Twitter Wooed By Facebook On The Satin Sheets Of Venture Capital

It’s emerged today that Twitter, the short-message-based social networking tool beloved of those with low attention spans and politicians trying to get funk-ay, has been in talks with Facebook about a potential acquisition.

Facebook have offered to buy the company with $500 million worth of stock. Well it would, wouldn’t it, considering it’s seen as the most comically overvalued company ever at $15bn – paying for Twitter in stock at that price will inevitably be cheaper than paying the same in cash. But Twitter turned them down, for now, largely because no one could agree what that $500 million in stock was actually worth.

Watching Facebook court Twitter is like watching two clouds colliding – two ethereal objects, of great beauty, blending to create a larger object that is equally insubstantial. It all looks awfully like the last days of the Web 1.0 bubble: with both companies sharing the same Boo.com flashiness combined with a totally oblivious attitude to concrete revenue models.

In fact, it’s even scarier: at least Boo had products to sell. Twitter on the other hand has nothing to sell apart from ad space, and even that is compromised by tweets often being viewed outside of the Twitter website. ”Twitter” is becoming shorthand for the kind of Web 2.0 company that has a wonderfully engaging idea, tons of venture capital, and absolutely no idea how to make any ongoing profit.

Not that it’s troubling founder Biz Stone: “At this point, given that we have plenty of money in the bank, it makes a lot more sense not to distract ourselves with trying to put the finishing touches on a revenue plan”, he said this summer. So far the only money it makes comes from SMS messaging, which costs an almighty amount of money to do in the first place.

For Twitter to generate profits they’re probably going to need to have actual ad-tweets as part of a user’s feed, with an ad appearing every 20 posts or so: a risky, potentially alienating strategy, and one that hasn’t been announced yet. Or they might be able to generate revenue by placing links within entertainment and sports tweets – surely Britney Spears’ feed can have the occasional link to buy her record? But again, might this drive users away?

This is the problem with not having a revenue strategy from the outset – if you just blithely step out into the open with a wonderful free ad-less service buoyed by venture capital, then people aren’t going to like it when it gets compromised. If it had launched with advertising, premium vs. free subscription, or any other revenue model from the beginning, at least users would have had an honest understanding of what made the company tick.

Zuckerberg seems equally clueless about the whole money-making side of things: “In three years from now we have to figure out what the optimum model is. But that is not our primary focus today.”

So did Twitter make the right decision, or the worst mistake of its life? Perhaps both companies are passengers on a Web 2.0 train to nowhere, and it simply doesn’t matter.

Posted by Ben Beaumont-Thomas in Sci-tech | November 25, 2008 12:40PM |