Twitter rejects $500m Facebook friendship?

By Caroline McCarthy on 25 November 2008, 10:44am

Maybe it wasn't just egregious Silicon Valley gossip-baiting when Federated Media CEO John Battelle asked Facebook founder Mark Zuckerberg earlier this month if his company was going to buy Twitter.

Kara Swisher of AllThingsD reported early on Monday morning that actual acquisition talks held between the two companies have fallen through.

The deal would have been for $500m in Facebook shares, Swisher wrote.

Facebook doesn't have a history of acquisitions. The only sizable purchase the company has made was of a start-up called Parakey, and that was really just a way to bring on board its founder, Blake Ross.

Twitter's a different story. The microblogging service competes directly with Facebook's own 'status' feature, to the point where many Twitter users have configured their Facebook statuses to display their 'tweets'. It's also, after Facebook, the most hyped company to come out of the Bay Area in the past five years. (Sorry, Digg. You're third.)

The two also have a moderate connection: early Twitter investor Marc Andreessen sits on Facebook's board. Then again, that kind of six-degrees-of-separation factoid is commonplace in the Valley.

The problem with the proposed Facebook acquisition was that, according to Swisher, Twitter's executives and investors thought it would be better for the company to come up with its own business model rather than sell out this early -- in spite of the fact that the recession is going to make it very difficult for pre-revenue companies.

Plus, in addition to the "typical concerns about integration and costs" (per Swisher), Twitter reportedly was concerned about what that '$500m in stock' really meant, given that Facebook's paper valuation is significantly different than the $15bn 'preferred' valuation at which Microsoft invested $240m last year.

And, honestly: Facebook's still trying to evolve its own business model (to put it lightly). In this economic climate, does it really want to be handing more than $500m in stock for a company that, while hyped, has even murkier plans for profitability? Twitter CEO Evan Williams has alluded to paid business accounts, but we still haven't seen anything concrete.