Twitter Says No To Facebook. What's Next?

Facebook has apparently tried to acquire Twitter for $500 million worth of stock five weeks ago but failed after talks between senior executives at both companies ended up in disarray at the beginning of this month.

Kara Swisher from All Thing Digital understands that there were two main stumbling blocks to the transaction; firstly there was a disagreement over the price of Facebook stock, i.e., in current economic conditions, is half a billion dollar of Facebook stock worth $500 million, bearing in mind that Facebook's original valuation took place when the stock market was still in top shape.

Secondly, the investors in the microblogging venture as well as top brass at Twitter want, just like other web 2.0 like Digg, to try their hands at building a decent and real revenue model. Twitter, unlike most of its competitors (jaiku, pownce, tumblr), has been growing at breakneck speed with 600 percent increase in registration over the last twelve months, reaching a whopping 6 million registrations and it tripled its audience over the same period.

Most importantly, many of Twitter's members are highly regarded members of the tech community who leverage on their network to make Twitter even more popular, hence creating a virtuous circle (Leo Laporte, Kevin Rose, Jason Calacanis, Robert Scoble, Michael Arrington).

But one can ask what Twitter could have brought to Facebook. Twitter's worth was pegged at slightly under $100 million at the last investment round and a five-time valuation surely underlines some unique, undervalued selling point. Still Twitter doesn't have any revenue model as it stands and is burning money at a worrying rate.

It might try to add adverts at some point or charge heavy users or businesses for using it. Otherwise, it will end up asking for more money as it becomes more popular and investors might become impatient as Return on Investment/return to profitability is forever postponed.

Still, news of Facebook's interest in Twitter could attract other potential investors curiosity not only in Twitter but also in its competitors.

However, it could also mean that Facebook could well decide to do a "Microsoft" and muscle its way in the Microblogging environment by investing serious money (or buying one of Twitter's competitor) and kill Twitter altogether (like Microsoft and say, DR-DOS or Real or Netscape).

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