The technology world has been abuzz over the past couple weeks with rumors about a Twitter acquisition. It’s been a great example of the asinine echo chamber that has evolved around web services and the people that use them and write about them.
Lots of unsubstantiated conjecture has flown around, despite the fact that the company has emphatically declared that it is not for sale. That’s not to say that these declarations are necessarily more than public posturing, but the fact that the company has seemed sincere and consistent in its assertions of independence should not be overlooked. Sure, they have funding sources eager to extract liquidity while the getting’s good, but they also have relatively new investors who are in the company at a $250M valuation and allowed the founders to take a small fortune off the table. And let’s not forget they already made a not-so-small fortune selling Blogger to Google way back when.
But regardless of their investors’ patience and capacity for further capital outlays, the fact that they have such an impressive cadre of VCs involved means that they will have to create liquidity at some point. And let’s face it, Twitter is not exactly poised to be generating substantial cash flow anytime soon. At some point, they will have created enough value in the marketplace that investor pressure will become too much to bear.
So which of the acquisition ideas make sense?
Apple
I see Apple as an unlikely acquirer, and the fact that they are favored by the “tech bookies” (really) just goes to show how silly and insular the web startup world has become. But the more I think about a potential deal, the more I see to like.
iTunes, for starters, has a ton to gain from Twitter integration. iTunes users could link their Twitter accounts and automatically broadcast purchases or frequently played tracks with accompanied iTunes Store links. It would only take a small proportion of iTunes and Twitter user adoption to drive significant iTunes Store sales. Twitter could also provide the missing social element to iTunes in other ways, and could eventually be a sensible, opt-in vehicle for artist/consumer communication and promotions. Native integration as the iPhone’s messaging platform could be powerful, too, both as a communication tool and as an enabler for location based services.
Apple also has the ability to let Twitter to mature on its own, integrate it into their product offerings where appropriate, and eventually monetize the service and its data in a low-risk manner far down the road. And with $29B in cash, they could put forth a preemptive $1B, all cash bid, and guarantee a higher level of independence for Twitter than the other players responsibly could.
Amazon
The Amazon idea making the rounds makes much less sense. Like Apple, Amazon could conceivably integrate Twitter into the purchase/wish list/recommendation process with hopes of driving sales and referrals. Unfortunately for them, this is basically the extent of the upside, and integration would be much more daunting and less seamless with the experience.
Using Twitter as the basis for a payments system would be a huge risk to the user experience and pretty costly to boot. All Amazon would really get is the brand, the user base, and the existing messaging behavior. They’d have to build the rest and drive adoption – without fouling up the core functionality or engendering the ill will involved with turning a beloved, ad-free communication tool into a commerce platform. I don’t see it happening.
Facebook/News Corp.
Facebook probably missed their chance late last year when they insisted on using the company’s overpriced stock for the majority of the $500M purchase price. My guess is that the ship has sailed on any potential deal. Facebook needs all the cash it can get (and seems to be perpetually rumored to be raising funds) and needs to focus on monetizing its service as it stands now in advance of an eventual public offering. Anyway, its interface and functionality has evolved to encourage Twitter-like functionality, and the move appears to be working. Despite the usual initial complaints from users, status update usage (and conversations therein) appears to be growing steadily just a couple of months in.
News Corp. is apparently expressing interest as well, and could use a bold new move to offset the expiration of MySpace’s Google ad deal and loudly announce a new direction under Jon Miller’s new regime. Twitter integration would markedly improve user engagement, but between the uncertainty around the Google deal, its struggling newspapers, and Peter Chernin’s departure, the timing could certainly be better.
Google/Microsoft
If Twitter is going to sell, I still see Google and Microsoft as the most likely acquirers, as they are best positioned to unlock the value of Twitter search.
But Microsoft needs Twitter more by orders of magnitude. Google’s massive search share means simply indexing Twitter messages for search via Google may be enough, though of course it remains to be seen whether such a deal will be struck.
Microsoft, on the other hand, appears to be readying a major push to gain search share, and may be nearing a rebranding and a deal to operate Yahoo search. Integrated, real-time searching of the broadening array of Twitter content could be just the edge they need to start gaining share.
Microsoft’s Avenue A | Razorfish agency also stands to capitalize on the enormous power of analytics around Twitter messages as they relate to brands and consumers. Tight integration into Live email and Windows Mobile could be a boon to the service and both products, too.
Both Microsoft and Google have excess cash ($24B and $18B, respectively), though it is unclear whether Google’s management and investors have the stomach for another pricey acquisition without an established business model. But the Twitter guys have a level of familiarity with Google, and presumably would prefer the culture.
So… what’s next?
Who knows. The situation is fairly unpredictable because of the issues surrounding the founders and their investor base. But I’d bet if they do sell, it will come down to Google and Microsoft, the latter of whom I believe will not be outbid.
In the meantime, I hope the rumor mill slows down. And for what it’s worth, I’d like to see how an independent Twitter plays out.
