Is Twitter The Answer To Google’s Social Media Problems?

+6.30%
Upside
152
Market
162
Trefis
GOOG: Alphabet logo
GOOG
Alphabet

According to reports from Bloomberg, Google (NASDAQ:GOOG) has hired financial advisory firm Lazard to review a possible acquisition of Twitter (NYSE:TWTR). [1] This move indicates that the search engine giant is eager to plug the social media gap in its product portfolio following the disappointment of its Google Plus offering. Twitter’s current valuation is currently around $17 billion, up 36% in the last three months on speculation of a sale, but still down about 10% in the last year on user growth struggles and weak top line growth. However, the company does have a monthly active user base of over 313 million users.

Although Twitter has had its share of problems in effectively monetizing its platform by selling ads, the company’s recent focus on video to attract new users (and effectively advertisers) through its different offerings such as Periscope, Vine and live-streaming could turn things around. In this note, we explore why Google would be interested in Twitter.

Google Lacks A Social Media Platform And Is Losing Ad Dollars To Facebook

Relevant Articles
  1. Beating S&P 500 by 37% Since The Start Of 2023, Where Is Alphabet Stock Headed?
  2. Beating The S&P 500 By 40% Since The Start Of 2023, What To Expect From Alphabet Stock In Q4?
  3. After 50% Move This Year Alphabet Stock To Outperform The Estimates In Q3
  4. Alphabet Stock Outperformed The Street Expectations In Q2
  5. What To Expect From Alphabet Stock ?
  6. Alphabet Stock Lost 10% In One Week, What’s Next?

While Google continues to rule the roost in the search ad market with nearly a 60% share, it has little presence in the social media advertising space. Facebook (NASDAQ:FB), with close to $19 billion in revenues, is the leader in the social media advertising space. Slowly and steadily, Facebook is chipping away at Google’s share in online advertising as social media advertising is gaining traction. Not only is social media finding favor with static content advertisers, but it’s also attracting video advertisers who are more prone to budget additional ad dollars for better targeted videos that are shared among users.

Google’s efforts to establish its own social media network – namely Google Plus – have been unsuccessful, leaving a significant hole in its product portfolio. The company is trying to bridge this gap through a potential acquisition of Twitter. Twitter has made a name for itself as the fastest source of real-time news and live events across the world, with a fairly loyal customer base including celebrities and heads of state. So far, it has struggled to monetize its 313 million user base and 500 million daily tweets, but it has started focusing on auto-playing video ads and live streaming to increase user engagement and advertiser interest.twtr-5

In a significant development this year, Twitter signed deals with several companies to live-stream events on its platform, including 120 Sports, Bloomberg TV and the Big Four major sports leagues in the U.S. Considering the popularity of live sporting events in the U.S., live streaming games presents a huge opportunity for Twitter to improve its largely stagnant user base and attract more advertisers.

Safe Guarding AI Future With Twitter’s Data

Twitter has emerged as an important source of data for Google. Last year, Google signed a deal with Twitter to make its 140-character tweets more searchable online, including in mobile searches. This enabled Google to bring more meaningful and real-time search results to its users and helped Twitter drive traffic from non-active and casual users. If Google buys Twitter, it will have unlimited access to the latter’s massive trove of ever increasing data and would help it enhance its machine learning and artificial intelligence capabilities.

Twitter’s Live Stream & YouTube

Twitter had recently paid $10 million to the National Football League (NFL) to stream 10 TNF games in a bid to lead the live sports streaming revolution, combining the worlds of live sports and real-time fan chatter, and it seems to have gone well in the first couple of games. This kind of broadcasting has opened a host of possibilities for targeted ad revenue for video content providers. While YouTube is a leader in the video ad content space, it is still figuring out how the social element can be added to its video streams; Twitter can fill this gap.

The ubiquity of social media platforms and rising user engagement is driving a robust increase in ad spending on these platforms, especially for live content. According to a January 2016 research report by eMarketer, nearly 80% of U.S. retail executives stated that producing live streaming video events helps them create more authentic interaction with audiences. Another study by the company estimates social network ad spending to rise 20% next year to around $36 billion, representing about 16% of all digital ad spending globally. [2]

Please refer to our complete analysis for Alphabet and Twitter

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology  

Notes:
  1. Google Said to Tap Lazard to Review Potential Bid for Twitter, October 1st 2016 []
  2. Social Network Ad Spending to Hit $23.68 Billion Worldwide in 2015, eMarketer, April 15 2015 []