Tuesday, November 25, 2008

Half a Billion for Twitter? No Deal!

This past week, Facebook, the social media juggernaut, offered to buy out the burgeoning Twitter for $500 million.  Twitter calmly said, "No thanks."  At first glance, dismissing this offer may appear to be a major gaffe on the part of Twitter, a company that currently has no business model(no money-making strategy), and runs a $75 million yearly SMS (short-message-service) bill.

Not so; this was most likely a smart move by Twitter for two reasons.

First, the $500 million was not actually $500 million dollars; it was $500 million of Facebook stock.   The offer was based on the pre-credit crunch valuation of Facebook, and "in these troubled times", such an offer is just not appealing enough to get Twitter to acquiesce to a Facebook take-over. 

Second, the ceiling on Twitter is nearly limitless.  The shear number of users continues to sky-rocket, and the notoriety of newer users (Britney Spears tweets) continues to spur more people to sign-up.  If, and when, Twitter develops a business model (which will likely be sooner than later), their earning potential will be enormous.  $500 million may be laughable compared to what twitter may be worth a year, or even 6 months, from now.

But wait, wouldn't it be only provident for Twitter to integrate with Facebook?  Not necessarily.  Facebook's focus is primarily for social networking, while Twitter is seeking to provide a professional/business service.  Keeping the two networking systems and services separate and distinct might prove to be a successful strategy for both parties (read as: don't mix work and play).

Bottom-line: Twitter made the right decision.  And, Facebook will still be as popular as ever.

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