What does it tell us that no company ultimately bid to buy Twitter over the last month despite several reported brand-name interested buyers?
Twitter is the eighth-most-visited Internet site in the world; the best site in the world for real-time content; and is one of the few public companies in the marketplace that is growing revenue at a 20% annual rate – and no one even submitted a low-ball bid for Twitter? What is going on here?
Apparently, it tells us that there are only two companies in the world that could grow, leverage and monetize Twitter to make it worth roughly $20b under current circumstances – Alphabet-Google and Facebook -- and they both practically can’t buy Twitter for antitrust reasons.
Let’s analyze why.
First, Google and Facebook each individually would face unwanted serious antitrust risk.
Alphabet-Google
Currently, Alphabet-Google is embroiled in this century’s biggest antitrust case in the EU.
EU antitrust authorities have issued three different, mutually-reinforcing, abuse-of-dominance Statement of Objections covering search, mobile, and advertising, spanning seven separately defined antitrust markets in the EU and charging that Google commands >90% market share in multiple markets.
To protect its stellar brand, Teflon-reputation, and its record stock price/valuation, Google has very wisely attracted minimal public attention to the cases with unchanging, respectful, monotone denials and no comments.
Google buying Twitter could prompt a protracted, contentious, and newsworthy antitrust review, and self-ignite a potential continuous Twitter-storm of news about Google’s alleged monopoly abuses.
Twitter is not worth that trouble to Google given that antitrust-risk headlines would have to shave just 3% off of Alphabet’s near record stock price to reduce Alphabet-Google’s market capitalization by more than the potential premium purchase price of Twitter.
Moreover, Twitter offers insignificant benefit to Google given that Google generates 33 times more revenues than Twitter with the same annual growth rate, and given that Google likely already serves ~99% of Twitter users.
Facebook
As for Facebook, it is also undergoing unwanted antitrust scrutiny in the EU.
The EU reportedly is reexamining its approval of Facebook’s $19b acquisition of WhatsApp in 2014 given Facebook’s reported u-turn in how it wants to utilize customers’ WhatsApp data, i.e. differently than what it represented to the EU in its merger review.
This concern is an outgrowth of a new EU antitrust focus on the commercial exchange of large customer data sets between companies, given EU antitrust authorities’ new apparent concern that data dominance can be lasting and abused to limit competition.
Even more problematic, is that a potential Facebook acquisition of Twitter would be an antitrust non-starter of a >80% dominant #1 social media monopoly sharing network and social advertiser buying the #2 social media competitor.
Twelve-year-old Facebook’s $22.1b in annual revenues is nine times larger than ten-year-old Twitter’s $2.5b; and Facebook’s 59% revenue growth is three times faster than Twitter’s 21%.
Simply, Facebook grows more new revenue in nine days than Twitter does in a year, and Twitter is Facebook’s leading social media competitor in the EU and U.S.
Second, Google and Facebook together would face even more unwanted serious antitrust risk.
Twitter’s mission statement ankle-bites at Google’s and Facebook’s.
“Twitter’s mission is to give everyone the power to create and share ideas and information instantly, without barriers.”
“Google’s mission is to organize the world’s information and make it universally accessible and useful.”
“Facebook’s mission is to give people the power to share and make the world more open and connected.”
Either Google or Facebook bidding to buy Twitter inevitably would spotlight the reality of twin online advertising monopolies.
First that Google dominates information accessibility as an info-opoly and is the >90% dominant search advertising platform; and second that Facebook dominates separate adjacent markets --social sharing services and the >80% dominant social media advertising platform.
Combined “85 cents of every dollar spent in online advertising will go to Google or Facebook” in 2016 Morgan Stanley estimates.
This joint dominance could be enhanced even further by how Google and Facebook are further reinforcing their respective gatekeeper powers by forcing mobile Google content to adapt to its Accelerated Mobile Pages (AMP) platform and mobile Facebook’s Instant Articles platform respectively.
Given that instantaneity is Twitter’s hallmark and main competitive differentiation point, the collective one-two-punch of Google’s new “accelerated” platform and Facebook’s new “instant” platform would appear to hurt Twitter’s growth potential most.
