IP Communications

Madan Sheina, principal analyst at Ovum, says the breakdown of the Facebook (News - Alert)-Twitter talks “might not be a bad thing.”

 

What would have been the first major consolidation between two social networking giants “has failed to materialize, as Facebook’s attempts to woo Twitter with an all-stock offer fell on deaf ears,” Sheina notes, adding that “Facebook’s valuation seems to have been the sticking point. But with neither company as yet able to demonstrate that it can make money on a scale that matches its number of users, the outcome might not be a bad thing.”

 

Sheina says Facebook was tabling a $500 million all-stock offer for Twitter, of a relatively high offer, “but apparently it wasn’t enough for the micro-blogging site.”

 

First Coffee must say he agrees with Sheina’s observation that it was probably as good a price as Twitter could hope for at this time: “Could Twitter really look at itself in the mirror and justify a higher price, or even that price for that matter? After all, it is still without a revenue-generating business model. Plus its ability to send mini text messages of 140 characters or less on the Internet or mobile phones is a clever idea but hardly rocket science, and certainly doesn’t come with a natural money-making model.”

 

Indeed, finding a sustainable revenue model is devilishly difficult – industry observer Brian Kraemer has reported that microblogging service and Twitter competitor Pownce was purchased by Six Apart and will evaporate by December 15. Six Apart is the company behind Movable Type, TypePad and Vox.

 

“Twitter premiered a couple of years ago and recently has seen an exponential growth in users, despite the Fail Whale and other talking heads who claimed it would never work,” Kraemer notes, contrasting that to Pownce, which “debuted to a media firestorm on June 27, 2007. Unfortunately, that initial coverage didn't generate enough buzz to keep the site active for more than 18 months.”

 

So how does one value Twitter? Valuations are typically based on the company’s last transaction, as Sheina points out, which in Facebook’s case “has reportedly been set at around $15 billion, thanks largely to Microsoft’s $240 million stake 13 months ago for greater advertising rights.” Such a valuation exceeds that of Yahoo and eBay (News - Alert), both of which are profitable business models.

 

Of course people are cognizant of the fact that Google (News - Alert) has lost around two-thirds of its value, and News Corp, the parent firm of rival social networking site MySpace, is trading at a third of its 52-week high, so who’s to say what’s worth what these days?

 

Sheina raises another issue: “Revenue has always been an issue for Facebook and Twitter’s high SMS costs related to the delivery of its messages to mobile phones in some international markets does not really address that… Twitter would certainly be a nice addition to Facebook’s stable, but it isn’t necessarily going to take Facebook into new revenue-generating markets.”