Facebook, Google mull $10B Twitter buy
Technology titans Google and Facebook are kicking the tires on social media site Twitter and considering a bid for the company, a report in the Wall Street Journal said Thursday.
Executives at the two companies and others have been engaged in low-level discussions with Twitter for months, exploring the possibility of absorbing the much-hyped company.
Twitter is a social networking site that allows users to send short, 140-character messages to each other. Founded in 2007, the company is adding new users at a pace of roughly 30 million a month, but it only allowed advertisers to market using the site in the middle of 2010.
The company did not earn a profit last year, as it spent extensively on hiring and infrastructure. It's expected to more than double revenues in 2011.
Citing unnamed sources within the companies, the report said the valuations being considered for it are between $8 and $10 billion. That's based on assumptions that the San Francisco-based website with almost 200 million users raked in $45 million in revenue last year.
"Are these prices justifiable based on financial multiples? No," the report quoted venture capitalist Ethan Kurzweil as saying. But social networks have reams of data on their users and "the market is valuing that mightily right now."
In December, Twitter was able to secure $200 million worth of venture capital financing from Kleiner Perkins Caufield & Byers, which implied its valuation was roughly $3.7 billion at the time. That itself was a fourfold increase within 12 months.
Last month, daily coupon website Groupon raised $950 million in financing after reportedly turning down Google's offer to purchase it for $6 billion. Facebook, which is privately held, is also said to have received $500 million in new funding last month, including $450 million from wealthy Goldman Sachs clients living outside the U.S., and $50 million from a Russian investor.
Also last month, LinkedIn, a social networking site geared toward professionals, filed to go public in an initial public offering worth up to $175 million.
Barriers to entry in social networks are very low, but new entrants live or die based on their number of users.
"Facebook's ability to surpass MySpace was more the exception than the rule," University of Toronto marketing instructor Tom Vassos told CBC News. "Once you have that mass of connections, it's not a simple thing to get people to move off of it. Twitter is there now, and the bigger it grows the more difficult it would be to stop that inertia," so there's little chance the company would see a mass exodus, he says.
Multiple revenue streams
Monetizing it might be a different story, however. As it stands, the business model is advertising driven, where advertisers pay the company undisclosed sums to be promoted in users news feeds.
But there's vast untapped potential on the analytical side. The sign-up process for a new Twitter account doesn't require much in terms of names, ages or gender questions. "But what they know is what you say, which pretty much tells them who you are," Vassos said. "That then starts to build a powerful database of information that then can be mined."
The one aspect that the company has yet to get creative with is making the service, a richer, more immersive one, which would allow users to use Twitter to do more things, as Facebook has successfully done with its marketplace and location-based commercial features.
Add-on clients such as Tweetdeck and Hootsuite have taken the lead in unlocking Twitter accounts to do more, Vassos said. "But who's to say Twitter isn't working on a Tweetdeck of their own, which you could use to make a more central desktop environment? Or who's to say Google couldn't buy them both and do it?"
As it stands, a $10 billion valuation for a company with $45 million in revenue is raising eyebrows, as many on Wall Street and in the media were wondering if such numbers were heralding the advent of another dot-com bubble. But ultimately, the value of Twitter to either Silicon Vallery giant could be the ability to make sure its rival doesn't buy it.
"If you're Google, with $30 billion in cash lying around, you might be better off buying Twitter for one third of that just to make sure Facebook doesn't, because then you're completely shut out," Vassos said.
With files from The Associated Press