The Three Reasons Twitter Didn’t Sell To Facebook

Facebook’s Mark Zuckerberg tried to acquire Twitter not once but twice, through official channels and via co-founder Jack Dorsey. The details of the efforts are revealed in Nick Bilton’s new book Hatching Twitter: A True Story of Money, Power, Friendship, and Betrayal.
I’ll have a full review of the book soon, but I found one passage in particular worth noting. It was late October of 2008, shortly after Dorsey had been ousted as CEO and consigned to a silent role as Chairman, with no voting stock or operational control. Fellow Twitter co-founders Ev Williams and Biz Stone had been invited to visit Facebook for a sit-down with CEO Mark Zuckerberg. The purpose? An acquisition of Twitter.

Zuckerberg, Bilton explains, had been working Dorsey for months to try to arrange a buyout. But his plans were thrown into disarray when Dorsey was yanked from the CEO slot. An email at one point to Jack had given a point-by-point reasoning on why Facebook+Twitter made sense. Among those reasons was the customary threat that Facebook could choose to ‘build products that moved further in [Twitter's] direction’, a tactic that we’ve personally heard many accounts of Zuckerberg employing. The implicit threat: sell to us or we’ll clone your product.

During the meeting, Williams and Stone threw out a valuation: $500 million. Zuckerberg was not shocked, as Dorsey had already informed him that this was the range that would be sought.
But the sale didn’t happen, and the reasoning behind the rejection was outlined in an email by Williams to the board, which is partially quoted in Bilton’s book.

It seems to me, there are three reasons to sell a company, Ev wrote in an e-mail to the board outlining why they should decline Facebook’s offer. 1. The price is good enough of or a value that the company will be in the future. (“We’ve often said that Twitter is a billion dollar company. I think it’s many, many times that,” Ev wrote.) 2. There’s an imminent and very real threat from a competitor. (Nothing is going to “pose a credible threat of taking Twitter to zero.” 3. You have a choice to go and work for someone great. (“I don’t use [Facebook]. And I have many concerns about their people and how they do business.”)

There are a few interesting points in this passage, which we’ve emphasized. First among those is that the board saw Twitter as a billion-dollar company in 2008, and Williams saw it as many times that. In 2008, Twitter had fewer than 11 million users, and had yet to see the exponential gains that would come in early 2009 as a result of publicity like Ashton Kutcher’s public race against CNN to be the first million-follower account. Twitter’s current IPO filing places a roughly $11.9 billion value on the company. Even with a crappy infrastructure still wobbling under the weight of the users it did have, Twitter’s leadership had faith.

That faith extended to the fact that there was no competitor, including Facebook, who could pose a ‘credible threat of taking Twitter to zero’. The concept of Twitter, and its execution, was so unique that even a company with Facebook’s resources was ill-equipped to mimic its behavior and success. This is reinforced by another anecdote in the book about a possible $12 million Yahoo acquisition, which was politely declined very early on in Twitter’s life. The number, even with only 250k active users of what was still an Odeo side project, seemed so low to Biz, Williams and Dorsey that it became a running joke.

And lastly, Williams was also uncomfortable about a culture mis-match. The book as a whole drills down deeply into some very flawed, very human characters. But a strain that runs throughout is that the core creators of Twitter were all looking for ways to democratize human connections. That started with Odeo and continued through to the Twitter experiment. Williams felt that Twitter could be negatively impacted by intermingling with Facebook’s company culture, and was willing to bet hundreds of millions of dollars that it would be better without that influence.

We seem to talk more and more about the mercenary nature of Silicon Valley — and the popularity of ‘acquisition as business plan’ — daily. But, it turns out, there are still people making decisions based on something other than the seven deadly sins.

And one can’t discount the impact that lightly veiled threats have on negotiations. They can often lead to a sour taste, and we’ve heard about more than one negotiation with Facebook that has been spoiled by this kind of hint-dropping. Facebook took roughly three years to clone Twitter’s core ‘follow’ feature, launching Subscribe in 2011. It was later re-named ‘Follow’.

Dorsey, for his part, was ambivalent about a Facebook acquisition, saying that “If the numbers are right, there’s a success story in either path.” At the time, he was fresh off of his removal as CEO, with little hope of getting any real power in the company back. That turned out to be wrong, thanks to friendly investor Peter Fenton, but it’s not too surprising that he saw the money as a fair trade.
But the board agreed with Williams’ reasoning and declined the offer. Zuckerberg would then go on to court Dorsey heavily, but refuse to give him a head of product position. Dorsey never went to Facebook, and when Twitter IPOs, he’ll get his voting shares back.
An interesting note: Williams actually blogged about the offer, and the three reasons, earlier this year but never disclosed that it was Facebook. An interesting quote from the piece:

At the time, the offer we had on the table for Twitter—though a heck of a lot of money and a huge win for investors and anyone else involved—didn’t seem like it captured the upside. Even though we weren’t huge, and there were still a lot of doubters, I believed our potential was unbounded.
…
In the Twitter case, we had no desire to sell. I had actually just become CEO and was raring to go—as was the team. Additionally, the company we were having the discussion with didn’t seem like one in which we’d fit particularly well or the team would be stoked about.

The passage presents us with an intriguing alternate reality where Facebook acquired Twitter, establishing an essential monopoly on the world’s largest and most recognizable social networks. And an example of how it’s still possible to mesh the concepts of business acumen and moral code.
[Photo: (CC) Flickr/Randy Stewart, blog.stewtopia.com]

Source : Techcrunch