Twitter Has Big Company Problems (Without The Benefits Of Being A Big Company)

Dick Costolo Twitter

Photo: Fortune Live Media via Flickr

Here’s the Truth About Twitter, a $10 billion company with tiny revenues: it has reached an awkward stage where it has big company problems…without the benefits of being a big company.We have three pieces of evidence for this case.

Twitter can’t make big acquisitions. There have been many reports that Twitter tried buy Instagram, which Facebook bought for $1 billion last week.

It should have happened.

Twitter chairman Jack Dorsey was an Instagram investor (and user). Twitter is desperate to improve its photos products. Like Twitter, Instagram has a followers-based social graph.

The fit was perfect, but the deal didn’t happen for a simple reason. Facebook could offer Instagram a mere 1% of its market cap and the offer was still huge: $1 billion! To make a $1 billion stock offer, Twitter would have been giving up 10% to 20% of the company. That’s too expensive for Twitter.

Twitter is too big to buy. Twitter has no clear exit path. 

Twitter used to be a company that could be snapped up as quickly as Facebook bought Instagram, but it is not anymore. Twitter’s current valuation is somewhere between $8 billion and $10 billion. It would probably cost Google $10 billion – $15 billion to buy it.  

We’ve heard Google’s M&A people deeply regret not having acquired Twitter back when it was cheaper. These Googlers believe that Google is the only company that could actually monetise Twitter’s userbase. But these M&A people are “unequivocal” – says a source – that such a deal has become too expensive.

Twitter insiders probably still hope that Google will come calling. But it’s looking more like Twitter will have to  IPO. The problem with that path is Twitter’s ad business remains tiny and unproven.

Twitter needs to innovate like a startup, but people are quitting to innovate at their own startups. Twitter desperately needs to improve its photo-sharing product. That’s why it wanted to buy Instagram. But instead of hanging around and do that,  ex-Twitter VP of Business Operations Santosh Jayaram quit the company to go launch a new photo-sharing app, Dabble.

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