Google and Twitter: Of course they're talking

Last week, TechCrunch reported on rumors that Google was in "late-stage talks" to buy microblogging service Twitter.

Kara Swisher responded to this post in her own blog, dousing the fire with sourced comments such as, "There was a discussion...about real-time search and about product stuff. It was a couple weeks ago. It was very preliminary."

The question is not whether Google and Twitter are talking. They are. If they weren't, it would be news in itself. Venture capitalist David Hornik, who's been doing deals in Silicon Valley for nine years, says, "They'll never not be talking. It's neither in Twitter nor Google's interest to not be talking."

Topics for discussion could include technology partnerships (for Twitter's search engine), an advertising deal, or indeed acquisition. But is there a piece of paper on the table related to the latter? Hornik says the demarcation line between and early-stage and late-stage discussion for a partnership or acquisition is, roughly, the letter of intent, which illustrates the basic terms of any deal.

Even with a letter of intent, most deals fall apart. No stories on the Twitter-Google topic mention anyone seeing a letter of intent, or even a basic deal structure. This leads me to believe that the talks are what are loosely called "early stage"--the kind of talking everyone has with everyone else.

It's also worth noting that the financial backers of Twitter, especially VC firm Benchmark Capital, are long-term investors, not likely interested in a quick exit--even for a $1 billion figure that's been thrown around by armchair deal makers.

Given the reported $230 million valuation of the company at its last funding round, a $1 billion exit would not actually generate the level or return that a patient VC would expect to see from a hot and growing company such as Twitter.

There is also no indication whatsoever that Twitter is in any hurry to sell. Unlike YouTube before the Google acquisition, Twitter has a lot of cash in the bank and minimal expenses. YouTube was staring at two oncoming trains--bandwidth expenses and legal challenges--that Twitter doesn't have to worry about.

Still, it does look as if acquisition talks will have to start eventually. Although Twitter's founders say they want to build an "independent" company, unless they dramatically increase the diversity of products offered by Twitter, or reveal both a revenue model that scales and a sustainable competitive barrier to it, I'd say the chances of staying single are slim. And with funding from VCs who expect a big return on their money--maybe not now, but definitely eventually--the company will likely, at some point, begin those "late stage" negotiations. But everything I'm reading and seeing points to acquisition talks being a bit of a way off.