What is The Right Price For Twitter?

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Well, at least we know what the topic of conversation will be on many major sites today. Kara Swisher reported that Twitter and Facebook have had acquisition talks, but they have failed. The price is said to be $500 million in Facebook stock, with no cash changing hands. Personally, I was surprised at this price but given that Mark Zuckerberg seems to really like what they have done, it is not as surprising:

At the Web 2.0 interview, Zuckerberg called Twitter an “elegant model” and that he was “really impressed by what they’ve done.”

Obviously, there are stumbling blocks on both sides. First, Twitter has no revenue and there is little to suggest that a revenue plan has actually been created as opposed to just talked about. Buying Twitter without any expected revenue means that any purchase would largely be a bet that they could make money with the service. However, monetization of these web 2.0 services seems to be the holy grail. It is highly sought after, but nobody seems to be able to find it.

There is also concern about the offer price. $500 million in Facebook stock was supposedly based on the $15 billion valuation. That valuation was made “ages” ago, and is likely much less in today’s economy. Also, as an all stock offer, the price is less inviting. In order to cash out of the acquisition, Facebook would need to be purchased for cash or file for their IPO. An IPO is probably a few years off at the minimum.

Svetlana Gladkova at Profy wrote that Twitter is too good to be sold for $500 million. I would not agree with this concept if the price included a large sum of cash. Svetlana is really thinking about the offer itself which really does not work out well for Twitter. What if they do find a revenue model? Their growth has just hit an inflection point so they should be building a massive user base over the next year. There are potential revenue streams besides the obvious advertising. Corporate Twitter is a possibility if done correctly. There are also other potential suitors as Svetlana says in her post:

But it looks like if Kara’s report is true, we may hear further news about merger talks between Twitter and Facebook at some point as Facebook is told to be unwilling to see Twitter go to another company (and there may be various potential buyers, including Google or even Yahoo maybe).

Kara also mentions another interesting possibility in the form of a large telecom like Verizon. Google likely is not a player as they already own a competing service in Jaiku. Granted, they have basically let Jaiku die on the vine, but it is silly to expect them to purchase another similar service. Yahoo is a very good possibility given their new social focus. They could also bring a huge active user base onto the service. A telecom company is an interesting idea mainly for the web front-end for text messaging, but their is little else that a telecom company could benefit from. Personally, I think Twitter is ripe for a look from major “old media”. Maybe not a newspaper like the New York Times, but what about News Corp? They could even integrate Twitter into MySpace for another big user boost.

The other thing that needs to be determined is the appropriate price. I did a comparison of various social network valuations at the beginning of the year, and it is curious to see how Twitter stacks up to the competition. Given that analysis of the price of a social media user at these sites, we can create the following table.

Site Price Users Per Month Price Per User
Facebook.com $15,000,000,000 44,666,926 $335.82
Digg.com $300,000,000 27,778,825 $10.80
Bebo.com $1,000,000,000 3,415,967 $292.74
Twitter.com $500,000,000 3,398,972 $147.10
Plaxo.com $200,000,000 2,031,404 $98.45

As you can see, based on a $500 million purchase price, Twitter’s price per user would be $147.10. This estimates them significantly more valuable than Digg, but only 44% of the value of Facebook. Social Networks have tended to get higher valuations because of their potential network effects, and Twitter gets some of that too, but it loses some value because it is not a traditional social network. Given the basic user price, $500 million looks to be a reasonable purchase price for Twitter. Now they just need to find the right buyer.

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9 thoughts on “What is The Right Price For Twitter?

  1. You’ve got me curious – how would one go about finding a reasonable price per user for a given social media service?

    I use social media to find potential readers for my blog. The readers I’ve met that are invaluable number at least 20 or 30, esp. because they’re on social media themselves and aren’t afraid to promote my stuff without me even asking.

    So is asking a company that has a large revenue base to shell out $150 a user reasonable? Or even several companies? Your sponsorship would have to be tens or hundreds of companies, and once that happens, there’s only so much attention any given user has.

    There’s got to be a better model for assessing worth – I’m all ears right now.


  2. Ashok,
    If I knew the answer to that question, I would not be writing a little blog like this. The only thing we can do at this point is base things on the current valuations of companies. Why is Facebook valued at $15 billion? I have no idea, but someone with a financial background came up with that number, and it is all we have to go on.


  3. Here’s the thing –

    Twitter is Facebook without the noise. Unless Facebook figures out how to absorb that value, it may eventually have to figure out how to kill it.

    My instincts tell me that Facebook’s popularity is waning and that it might not be able to drive growth and revenue to support its valuation. Very quickly, they might be looking back at the $15bn number as an artifact of “the good old days”.

    If this is true, it isn’t automatic that Twitter will step in as the heir to the Facebook throne, but I’d wager that it is almost well positioned to do so. The next six months will be make-or-break for twitter in this regard.



  4. What is still more than surprising to me is the fact that we still value social networks based on the number of users they have instead of thinking what profit these users can generate for the network. After all, when someone buys a company they should consider its earning potential. Very strange given the current economic downturn.


  5. I just don’t get it, why would you pay that much for users that are probably already using your service (i’m sure that most twitter users would already be facebook users) … and twitter generates no income, nothing (how is it even still running?) … and has no plans to make money? wow, thats a great business model.

    it wouldn’t take facebook a day to extend the status messages to be exactly like twitter.


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