The likelihood of Facebook incorporating Twitter services into its social network is slipping away after acquisition talks between the two companies reportedly collapsed three weeks ago.
Earlier this month, the blogosphere erupted with rumours that Facebook was set to acquire Twitter for USD500m of its stock. Although some commentators dismissed the story as fancy, with CNET entitling its article 'Oh, dear, here come the 'Facebook to buy Twitter' rumours', Kara Swisher on All Things Digital now says not only did the talks take place, they recently came to a halt because of financial concerns.
The offer for USD500m in stock was reportedly based on a Facebook pre-economic downturn valuation of USD15bn, an amount that seems unlikely given the state of the market and Facebook's inability to turn much of a profit. Twitter believes the social network is now worth a more realistic USD5bn, which would place the deal at USD150m.
Twitter, which struggles to generate revenues, also hopes to start turning a profit before allowing itself to be acquired by another firm, says Swisher, quoting an unnamed company source.
Facebook is likely to be concerned with Twitter's financial health, too. The social network fears that Twitter's lack of profitability would lead to a massive SMS bill of up to USD75m per year. High costs have already forced Twitter to close down some of its services: the firm shut its outbound SMS service in the UK in August because service fees cost the company as much as USD1,000 a year each heavy user.
However, if Facebook is keen to acquire Twitter there is no reason why the deal should not take place in the future. Twitter posts are not very different from the popular 'status updates' on Facebook, and Facebook CEO Mark Zuckerberg says - in public in any case- that he is a fan of the service. Speaking at the Web 2.0 conference, Zuckerberg called Twitter an "elegant service" and said he is "impressed by what they've done".
Facebook is also famously defensive of its own narrow profit margins. Speaking exclusively to StrategyEye earlier this month, Facebook's commercial director for EMEA, Blake Chandlee, said the site doesn’t need to generate "huge profit streams".
"We are making enough money to satisfy our venture backers," he said. "That allows us to operate the company in the way we want to operate the company, and so Mark Zuckerberg has basically said that he wants us to make USD1 more than it takes to run the company."
In addition, a deal with Facebook would allow Twitter to take its services to millions more users worldwide. Twitter has 6m users, while Facebook has more than 100m, according to comScore.
