Tech Bubble Fears Emerge as Companies Offer Billions for Twitter


Microblogging site Twitter has emerged as one of the most popular social media websites on the internet. In its short lifespan, Twitter has managed to acquire over 200 million registered users. This and the general popularity of social media websites has made Twitter a prime take-over target. Companies like Google and Facebook have shown more than a passing interest in acquiring Twitter and reports suggest that the price they are willing to pay gives Twitter a valuation in the region of $8-10 billion.

A $10 billion valuation for a loss-making company with only $45 million in revenues reminds one of the dotcom bubble in the late nineties which was characterized by a frenzy to acquire loss-making and low turnover internet companies at illogical and absurd valuations.

The tech bubble has now turned into a social media bubble. A recent $1.5 billion investment in Facebook valued the company at $50 billion as compared to a $10 billion valuation in mid-2009. Similarly, deal of the day website Groupon Inc. recently refused a $6 billion take-over offer by Google and has instead decided to tap the capital market with a public offering.

Both Facebook and Google are keen on buying Twitter and have maintained communication with the Twitter management in this regard. On its part, Twitter is trying hard into converting its huge 200 million strong subscriber base into a business opportunity. Twitter introduced advertising last year. It also recently came out with three new advertising plans, viz.  Promoted Trends, Promoted Tweets and Promoted Accounts. Twitter has also expanded the head count to 350 employees up from only 100 in early 2010. Sources close to the company suggest that Twitter executives are confident of turning Twitter into a $100 billion company.

Twitter is also in the process of constituting an executive team to oversee growth. The company appointed former Google employee Dick Costolo as CEO last year. The company also appointed Adam Bain as the president of global sales in August this year. Bain is a former president of Fox Interactive Media.

The current frenzy for social networking websites can be easily read from the fact that large companies like Facebook and Google are ready to buy a relatively small company like Twitter for an exorbitant $10 billion. Twitter’s long-term valuation will be decided by its ability to convert its 200 million strong subscriber base into a dependable income stream.

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