Angel investor Dave McClure
pointed out on Tuesday what is obvious to everyone but Google: Google needs to buy Twitter immediately.
We've been
urging Google to buy Twitter for more than 18 months now, and it would have cost the company a lot less if it had taken our advice 18 months ago.
But whatever it costs Google to buy Twitter today is worth it.
Here's why:
* Facebook is emerging as a serious threat to Google's core business, and Twitter is the only "social" company Google can buy that might have a chance of combating this. Facebook will soon be the largest web site in the world, and people already spend a lot more time using Facebook than they spend using Google. Facebook is becoming a communications "desktop" that could eventually supplant Gmail (yesterday's
Facebook-Skype partnership will help.) There is a chance—still small—that Facebook will be able to develop a search product that starts siphoning some search revenue away from Google. There is also a chance that Facebook will begin to replace the browser and desktop for many folks, which could lead to Google having to pay Facebook for distribution. How exactly Facebook might eventually threaten Google isn't clear, but the possibility that it WILL threaten Google in some way increases every day. Google cannot buy Facebook. Everything else in the social sector is worthless. So Google needs to buy Twitter.
* Apple, Google's other nemesis, is now making its first push into the social networking business, and there is presumably more where that came from. Yes, Apple's social-networking efforts may prove as pathetic and futile as Google's have been. But if they aren't, look out.
* Google's attempts to break into the social business organically have utterly flopped. And there is no reason to think that this will ever change.
* Google has ~$30 billion of cash rotting on its balance sheet earning nothing, and it piles up another ~$2 billion of new cash every QUARTER. Google has no use for this cash other than buying stuff. It is not going to pay a dividend anytime soon, and it certainly doesn't need to make its balance sheet any stronger. Google could transfer $5 billion of cash to Twitter's investors tomorrow, and Google shareholders would barely miss it.
* Twitter is now large and self-sustaining enough that Google might be able to avoid screwing it up. If Google had bought Twitter two years ago, this would have been a big concern. Now, however, Twitter has enough momentum behind it that it should be able to take care of itself. And Google's engineering resources and infrastructure will likely help Twitter scale from here.
* Google has so much cash that it could buy the top 10 companies in the "Twitter ecosystem" tomorrow for peanuts. Google is always bragging about how "open" it is, especially relative to Apple. Twitter is quasi-"open," too. Some Twitter applications, moreover—our TweetDeck, for example—are open on users' desktops 18 hours a day. By gobbling up these applications, Google would take a leap forward in its drive to supplant the desktop. It would also more easily be able to build these products right into Chrome, et al. And it would recruit more developers into the Google ecosystem, which would help it gain more ground against Apple and the iPhone/iPad.
* Twitter is now experimenting with revenue models, and Google CEO Eric Schmidt appears to believe that Twitter will coin money someday. Google should buy Twitter even if it thinks Twitter will never make money, merely as a way to get into the social-network business. But if Google thinks that Twitter will eventually bring home the bacon, then all the more reason to grab it.
How much would it cost Google to buy Twitter?
Probably $5 billion.
Twitter is doing an excellent job appearing that it is not for sale, and it probably actually isn't for sale. Which means Google needs to make it an offer it can't refuse. $5 billion in cash would probably do the trick.
Will Google actually have the balls to do this?
Probably not.
One former senior executive at Google says that Google never buys anything unless it thinks it's going to be made to look stupid by allowing someone else to buy it first. This, the ex-Googler says, is why Google suddenly jumped into the bidding for mobile ad network AdMob—because Apple was about to buy it.
So unless another company makes a serious run at Twitter—and there's really only one other likely buyer that could afford to do it (Microsoft)*—Google will probably do nothing until it's too late.
*Okay, maybe China's tencent could afford to buy Twitter. And it probably should. But the folks who freak out whenever a Chinese company tries to buy a US company would probably freak out about that.
