What Value does Google see in Twitter?

While rumors abound that search giant Google wants to acquire Twitter (as TechCrunch broke and I4U reported here), the question remains as to what value Google actually sees in the popular micro-blogging service.

Outside of Google’s history of gobbling up insanely popular but difficult to monetize Web properties (see their 2006 purchase of YouTube for $1.65 billion in stock), how can a company that just laid off 200 employees justify splurging upwards of $250 million (Twitter’s supposed worth based on venture funding) acquiring another that boasts no revenue stream or business model?

To illustrate the issue, during a recent Colbert Report appearance, Twitter co-founder Biz Stone had a vague and near cringe-worthy response to Stephen Colbert’s quip, “So the 'Biz' in Biz Stone doesn't stand for 'business model', I assume?".

Stone replied:

"We’re recognizing a difference right now between profit and value, and we're building value right now… Right now we're building on value, that means extending the service world wide, globally so that more people have access to this real-time network… As we grow, that network, it becomes more valuable as we add features to it, as we make it more robust. When we get to the point where we feel we have gotten there, we will begin experimenting with revenue models. This is not unlike the way Google approached their revenue."

Michael Arrington (TechCrunch founder who broke the story) claims that Google’s interest lies in Twitter’s “real-time” search engine that instantly indexes user tweets. Because Google uses complex algorithms to rank and index entire Web pages, there is a lag between when a user leaves information on the Web (via an update, blog post, or comment) and the time it appears in the search rankings. Twitter, only indexing 140 character tweets, can provide a marketer or company an instant “snapshot” of what users are saying about a particular brand, including user complaints and praises. This sort of unsolicited and unfiltered feedback could be gold for brands.

Or so the theory goes. In reality, limited to 140 characters, the Twitterati (a mocking reference to the Twitter elite) are not exactly filling out customer satisfaction surveys en masse. Most tweets referencing brands contain no real insight outside of who is consuming what and when. As Valleywag’s Owen Thomas claims, “Much as a stopped clock is right twice a day, occasionally one finds some bit of timely news posted by a Twitter user.”

With an estimated 5 million users, according to Forrester Research, Twitter is also well short of critical mass. Google may believe that Twitter follows the route of cell phones and Facebook by reaching the penetration point where one has to be on Twitter because everyone else is on Twitter, making Twitter the preferred form of communication for those who would now rather text. From shear mass could come real insight and revenue. However, it’s worth mentioning that Facebook, with its 175 million active users who also express themselves not unlike the Twitterati, has not found a way to successfully cash in on its users information.

Or, Google could just be trying to keep Twitter out of Microsoft’s hands. The Redmond giant has long tried to make up ground in the search game with Windows Live Search and its rebrand, Kumo.com (See I4U's coverage of Kumo). Recently, Microsoft CEO Steve Balmer promised a “set change” in search with Kumo at the 2009 Business Week Media Summit. Could that include Twitter’s search function? Conversely, If Microsoft suspects Google is close to acquiring Twitter, expect Microsoft to step in, if only to muck things up for Google.

With that in mind, maybe Google thinks Twitter’s value merely lies in keeping it away from a well-funded competitor gunning to gain market share.

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