Last week, The Wall Street Journal (WSJ) reported that both Facebook and Google had conducted “low-level” talks with micro-blogging service Twitter about acquiring the firm. While the report suggested these talks were inconclusive, it did throw up a bombshell: evaluations had been in the range of $8-10 billion.
WSJ called this the latest eye-popping multi-billion-dollar evaluation in a season of “frothy” technology deals and evaluations. In January, Facebook raised $1 billion in a deal that valued the firm at $50 billion: almost as big as market caps today for companies such as Ford and American Express. And just on Sunday, social gaming firm Zynga said it was raising $250 million at a valuation of approximately $7-9 billion.
One reason why these companies are worth so much is the communities that they bring with them. According to a Pew Research Center estimate, 62% of all Internet users have a Facebook account. These communities can then be used to sell advertising to.
At a recent press conference to announce what could be a life-saving partnership with Microsoft, Nokia CEO Stephen Elop stressed several times the potential in using location-based services to sell localized advertising.But even this traditional rationale falters in the case of Twitter. Its revenue last year, wholly from advertising, was reported at $45 million. This year it is expected to go up to $110 million.
Why then is Twitter getting an evaluation worth 100 times its forecast revenue for this year?
Like most other things these days, the answers might lie in Tunisia and Egypt. The first stones of a revolution, it appears, are thrown on Twitter.
Twitter has achieved undisputed platform dominance. Egyptians didn’t want just the Internet back. They wanted Twitter back. This is unlike, say, blogging, which took off as a trend, but did so standing on the shoulders of several brands such as Blogger and WordPress.
For much larger players such as Google and Facebook, dominance in the social network and services sphere perhaps seems incomplete without Twitter. So perhaps the evaluations aren’t based on models, estimates or spreadsheets at all.
For users, however, an acquisition could be bad news. Twitter would seem less vital and benevolent if it were part of Google and Facebook, two firms not averse to opportunistic evil, in the same way that WikiLeaks wouldn’t be quite the same thing if The New York Times bought it.
Thankfully, at least for now, Twitter seems to prefer independence. WSJ reports that insiders believe it can become a $100 billion firm. Those 140 characters can add up to plenty.
Is Twitter overvalued? Tell us at email@example.com