Will Facebook or Google buy Twitter ?

Posted: May 15, 2011 in All Categories, Tech Encore, Tech Society, Web Services

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Its a HOT news going around on the web, will Google and Facebook buy Twitter indeed both these companies have been in acquisition talks with Twitter, as per a report from the Wall Street Journal. With more than 175 million registered users worldwide, Twitter was the pioneer of the micro-blogging space. Its popularity is due to its easy usability and real time commenting feature. It is now believed that Twitter is holding low level discussions with Google and Facebook to decide an appropriate price tag. Wall Street Journal cites the reason behind this potential buyout is the 2011 valuation of Twitter which is being estimated to be $10 billion with possible revenue of $100-$110m. When you compare this to the 2010 valuation of $3.7 billion, its no wonder Facebook and Google are keen on snapping up this growing company.

The valuation — somewhere between $8 billion and $10 billion — is explicitly not based on Twitter’s current revenues. And valuing Twitter based on its revenues is exactly what Twitter’s suitors aren’t doing. The interesting question about Twitter’s valuation is not how high it is, but rather the way in which it can be justified. People are putting real cash money into Twitter at massive valuations — the company just raised $200 million at a $3.7 billion valuation, and Andreessen Horowitz just bought $80 million of stock in the secondary market at levels which might well be higher than that. These investors aren’t stupid, so what’s their reasoning?

Twitter has swaths of devoted users, but it’s a different story that it requires repeated explanation to many regular Joe Web users. According to a seurvey, of the people who use the Internet, just 12% use Twitter, according to a recent survey by Pew Research Center. Compare that to Facebook (used by 62% of Internet users), and text messaging (used by 74% of cell phone owners)

If Twitter is 20% the size of Facebook, and Facebook is worth $50 billion, then Twitter’s valuation of $10 billion makes pretty good sense.

The point here is that Twitter is becoming central to how people communicate with each other — a key part of the new social architecture. It serves a very important purpose in the lives of the people who have adopted it, and it’s likely to serve the same purpose for ever more people as its user base grows.

How exactly will crucial social infrastructure get monetized in the future? Nobody knows for sure — but everybody knows that it’s not simply going to happen by scaling up current-day revenues from promoted tweets and the like. Twitter’s on track to make $100 million this year without even breaking a sweat, but the one thing all of its investors understand is that priority number one for the company is to become an indispensable service for millions of people around the world.

If Google and Facebook are fighting over Twitter, a large part of its value to each company is that the other one won’t own it.

Twitter is a highly speculative investment, of course, and in fact only a very select group of carefully-qualified and extremely rich investors can invest in the company at all. Everybody putting money into the company right now is well aware that they’re taking a calculated risk.

Even though Twitter has denied merger and or takeover rumors, one can only wonder how long it will be able to resist the world’s two biggest tech giants. Some observers are speculating that these rumors are simply a marketing stunt by Twitter itself. But time will unveal the real story.

Who do you think as the greater advantage with this buyout is it Google or Facebook, let me know leave your comments in the comments section of this post.. Until then take care and have a great week ahead..

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