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Why a Facebook-Twitter deal was always unlikely

Kara Swisher of Boomtown has an interesting post today; When Twitter Met Facebook: The Acquisition Deal That Fail-Whaled.  That was news to me, although according to Techcrunch there had been prior rumours.

Apparently the deal being discussed was that Facebook acquire Twitter for $500m in Facebook stock at the ‘Microsoft valuation’ of $15bn, and it fell over because:

  • The lack of revenues at Twitter is an issue for Facebook, which has monetisation issues of its own to worry about
  • As are Twitter’s expenses on outbound SMS which could cost up to $75m if the service was taken up enthusiastically by Facebook’s 120m users
  • Twitter’s shareholders (which include Union Square, Charles River, Marc Andreesssen – also on the Facebook board, and Ron Conway) had an issue with the $15bn valuation being put on Facebook.  In their view the $5bn that has been reported for some recent investments in Facebook would be fairer.

Reading all of this I think a deal was always going to be tough because:

  • The valuation for Twitter is really only $166m if you use the $5bn valuation on Facebook and that is only a marginal uplift on the $98m valuation from Twitter’s last round.  This is not enough for a company which is performing well (they had 6m uniques on September, up 600% in a year) – particularly if it is taken in private company stock.
  • Twitter is better placed to find it’s monetisation model as an independent company than as part of Facebook.  What is required is a period of experimentation and Twitter would likely have got lost amongst the larger initiatives currently underway at Facebook – it wouldn’t have been significant enough to get the attention it deserved.  Therefore Twitter is worth more independently than as part of Facebook.

A couple of parting points are also worth mentioning.  Firstly as Jemima points out at the Guardian the Twitter community is still figuring out how best to use the service, and an acquisition by Facebook feels premature as it would dilute some of the ‘early adopter power juice’ (a gold star to anyone who figures out how to put that in a bottle….).  And secondly, as Alan points out over on Broadstuff there might be a parallel with when Yahoo!, a portal, turned down the chance to buy Google which was more of a commsnet.