There were two tantalizing tidbits that broke yesterday about Twitter.
The first was a nice scoop by All Things D’s Kara Swisher that Andreessen Horowitz had bought $80 million dollars worth of Twitter’s stock from employees in a secondary placement. Every more interesting, though also more vague, was a report by Swisher’s sister publication, the Wall Street Journal, about some possible acquisition talks between Twitter and Facebook and Google:
“As Internet valuations climb and bankers and would-be buyers circle Silicon Valley in an increasingly frothy tech market, many eyes are on one particularly desirable, if still enigmatic, target: Twitter. Discussions with at least some potential suitors have produced an estimated valuation of $8 billion to $10 billion.
Executives at both Facebook Inc. and Google Inc., among other companies, have held low-level talks with those at Twitter Inc. in recent months to explore the prospect of an acquisition of the messaging service, according to people familiar with the matter. The talks have so far gone nowhere, these people say.”
That’s an odd way to start a story, because it reports the talks and then tells us not to take them too seriously. Okay. The story justifies itself by saying what’s really interesting is that buyers are talking about an $8 billion to $10 billion price tag for Twitter.
I’m sure the Twitter folks are stubbornly clinging to their independence. But they shouldn’t. They should take the money. And they should take it from Google. And Facebook should walk away.
I know popular sentiment in tech circles is for Twitter to stay independent. Someone I respect a lot, Matthew Ingram at GigaOm, wrote a post, “Please Twitter, Don’t Sell to Google or Facebook.”
“One of the best things about Twitter, despite all the problems it has had in the not-too-distant past with reliability and other issues, is that it is totally, 100-percent focused on being a real-time communications network. Being bought by either Google or Facebook might bring a big payoff, and substantial financial and operational resources, but it would almost certainly dilute that focus — simply because it would be a small part of a much larger company — and that would be a shame just when the service is starting to show its real potential.”
But with all due respect, let me say, “Please Twitter, do sell to Google.”
Here’s why: I still don’t believe Twitter has a sustainable business model.
Twitter, of course, believes it does. And when I see smart people like Andreessen Horowitz buying shares at this relatively late date, I believe they see some there there. But I don’t.
The reason has to do with Twitter’s fundamental relationship to me. I don’t think Twitter knows all that much about me. And I don’t think there’s much of interest it can leverage to advertisers.
Let’s compare Twitter to the two potential acquirers. Facebook is going to be an advertising monster because it has an unprecedented amount of information about me, my friends, and my likes. It is my default Web profile. And it’s still in the early stages of learning how to use all that data. But its knowledge of me is the stuff that advertisers have probably dreamed of, well, ever since there has been advertising.
Google knows far less about me, and what it does know is muddled. If it follows my searches from home, it probably thinks I’m interested in technology, Duke University basketball, Star Wars, Captain Underpants, and Barbie. That’s because my whole family uses that PC. What has made them so successful is that they do a better job than anyone else at guessing who I am and what my interests are. Much of that comes directly from my search queries.
So Facebook knows who I am. Google is great at guessing at who I am. Where does that leave Twitter?
My profile information at Twitter is spare. There’s little way for it to know what tweets I might have read, unless I click on something, which I rarely do. It might draw some inference from my friends and followers, but that’s a weak pool of information.
Twitter probably doesn’t even know how deeply I engage with the service. Yes, I visit the Twitter homepage once a day, or so. But I have TweetDeck running all day, across three Twitter accounts I manage. I have glimpsed a promoted Tweet there once or twice, but rarely. I click on links in tweets, but that doesn’t mean I endorse or like the content, just that I was curious.
Given the way people use Twitter, and the poor quality of information it collects, I don’t have any expectation that it will be a compelling place for advertisers. As for any paid services, Twitter is so consistently behind the curve in feature development, it’s hard to imagine that they will build any specialized features that they could charger power users for.
In sum: No business model here. And you know what? That’s okay.
We have this default assumption that any company or service that can attract a kajillion users certainly must be able to monetize them. This is a kind of article of faith in Silicon Valley, but it’s wildly misplaced. As evidence, I would point to the most important piece of technology that may just be the worst business on the Web:
There was a brief moment when Netscape asked us to pay $30 for the browser. But Microsoft put an end to that. And for the past 15 years or so, the browser has been free. Three of the four big ones are now made by big companies that don’t expect any revenue from them: Explorer, Safari, and Chrome. The browsers allow them to collect data on our Web surfing habits, but don’t put cash into their pockets. The other, FireFox, is developed under a non-profit.
I think Twitter is like that. It can be an important service that another company can use to enhance other things it does. The question then, is who is the best buyer?
The answer: Google.
As Ingram mentioned, Google needs to get social in the worst way. On the plus side, I think it has the engineering and the infrastructure to help Twitter fix its reliability problems once and for all. And I think it could help develop analytic tools that could help maximize Twitter’s limited revenue upside. And combining that user data with our search data would hopefully enhance Google overall.
Is there a chance that Google could snuff out all that is magical about Twitter? Yep. But I think it’s a chance worth taking to ensure that Twitter continues to exist.
A deal with Facebook would be a mistake for both asides. Ingram is right to point out that Facebook probably doesn’t have the cash to do the deal. But that aside, what would Facebook do with Twitter? I don’t think it could directly integrate Twitter, because it would mangle both services. The friend and follower dynamics are too different. And I’m not sure it brings any new users into the fold. Possibly Facebook could become a kind of social media holding company, owning both Facebook and Twitter, but operating them independently (though with friendlier integration). But that seems way too distracting.
No, at this point, there’s not enough upside for Facebook.
All this said, I think chances for a deal any time soon are remote. Twitter probably has enough money to run for awhile. It seems able to keep raising more private money, both for the company and to let employees cash out. And I’m sure the company wants to give its advertising business its best shot.
I think the real pressure, here, is on Google. In my mind, there is no amount of money that Google could pay for Twitter that would be too much. Not because of the revenue potential, but because it might inject some social thinking into Google’s engineering-driven DNA.
Google should put crazy money on the table until it’s piled so high, Twitter and its investors have no choice but to accept.