Google (GOOG) is in negotiations to buy messaging startup Twitter, San Francisco’s hot startup du jour, according to TechCrunch’s Michael Arrington. One of Arrington’s sources says the deal is in “late stage” negotiations, while another says the deal is in “fairly early stages” and that the companies are also just talking about working together on a “Google real time search engine.” Meanwhile, AllThingsD’s Kara Swisher says there is no deal; just that “Twitter and Google have simply been engaged in ‘some product-related discussions’.”
There is a price for everything. But unless Google is offering a fortune — in cash — it’s too early for Twitter to sell itself.
Twitter is flush with cash, having just raised another $35 million at a $250 million valuation. Its growth shows no signs of slowing, it has little competition beyond Facebook — which has struggled to elegantly replicate Twitter’s real-time chatter — and has only just started trying to make money, with several revenue opportunities ahead.
If the price is right — $750 million to $1 billion in cash — Twitter and its investors are smart to take the money and run. Twitter doesn’t want to become the next Digg, which wasn’t able to sell itself at the peak of the Web 2.0 bubble, and now will have to do a lot of work to get a big deal. But we still think Twitter is in a very good position to become the “rails” that the real-time Web rides on… and that could be worth a LOT of money someday.
Meanwhile, why would Google want Twitter? It’s not making any meaningful money, which would give the company a real hard time explaining a $1 billion deal to its investors. And while that doesn’t usually stop Google — see YouTube, etc. — sales and profitability are much more important today than in 2006.
One difference between Twitter and YouTube: Twitter actually has significant relevance to Google’s main search business. As Twitter’s popularity increases — which it is, rapidly — the idea of “real-time search” will be increasingly important to Google.
Surely Google could build a decent real-time Twitter search function, the way it was able to easily blow Technorati’s blog search engine out of the water. But by acquiring Twitter, it could do so with minimal mess, while keeping another prized deal out of Microsoft’s (or Facebook’s) hands.
And it would own the messaging infrastructure that many promising companies are starting to base their businesses on, which itself could be worth a lot of money someday. So, depending on the deal size, Twitter could be worth the cash, even without much revenue to show for itself. But for now, it looks like this is a non-issue.