Does a Google-Twitter Acquisition Threaten Microsoft, Yahoo?

Google's rumored possible interest in acquiring Twitter has the online world buzzing, and such a deal would have advantages for both companies. One big question, however, is how a Google acquisition of Twitter would affect Google rivals Microsoft and Yahoo as they attempt to gain market share in the search and online advertising arenas.

The online world has been positively abuzz with news of a potential Google acquisition of Twitter. While the blog TechCrunch has quoted sources as saying such a deal is imminent, others, such as BoomTown, say such talk is the purest speculation.

In either case, however, a big question presents itself: how an acquisition of Twitter by Google would affect Google's competitors in the search space and online advertising market, most notably Microsoft and Yahoo.

Twitter has been boosting its search capabilities, including transferring its search bar from to its main Website and establishing a "Trends" menu to allow users to see in real time the most talked-about subjects on the site. Any deal between Twitter and Google would bring these capabilities under the search giant's roof.

At the same time, Google could potentially make use of AdSense on Twitter users' pages, exposing Twitter users to contextual ads multiple times per day. Twitter's monetization potential would expand, as the company could receive a substantial percentage of the revenue generated from such ad placements; recently, Twitter has been experimenting with sponsored sites and commercial accounts as ways to generate cash flow.
But what would such a merger do to Microsoft and Yahoo?
"I would certainly see it as a threat to Microsoft, which really needs to provide a boost to its search engine," John Byrne, an analyst at Technology Business Research, wrote in an e-mail. "Differentiating by offering superior search around user-generated content and specifically microblogging could be one way for Microsoft to differentiate its search engine and unlock Google's grip on search."

Were Twitter already bought, obviously, Microsoft would have to look for another company to fill that void; given Twitter's current momentum in the microblogging space, that task could present a substantial challenge.

Acquiring Twitter would also help Google's bottom line (and hurt its competitors) by adding "tremendous stickiness and traffic," according to Karsten Weide, an analyst with IDC.

"Microblogging is becoming an accepted new channel of online communications in addition to e-mail and instant messaging, and it is here to stay," Weide said. "Does [a Twitter acquisition] make sense for Google? They don't really need more audience reach than they already have. But they might need to keep that audience reach out of others' hands. Microsoft and Yahoo come to mind."

Given the relatively low amount of revenue that Twitter generates at this point, however, Weide said he feels it would be prudent for Google to pay as little as it possibly can.
"I think an acquisition would make sense, and if they can get it for less than [$1 billion], the better it is," Weide said.

This contrasts with the view of a number of business pundits online, who have been urging Google to snatch up Twitter no matter the dollar amount required.
As for the potential success of AdSense placed on Twitter feeds, Weide pointed to the former's presence on MySpace, which generates substantial guaranteed revenues for the social networking site but hasn't been contributing mightily to Google's bottom line.
"I doubt [ads on Twitter] would do any better than on MySpace," Weide said.
In other words, although Yahoo and Microsoft could certainly use a microblogging aspect to gain a search advantage, acquiring Twitter might not be the coup de grace that Google needs in order to establish search engine dominance.

Microsoft's deal with ExecTweets, though, shows that Microsoft has an interest in engaging with microblogging as a tool in its online strategy. And should that interest allow Twitter to lever a few more dollars out of Google in any possible deal, Microsoft CEO Steve Ballmer probably wouldn't complain.