Facebook is the most natural buyer. Google is the most strategic buyer.
The problem with any company acquiring Twitter is that it must invest resources in managing a company that’s proven near impossible to manage so far.
When you apply the lens of management overhead and risk of things falling apart after acquisition, you realize the M&A priorities don’t just follow dollars and who can afford the $15–20 Billion price.
Buy the company you can manage, not what you can afford
Buying companies is a lot like buying a house — it’s not the cost of purchase but the cost of fixing and managing that kills you.
Twitter is a great company driving so many conversations around news, current events, TV shows, sports and anything we all need to talk to each other about in real time.
But Twitter has challenges, to put it mildly.
Any acquirer of Twitter will have to:
- Fix the Product Gaps: Twitter product has many obvious gaps that need a lot of work fixing. There is a lot of potential here but its hard.
- Fix the Leadership Team: The management team at Twitter has gone through so many evolutions and is still work in progress. With a new owner, you will need to find or retain a leader who can drive this hard to manage company and product.
- Ad Business: Twitter gets almost all its revenue from ads. This means the buyer must know a lot about this business. Google and Facebook are the best at this.
- Social Business: With social networks, you get challenges like spam, hatred, abuse, identity verification etc. Very few companies in the world have experience running an open social network — Facebook has the most, and Google with YouTube is the clear second.
Who can run Twitter?
While there may be many possible bidders ranging from every telco, media and software company ranging Verizon to Comcast to Salesforce, here is the truth:
There are only two companies that can manage the product category Twitter is in, and the business Twitter is in: Google and Facebook.
Facebook’s successes in buying and integrating recent acquisitions like WhatsApp, Instagram make it a front runner in my view.
Facebook is the Natural Buyer, Google is the Strategic Buyer
Google has the money, the business skills to run an ad business just like Facebook but lacks experience with social networking. This makes it a bigger gap which strategically it needs to fill and may be willing to pay for but makes it a riskier bet than it is for Facebook.
Finally, let me leave you with a final thought on how Facebook could easily alter the Twitter product with minimal effort.
One of Twitter’s biggest pains is on-boarding new user’s — Facebook can solve that with its existing graph data.
Simply, abolish the need for a Twitter “account” by allowing casual users to use Facebook login.
Imagine billions of Facebook users being able to use Twitter without having to create a full Twitter account especially as consumers of content. My Dad can then watch sports and chat with me, and the world, and I won’t have to explain to him what Twitter is.
(Cross-posted @ Storm Ventures)