Google In Talks To Acquire Twitter

It looks like the newest sensation Twitter might be taken over by the King of the internet, Google Inc.  According to Tech Crunch and the  Washington Post, Google intiated talks with Twitter over the past couple of days.  According to the Wall Street Journal, however, the talks are to form a partnership.  The reality is probably somewhere in the middle.

Google would prefer to acquire Twitter, but they will definitely settle for a partnership.  At least that is my best guess.  I will continue with the assumption of a takeover, Google's number one option.  With close to 16 Billion in cash, Google obviously has the ability to acquire Twitter in an all cash acquisition.  

News of a potential takover or partnershp does not come as a huge surprise, given Twitter's recent populairty and their instant search engine function.  Along with the increased use by corporations and professions to market themselves and maintain awarnes of their existence.  

What is interesting to me is the valuation being discussed.  According to Tech Crunch, the valuation being offered is close to a billion dollars.  Apparently, this is not a price that the CEO of Twitter, Evan Williams, is going to pull the trigger on.  He is likely holding out for a lot more.  The question will be whether his venture fund investors let me hold out.  They probably want a quick pay day, and Google stock or Google cash, is a great way to reward the venture funds and their investors.  

If I had to guess, I would say that a public offering of Twitter would draw a price north of a billion dollars, possibly 2-3 billion.  I am sure they have explored this with investment bankers, and this is what they may be basing their reluctance.  

Because there is not a comparable service or company, it is hard to support this valuation.  But, given that they are not a mature company, they have a huge upside if they learn how to monetize Twitter effectively.  Recent attempts of increasing revenue have angered users of Twitter, but have likely created a strong outlet for future ideas and revenue growth.  A lot of fast growing companies draw billion dollar valuations.  Twitter could become a great advertising resource based off of its strong useage, loyalty and product placement potential.  This is obvious.

With 40% of the advertising market now turning to the internet, and likely continuing its momentum, Twitter could definitely become a profitable company and maybe even a large profitable company.  

Buyer beware, Twitter has the potential to be copied.  Even though Facebook, also has this risk, and has yet to be challenged, Twitter might be more easily copied because users could just Tweet their new location.  Facebook has the barrier to entry, of requiring copy cats to duplicate the online community, and retain the assets of that community, the individual's friends.  I am not sure I am making sense.  Said differently, it seems that the barrier to entry or the ability to recreate a product similiar to Twitter is low, or lower than it is for Facebook.  This could harm the valuation of Twitter.  How much of a risk this is, is to be determined.  

Google could use Twitter to step into the instant search market and stay a step ahead of both Yahoo and Microsoft.  I would think that a move to buy Twitter would be a great move by Google.  Google always seems to be on the cutting edge of takeovers, and seems to beat Microsoft to the door.  Even Google's takeover of Blogger is an excellent move, increasing their advertising tablets.  

It will be more than interesting to see what happens.  In related news, after hearing about the Twitter and Google news, I remembered that Facebook was recently rumored to increase their capital funding.  This made me wonder, whether this was in response to Facebook's failed takeover of Twitter.  Is it possible they were trying to raise money to acquire Twitter.  Twitter and Facebook would be a match made in heaven.