Importantly, Google and Facebook’s information, sharing, and advertising dominances are the biggest reasons why Twitter is struggling to grow profitably and why no other company currently can envision how they could make money from buying Twitter at the current roughly $20b acquisition price.
In addition, Google’s dominance and devaluation of online news by offering Google News for free as a content-scraping-loss-leader… is debilitating media, content, image companies… and Twitter too.
Note that EU antitrust authorities continue to investigate Google’s content scraping, piracy, and commercial intimidation allegations that stemmed from Google shutting down Google News in Germany and Spain when those countries expected some payment for Google’s use of their companies proprietary IP.
It appears Twitter allows Google to index the tweets of those with the most followers, another reason Google has created for people to bypass Twitter and come directly to Google where Google can monetize Twitter’s most valuable tweets.
Furthermore, Google’s info-access dominance makes it very hard for Twitter to make money creating and sharing information instantly when Google News offers and organizes news headlines better than Twitter does for free and Google also offers ~190 more free products and services than Twitter does to create and share ideas and information quickly.
Third, Google and Facebook do not want to bring attention to their winner-take-all network effects.
Om Malik first effectively spotlighted Google and Facebook’s winner-take-all dynamics earlier this year in his outstanding New Yorker op-ed: In Silicon Valley Now, It’s Almost Always Winner Takes All.
In it Mr. Malik concluded that “most competition in Silicon Valley now heads toward there being one monopolistic winner;” that “Google is a winner that has taken it all…Microsoft Bing…currently runs a distant second in the search engine sweepstakes;” and that “Facebook has created a near monopoly in social networking. …Twitter is a distant second in the social web.”
This winner-take-all dynamic largely emanates from the antitrust notion of network effects, which is when a service generates more value and use, more users use it more. Simply, it is the natural feedback loop phenomenon that explains why the strong of something get stronger and the weak of something get weaker in certain circumstances.
In 2012, Google disclosed that Google News and Google News Search connected 1 billion unique users a week to news content. Interestingly, Google reportedly was the first web service to reach 1 billion monthly users in June 2011.
Based on those endpoints and other sources, I conservatively estimate that Google in 2016 commands about 1.7b search users overall and thus about 1.5b users a week of Google News and Google News Search.
Are potential Twitter buyers pondering how Twitter can compete directly long-term with free, scraped Google News content that is accessed by five times more users than Twitter’s free less-organized content is accessed?
Turning to Facebook again, are potential Twitter buyers pondering how Twitter can out-share and out-advertise Facebook when Facebook commands >5 times more users to share with?
Simply, Twitter’s big valuation problem here is network effects -- people naturally share most where more of the people they want to share with are available to be shared with.
Twitter may have bidders in the future, but not at a price that imagines Twitter’s best growth may lie ahead.
Finally, Google and Facebook want to avoid scrutiny of the fact that they stopped directly competing with each other in 2014.
After beginning to directly compete in social in 2011 and search in 2013 with great public fanfare, Google and Facebook both abruptly, coincidentally, and effectively stopped competing directly with each other in both the search and social media markets in 2014.
See here for the curious chronology of Google and Facebook’s statements about the importance of this direct competition and then their subsequent backtracking actions to abruptly end that direct competition with minimal public explanation.
Apparently, they either agreed in 2014 to no longer directly compete with each other, or they concluded independently that the other commanded unbeatable network effects that necessitated an exit from the other’s respective core market.
Conclusion
The purpose of this analysis is to try and explain the very strange and unexpected outcome of no bidders bidding for Twitter, even a low-ball bid, when Twitter is the eighth-most-visited Internet site in the world, the best site in the world for real-time content, and is one of the few public companies in the marketplace growing revenue at a 20% annual rate.
Apparently, something is else going on beyond Twitter, to make no one want to buy Twitter at this time.
That something else appears to be the fact that Google and Facebook’s search and social advertising platforms respectively are sucking up most all growth opportunity by jointly controlling 85 cents on every online advertising dollar.
In short, the curious case of Twitter having no serious suitors, tells us that internet advertising badly needs competition and vigilant antitrust enforcement.
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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an internetization consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.
