A Tweet too Far

It’s Groundhog Day again, and this time there’s not a gopher like creature in sight. In the late 90’s money was thrown at 'upcoming' tech companies, and we know where that ended up. And in a way, it was not long before the concept of making large investments without a plan was again resurrected. You could almost overlook Google’s purchase of YouTube, but it was a fine example of buy first, think later. The Web was starting to become an interesting, interactive place, YouTube was a hot commodity, and Google just went with the flow. But at the time of the acquisition Google cannot have envisaged they were making a purchase simply in order to provide the general public with a forum for sharing short, comical videos involving animals, children and other potentially (un)hilarious props. The fact that YouTube currently does not have any real income stream cannot be something that Google is satisfied with. Though there were (and still are) certainly opportunities to turn YouTube into a real business, the Googlers don’t appear to have had the ambition (or perhaps time?) to pursue those opportunities with any great vigour. And now websites such as Hulu appear to be outflanking Google with regards to one of those opportunities, by becoming the principal site for legally watching TV on the Internet. Hulu is only available in America, and it is a long way from being a success (and is carrying the liability of being at the whim of TV companies and execs, who like their music industry counterparts, on the whole just do not get it), but they are at least making a concerted effort to tap into a thus far untapped income stream.

MySpace is another example; News Corp was lauded shortly after the purchase, but people eventually moved on, and the price that was paid for a business with no revenue stream suddenly looks to be unreasonable. What makes any of these companies such as MySpace or Facebook especially valuable is the buzz around them; none of them are making any proper amounts of money, none of them really know how they are going to do it. It is a psychological phenomenon; once the next exciting thing comes along, the herd moves on; the most recent example is Facebook. Had Mark Zuckerberg (owner) cashed in his chips six to nine months ago, he would have received an astronomical valuation (not to say that the current estimates of $4-6 billion are paltry, but they were even more ludicrous last year). And now Facebook is a company that provides a free service essentially allowing friends to stay in touch, with very little excitement factor, because inexplicably, everyone has moved onto Twitter over the last few months. And this brings me back to why it is Groundhog Day (sans gopher).

Technology pundits are falling over themselves to egg Google on to put down $1 billion and buy Twitter. This valuation is based simply on the fact that this is a suitably large number. The rationale is that Google does not have any real time search capability; and should the purchase not work out, then oh well, it was just a billion (and Google has plenty more of those). This is patently absurd logic, and if Google really is as clever as we all appear to think they are, they will have seen where a lot of the big acquisitions have gone these last few years (destination nowhere). In fact as I was sipping my coffee this morning, I read yet another article on Google/Twitter, where the CEO of Google was quoted as suggesting that they do not have to buy every company they want to work with. To me that makes a lot more sense, and indicates that perhaps the rush for tech M&A without a plan may finally be subject to the forces of reason and common sense.