Is a Twitter and Google Marriage Wise?

According to TechCrunch this morning, Twitter is in talks to be purchased by Google.  The last valuation of Twitter a few weeks ago was ~$250M, so the purchase price would have to be somewhere north of that.  I can see how this makes sense for Google, but is this really the wise choice for Twitter?  The answer to that question is really dependent on whether or not Twitter has identified a sure bet business model; my hunch is that the answer to that question is a resounding NO.

Now I use Twitter most every day.  I see it as a value to my life, but would I pay for it?  No.  Are there plenty of ways for Twitter to make money? Yes.  However, they need to move fast, as the technological barrier to entry is not very big.  The real barrier to entry is the user base that they have accumulated, which grew 33% in February to 10M unique subscribers. 

Part of the reason for the high level of monthly user adoption to this new communication mechanism is the grass roots feel of the application.  YouTube mirrored this same grass roots feel and growth rate back in 2006, when Google purchased them.  At the time Google purchased YouTube, everyone thought that profitability was surely around the corner.  However, in August of 2008, Google disclosed that YouTube was still not profitable.  Hmmm.

So that brings us back to the original question.   Regarding the wisdom of this transaction, you have to segment which crowd you are asking.  If you are asking for the collective wisdom of the Twitter users, I am guessing that the answer would be that Twitter should remain independent.  At the same time, if you were to gather the collective wisdom of the Twitter and Google employees, I believe that the answer would be, “run, don’t walk to complete this deal”.

I have to say that I would agree with both sides here.  I personally never use YouTube anymore, which was not a conscious decision but just kind of happened that way.  Similarly, I think that once this transaction is complete, Twitter may lose a lot of its luster.  However, I think Twitter should not consider hesitating whatsoever.

It is my humble belief that Twitter is far away from anything that resembles profitability.  I also believe that the days of large valuations for unprofitable companies are coming to an end.  With the down turn in the economy, I think that the patience of the shareholders, to take the massive dilution required to acquire these unprofitable companies, is waning.  I think what we are seeing is an economy that goes back to basics, with more realistic valuations based on fundamentals.  It is quite possible that some companies, like Twitter, will still be able to ride the hype.  On the other hand, those opportunities are becoming far and few between.

So, who is right in my imaginary scenarios outlined here?  As a more recent user of Twitter, I would have to agree with the majority of users.  Keep Twitter independent!  At the same time, as a capitalist, I would have to agree with the majority of the Twitter employees, “Do the deal, do the deal”.  

Getting to the point, the wisdom of the “entire” crowd is valuable but sometimes the granularity of the crowd’s wisdom can be important.  Now if only we could really access it. 

The Crowd is gathering…….