Google acquisition rumors reflect Twitter's importance

While an acquisition is unlikely, a formal partnership or collaboration wouldn't be surprising

While rumors of an imminent Google acquisition of Twitter were apparently off base, it wouldn't be surprising to see the companies strike up a formal collaboration or partnership.

Twitter, a microblogging service in which millions of people post brief text messages, has emerged as the custodian of a valuable online index of real-time facts, comments, musings and announcements, information that is clearly valuable for Google's search engine index.

Google routinely collaborates with major Web sites to determine the best way to crawl and index their content for its search engine, so sitting down with Twitter for that purpose would be consistent with its modus operandi.

"Twitter is clearly hot. The phenomenon of real time search and the ability to capture this stream of 'tweet' discussions is an important development in social media and search because people are trying to mine data for information that might otherwise be sought in a search engine," said industry analyst Greg Sterling from Sterling Market Intelligence in a phone interview.

"This whole phenomenon Twitter represents is here to stay and needs to be addressed by search engines."

However, it's much less clear why Google would want to spend major-acquisition money on Twitter at this time. After all, Twitter doesn't represent anything close to a clear and present danger to Google in the search market.

"Twitter exemplifies the category of real-time search, but it's not a Google killer," Sterling said.

In addition, Google, like most companies, is in cost-cutting mode and Twitter, while wildly popular, hasn't figured out a way to generate much revenue yet.

"There's a very interesting parallel between Twitter and YouTube. When Google bought YouTube, they did it because it was extremely popular, got tons of traffic and represented this new trend of video hosting and sharing. Now, Google still hasn't found a way to effectively monetize YouTube in a big way," said Allen Weiner, a Gartner analyst, in a phone interview.

"Does Google really want to spend another huge amount of money on another extremely popular service that hasn't figured out a way to make money? I don't see it happening."

Others aren't so sure.

In an e-mail interview with IDG News Service, IDC analyst Karsten Weide said Google would gain "tremendous stickiness and traffic" from Twitter. "Microblogging is becoming an accepted new channel of online communications in addition to email and instant messaging, and it is here to stay," he said.

But he agreed that Google needs to know that it's highly likely Twitter will never make significant amounts of revenue. "That would mean - just as Web mail - it would be a loss leader that one cross-finances in order to have the indirect benefits," Weide said.

While Google doesn't need to boost its audience, the acquisition might keep Twitter out of the hands of competitors, namely Yahoo and Microsoft, he said.

"I think an acquisition would make sense, and if they can get it for less than $1 billion, the better it is," Weide said.

Others believe Twitter should actively entertain the option of getting acquired by Google and strike while the iron is hot.

"Other tie-ins short of an acquisition could make sense, but would be harder to sustain since Twitter already uses such open interfaces. It will be hard to do something that others can't replicate. Now is the time for Twitter to sell. It is at the top of its hype range now. Monetizing on its own would be a long, hard slog," wrote Gartner research vice president Jeff Mann in a note e-mailed to reporters.

The rumors erupted late Thursday when tech blog TechCrunch reported the companies were engaged in "late stage negotiations" for an acquisition, citing two anonymous sources. TechCrunch later tempered that report, saying a third source characterized the discussions as "early stage" and possibly revolving around a search engine collaboration.

On Friday, The Wall Street Journal's All Things Digital tech blog, also quoting anonymous sources, said no acquisition discussions were on the table, but rather talks about collaboration on real-time search and better crawling of Twitter's content.

It would be interesting to see what emerges from a collaboration between the companies to fine-tune Twitter's usefulness for search engine users, Sterling said.

"Right now, it's problematic using Twitter as an alternative search engine. There's a lot of noisy results you get on Twitter's search," Sterling said. "If you can remove some of the noise, it could be quite powerful."

For example, Twitter could turn into the next evolution of question-and-answer search engines, especially for users tapping into it from mobile devices, Sterling said. "It becomes a word-of-mouth network that is kind of instantaneous," he said.

That would complement all the different ways in which Twitter is already very useful, like for marketing, Sterling said.

There would be technical challenges in making Twitter into a more useful search engine, and it would involve Google coming up with a way to weigh the reliability and authority of different Twitter users, Weiner said.

While Google declined to comment, Twitter's co-founder Biz Stone posted a note on the company's official blog saying the company's plans are to remain independent.

"It should come as no surprise that Twitter engages in discussions with other companies regularly and on a variety of subjects," he wrote. "Our goal is to build a profitable, independent company and we're just getting started."

Stone also encouraged people to apply for jobs at the company, an interesting document to peruse for Twitter's recruiting efforts hint at its plans to Twitter's current plans and business and technology strategies.

Interestingly, Stone appeared on Stephen Colbert's "Colbert Nation" on Thursday evening, and during the interview he also said the Twitter's intention is to be a strong and independent company.

"We're recognizing a difference right now between profit and value. Right now, we're building value," Stone told Colbert.

That means extending Twitter globally, tapping not only into Web-based users but also into mobile phone networks, as well as adding features and refining the service, Stone said.

"When we get to a certain point where we feel we've gotten there, we'll begin experimenting with a revenue model. This isn't unlike the way Google approached their revenue model," he said. The revenue-model testing and experimentation will begin this year, but Twitter will take its time getting it right, Stone said.

Stone's comments may signal a potential tension with Twitter's financial backers, who have poured $55 million into the company. "Investors may agitate for an acquisition because the idea of an IPO is unlikely if not impossible," Sterling said.

Another issue that might derail a Google acquisition is that several Twitter staffers, including Stone and co-founder Evan Williams, already went through the experience of working for Google, after Google acquired Pyra Labs and its Blogger blog publishing service in 2003.

At the time, Blogger was the undisputed leader in the blog publishing space, but as part of Google its rate of innovation slowed down and competitors like Wordpress and Six Apart delivered more sophisticated services.

"Blogger was ahead of the curve when Google bought it and then it became the AOL of blogging platforms: an early leader that then lost ground," Sterling said.

If Google bought Twitter, the Twitter service would see some immediate improvements, Sterling said. Twitter posts would be incorporated into Google search results. Twitter's own search would be improved. Google would monetize Twitter with ads. But in the end, it could face Blogger's destiny.

"You might see Twitter maintain its current leader status for a while, but maybe not see if evolve as dynamically as it would under the stewardship of its founders," Sterling said.

It can't be encouraging that Google decided to stop actively developing Jaiku, a Twitter competitor Google acquired in 2007. Instead, Google has decided to port Jaiku to Google App Engine, and later to release the Jaiku engine as an open-source project under the Apache license.

The Jaiku service is maintained by volunteer Google engineers. Google also recently put mobile social-networking service Dodgeball out to pasture.

Other signs that would point against a Twitter acquisition are recent comments made by Google CEO Eric Schmidt, who called Twitter "a poor man's e-mail" and wondered whether it will remain a stand-alone service or become an e-mail feature.

Schmidt has also said recently he doesn't foresee Google making major acquisitions in the immediate future.

Tags Googletwitter

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Juan Carlos Perez

IDG News Service

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