Google buying Twitter would be like Microsoft buying Yahoo

Every few months, a rumour crops up that Google is interested in buying Twitter.

It cropped up again this morning, and may have contributed to a 4% rise in Twitter’s stock price. One outlet reported rumours that Twitter had hired Goldman Sachs to fend off two possible takeover rumours, one from Google.

We have no idea if the rumour is true. Twitter declined comment and we haven’t heard from Goldman Sachs.

But if it turns out to be the case, there’s a strong precedent in the tech industry for this kind of acquisition.

In 2008, Microsoft tried to buy Yahoo.

Microsoft was worried about Google dominating a new market, search. Microsoft tried to build its own competitor, Bing (then known as Windows Live Search), but it didn’t take off with users. So Microsoft figured it would buy the number two player, Yahoo, and combine its search and search ad business with Microsoft’s own.

Fortunately for Microsoft, Yahoo fought the deal and Microsoft walked away — months before the economy collapsed and Yahoo’s shares lost more than half their value.

As then-Microsoft CEO Steve Ballmer said in 2011, “Sometimes you’re lucky.”

Like Microsoft was threatened by Google, Google is threatened by Facebook, which is doing a better job than any other internet company of competing with Google for user attention and ad dollars. Google tried to build its own competitor to Facebook, Google+. But Google+ never took off with users, and has been relegated to a sign-on platform across Google services with a few interesting features for sharing photos.

So, Twitter. It’s the number-two social network, and has all kinds of data about connections between users and their interests. That data could be very helpful to advertisers.

Twitter is worth more than $US33 billion. Google would have to pay a pretty premium to buy it. Say, $US50 billion. Google has the cash — more than $US64 billion at last count — and could certainly deal with the taxes from repatriating all that cash from overseas.

But there would be huge integration costs. It would be a huge distraction. Antitrust regulators, who are already looking at Google under a microscope, would be very interested in the deal, too.

Sure, Google might be able to take Twitter’s information about users and the connections between them and use it to target ads even more effectively than it already can. But there’s a limited pool of advertising money. Advertisers are going to keep spending with Facebook because that’s where the people are, and Facebook is getting better and better at targeting ads to those people.

The time for Google to buy Twitter was back in 2009, when it would only have cost $US1 billion — about 4% of its annual revenues. That ship has sailed.

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