Why Facebook, Google Eyeing Twitter?

Micro blogging giant Twitter is said to have held low level acquisition talks with Google Inc. (Nasdaq: GOOG) and Facebook.

Executives at search giant Google and social networking leader Facebook, among other firms, have held low-level talks with those at Twitter Inc. to explore the prospect of an acquisition of the messaging service, the Wall Street Journal reported citing people familiar with the matter.

Twitter, founded by Jack Dorsey, Biz Stone, and Evan Williams in March 2006, but launched publicly in July 2006, has been valued between $8 billion to $10 billion, the Journal said.

In December, Twitter was valued at $3.7 billion when it got $200 million in new funding from venture capital firm Kleiner Perkins Caufield & Byers and existing Twitter investors. On Feb.9, venture-capital firm Andreessen Horowitz said it has invested $80 million in Twitter.

At a glance, the valuation of up to $10 billion might seem too much hefty for a site that was launched only five years ago and said to have generated only $45 million revenue in 2010 and posted a loss after spending heavily on hiring and data centers.

But, there were strong reasons that Twitter may justify its huge price tag. The site, which is soaring in popularity by each day, has loads of user data that could help advertisers.

By next year, Twitter is estimated to rake in ad dollars even more than peer Myspace, which is expected to see spending drop to $184 million worldwide this year and $156 million in 2012.

Twitter, in which users put text-based posts of up to 140 characters, popularly known as Tweets, has 175 million registered users, with 95 million tweets written per day.

California-based Twitter is expected to generate $150 million in revenues in 2011, with vast majority of which will come from the US, according to eMarketer.

That said the $150 million number represents a substantial increase over revenues of $45 million during 2010, the first year Twitter sold advertising.

By 2012, eMarketer forecasts that Twitter revenues will reach $250 million. But, the company must show it can live up to its hype.

If Twitter can grow its user base and convince marketers of its value as a go-to secondary player to Facebook, it will succeed in gaining revenue, said Debra Aho Williamson, eMarketer principal analyst. In 2011 it must work overtime to give its early advertisers a positive experience.

Booming Social Ad Market

The ad market in social networking sector is set to boom in the coming years. US marketers will spend $3.08 billion to advertise on social networking sites in 2011, eMarketer predicts. Spending will be up 55 percent over the $1.99 billion advertisers devoted to social networks in 2010 and will rise by a further 27.7 percent in 2011 to reach nearly $4 billion.

This year's dramatic growth in spending will bring social media ad dollars to 10.8 percent of the total spent online in the US. Worldwide, social network ad spending is expected to grow 71.6 percent to $5.97 billion.

No wonder, Twitter chief executive Dick Costolo is focusing on money-making ad market before its IPO. As a result, that, the company is hiring engineers aggressively and appointed Adam Bain, a former Fox Interactive Media president, as its President, Revenue in August to boost its ad monetization efforts.

In April 2010, Twitter announced plans to offer paid advertising for companies that would be able to purchase promoted tweets to appear in selective search results on the Twitter website, similar to Google Adwords' advertising model.

As of April 13, Twitter announced it had already signed up a number of companies wishing to advertise including Sony Pictures, Red Bull, Best Buy, Starbucks and Virgin America.

Twitter's monetization efforts is expected to go into full gear this year, with the current Promoted Products suite and the pending launch of a self-serve platform akin to Facebook's highly successful ad targeting system.

Twitter's other ad products include Promoted Trends and Promoted Accounts.

In Promoted Trends, when a user clicks on the Trend, they are taken to the conversation for that trend - with Promoted Tweets pegged to the top of the timeline. A Promoted Trend gets massive exposure and is ideally placed to kickstart a conversation on Twitter and beyond.

Promoted Accounts are built to gain new followers on Twitter and is ideal for discovering new businesses, content, and people on Twitter.

Google Vs Facebook

Both Google and Facebook have discussed buying Twitter in the past and have kept their lines of communication open, the Journal people familiar with the matter said.

Facebook, whose $500 million bid was rejected by Twitter in 2008, has at least 500 million in registered users, is set to attract billions of dollar in advertising. eMarketer forecasts that marketers will spend $4 billion worldwide on Facebook in 2011, with $2.2 billion of that in the US. The company will receive 68 percent of all social network ad spending worldwide.

By buying Twitter, Facebook could consolidate its position in the social networking space and generate additional advertising dollars.

For Google, which has at least $35 billion to spend on acquisitions, is trying to boost its presence in social networking space and Twitter could be a good fit as it offers the most comprehensive and only real-time database online. Moreover, Google may want to get its hands on Twitter ahead of competitors like Facebook, Microsoft or Yahoo to exploit the booming social networking ad market.

However, despite a rich valuation of up to $10 billion and several potential suitors, Twitter executives are reportedly not interested in selling their firm and they believe they can build Twitter into a $100 billion company.

The latest takeover speculations over Twitter come as the valuations of social networking sites are surging amid strong investor interest. Late January, LinkedIn filed to raise up to $175 million in an IPO, becoming the first social networking company to start the process of becoming publicly traded.

Facebook, which raised $1.5 billion recently, is also speculated to file for IPO and has been valued at $50 billion. Meanwhile, Internet radio company Pandora Media Inc. also reportedly plans a $100 million public offering.

Groupon Inc., which rejected a $6 billion buyout offer from Google, is said to be planning for a public offering this year. The company's IPO could be for $1 billion to $1.5 billion, CNBC reported.

If the IPO goes ahead, it would rank among the largest tech IPOs in the United States of the past decade, according to Thomson Reuters data.

Farmville maker Zynga is also a potential IPO candidate.

Among the recent media takeovers, AOL Inc. agreed to pay Huffington Post $315 million, which is about 10 times more than the website's 2010 revenue.