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Thoughts about New/Social Media

Twitter to be acquired? Nah.

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The big social media news (and I hate to write more on the “T-word”, but I gotta), is the is-it-on-no-it’s-off-yes-it’s-on-no-it’s-not-says-Ev rumoured deal between Google and Twitter first speculated by TechCrunch’s Mike Arrington.

There’s been much talk since TechCrunch posted how Google was in talks to acquire Twitter for what was expected to be “well, well north of USD250 million”, though the actual figure, said to be between USD250 to 750 million, was never revealed. Being the hot new social buzzword, Twitter got coverage all over the web (and still does, evidently), but one should keep in mind that TechCrunch has a history of getting things wrong, as in the case of the repeated Digg acquisition rumours.

Twitter co-founder Biz Stone has rebuffed the Twoogle rumours in his blogpost, saying that “Our goal is to build a profitable, independent company and we’re just getting started.” Which is not to say that talks didn’t happen, but they probably didn’t see eye-to-eye on what they’d both get out of the deal.

Google wants data
So let’s look at what Google wants with Twitter. Seth Weintraub from ComputerWorld gives a good answer to this, writing that it’s all about the “consciousness stream”, the real-time data that’s being pumped out by the 7-million or so users.

The real value for me in Twitter is the real-time search and trending… If I am looking for information about a hot technology topic, Twitter is the best place to find up-to-the-second information. Technorati and Google Blog search are just a little too slow. At the same time it is able to harvest that information into a valuable product to consumers. Google can’t make this. They must buy it (either wholesale or as a service).

Keeping up with the data stream is not something Google does very well. “Without that feed Google must independently index each Twitter user periodically to look for updates,” writes Arrington. “That means it’s dreadfully slow in grabbing all those Twitter posts. And it’s also very expensive from a computing resource standpoint.”

This reinforces the point brought up by Social Media consultant Alisa M. Leo, who says that a social network’s true value lies in it being a database, not in eyeballs, time spent, or the number of users. It’s the amount of user-generated data being pumped in. Using Facebook as an example, she writes:

“First, we need to forget “social networks”….Facebook is a DATABASE. Pure and simple. Facebook Connect? Merely an attempt (none too disguised) to remix their database data into a revenue stream (hence, my speculation about a FBC ad network)”

If the TWiT panelists are right in saying that founder Evan Williams wants to hold on to Twitter because he believes that the product has a long way to go, it’s likely that Google would ink a deal that would see the big G have access to the real-time data stream, while Twitter maintains its independence — or as Arrington writes, “getting the milk without buying the cow”.

By cashing out, one could argue that Biz and Ev would have a certain guaranteed level of funding, but they would ultimately be employees of Google, and product development would have to take into consideration the development of other Google projects. Keep in mind that Ev has left Google before after they acquired Blogger in 2003. His reason then was because he was itching to do something new. So unless he’s done seeing Twitter through–and evidence like the deal with Federated Media suggests that there’s some way to go — it’s doubtful that he’d want to be part of Google again so soon.

Furthermore, it makes little sense to sell now, even at a price at USD750 million. Consider the following points that (1) Twitter has just touched the mainstream tipping point and is among the fastest-growing social networks. A Nielsen report stated that its Y-O-Y growth from Feb ’08 to Feb ’09 was an astonishing 1382%, or 475,000 to 7 million “unique audiences” . There’s a long way to go left, and selling it now in a depressed market is a waste, considering that Facebook just over a year-and-a-half ago was valued at USD15 billion, and YouTube was acquired for USD1.6billion in 2006. USD750 million sounds like chump change compared to what it could be valued after the economic slump.

(2) It has enough backing to hunker down. While VC funding has dried up, it still exists, and Twitter has acquired enough buzz to slurp up much of the capital dedicated to social media start-ups. Conversely, this leaves little room for new start-ups to challenge Twitter’s social media space for a good year or more, allowing it to grow without fear of competition. This wasn’t the case with YouTube, who needed to cash out before being saddled with bandwidth costs and impending lawsuits. Twitter doesn’t have that much baggage.

All Things D writer Kara Swisher sums up the deal-no-deal situation well:

… while I give it a hard time for its utter lack of a business plan or revenue to speak of, the well-funded Twitter is also at the beginning of a long runway of possibility that could yield it a higher price later, if it so chose to sell at all.

Moreover, if Twitter’s investors and founders wanted to sell, they wouldn’t have taken a recent round at $230 million valuation, because it would imply a $750 million to $1 billion purchase price, and no one could pay that right now.

Add to the fact that TechCrunch sources say CEO Evan Williams “wouldn’t sell even for $1 billion,” and a takeover deal looks to be far from being done. I’m not saying that Twitter shouldn’t be sold, but it should hold out for a better offer following the economic slump. And who knows — by holding out, it could spark a bidding war, just as what happened between Microsoft and Google during the Facebook landrush.

In the end, I do believe Twitter will be bought out eventually. Ev and Biz looks to be men with an ambitious plan, which they want to see rolled out first, increase Twitter’s valuation, strenghten its position in the social networking sphere, and then sell.

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Written by John Lim

April 8, 2009 at 6:25 pm

Posted in Social Media

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