoles.

By acquiring Take-Two and Sega--two companies Apple can easily afford--it will own two of the most important franchises in gaming (Grand Theft Auto and Sonic, respectively) and immediately solidify itself in the market. And considering that Take-Two almost went to Electronic Arts for $2 billion, Apple can write a check and never remember it. It's perfect.

Lastly, it needs to invest significant cash in online gaming. Microsoft is beating Sony today because of Xbox Live and will continue to do so until Sony finally wakes up and realizes that online gaming is a key component in the success of consoles. After dumping a significant amount of cash into an online platform, Apple can ensure that Microsoft's ability to compete is suspect, at best.

Expand
Apple may be the de facto leader in the cell phone and PMP (portable media player) business, but it's not doing enough in other sectors of the industry. Instead of only being a part of your day when you want to make a call, listen to music, or surf the Web, Apple needs to become a constant throughout your day.

Maybe it's time for Apple to start investing in those networked HDTVs we've been hearing about lately or maybe even a touch-screen notebook that will cater to a crowd looking for an "iPhone on steroids."

See, with that much money on its books, Apple can afford to make some mistakes. It doesn't need to become the most popular HDTV manufacturer, but you can be sure that it can break into that market and provide a product that beats the competition. As far as I'm concerned, that's not as difficult as some want to believe.

It's about Mac OS X
Let's face it: part of the success of Macs is due to Mac OS X. Regardless of its inability to appeal to the business world, Apple's operating system is a key component in its future success.

By the same token, Windows is a key component in the future success of Microsoft too. And as Redmond continues to feel the pressure of making a better Windows that people will actually want, Apple can capitalize and use all that cash on hand to make sound investments in improving its own operating system.

How? It's simple: spend money to coax developers into working alongside Apple in ensuring that their products won't prove troublesome to the operating system, make a version of Mac OS more appealing to businesses by adding the kind of enterprise support Microsoft has made a fixture in Windows, and spend considerable amounts of cash developing an operating system follow-up to the current iteration that breaks the mold of what an operating system really is.

Why do we need to be locked in an offline world? Why do we need such little contact with the outside world when we're running apps on our MacBooks? The future of the operating system is online. And if Apple is smart, it will embrace that fact and start beating Microsoft to it.

The days of trailing behind Microsoft are over. Apple needs to spend money on ensuring that it will be ahead when operating systems finally break free from the chains of a desktop.

With $24.5 billion on hand, the possibilities are endless for what Apple can do. Maybe it will decide to be conservative and invest its money in "safe" areas. But if CEO Steve Jobs is smart--and I think that he is--he won't be conservative, and he'll capitalize on economic turmoil to acquire companies he's had his eye on for quite some time, moving his company into other areas of growth that will see it become an even more important figure in the industry.

Apple has found itself in an enviable position. And it needs to capitalize before the economy and its competitors can rebound.

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