Twitter faces all manner of threats. Last week, a Russian hacker crippled the site for hours. Today, FaceFeed is the problem. Facebook acquired Twitter rival FriendFeed for roughly $50 million in cash and stock -- and took one step closer to beating Twitter at its own game.
You saw this coming, right?
If that doesn't sound like much, think back to last year, when Facebook offered Twitter a far richer $500 million in an all-stock deal. But a smaller price doesn't equal smaller implications. FriendFeed gives Facebook many of the characteristics Twitter's founders have long feared.
A hacker recently breached Twitter's internal network, leaking more than 300 documents to the media -- including notes for a February 2008 strategy meeting that wound up posted on TechCrunch. In that meeting, Twitter's senior executives pointedly asked, "How could Facebook kill us?" A sampling of their answers:
- Real-time search.
- Opt-in to make status public.
- Biz dev deals.
- Get all Twitter clients to work with Facebook.
- Embrace and extend -- Twitter API, Twitter Client. [Emphasis added.]
In your face, Twitter
Facebook was already working on or implementing many of these features before the FriendFeed deal. And for good reason: Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) have a huge interest in beating Twitter in real-time search. Digital service providers such as Amazon.com (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Sirius XM (NASDAQ:SIRI) could use real-time data to better serve subscribers.
But Facebook hadn't figured out how to redirect Twitter's traffic to its site. That's where FriendFeed comes in. See, FF is an aggregator. Post something to your blog, bookmark via Yahoo!'s (NASDAQ:YHOO) Delicious, or tweet something, and it'll appear in your digital stream for all your "friends" to see.
If Twitter is a snapshot of what you're thinking at any given time, FriendFeed is a photo album of your life in social media. By buying FriendFeed, Facebook is essentially embracing and extending Twitter.
Face up to FaceFeed
Before we get into the details of how FaceFeed might profit, let's review how Facebook, Twitter, and FriendFeed already cooperate. You can have Twitter update your Facebook status at any time, and FriendFeed updates can be posted to your Facebook "wall" of activity.
But the search factor makes this deal particularly interesting. Because it's an aggregator, FriendFeed can cull from anything fed into it, including tweets. That's important, because many people who use both services -- Twitter and FriendFeed -- choose to show their tweets in FF. Thus the synergy: For $50 million, Facebook just bought a lot of what it was ready to pay $500 million for.
A fully integrated FaceFeed could update your friends, in real time, on what you're tweeting, blogging, and reading. Mix in FF's well-organized comments function and Twitter-like direct messaging, and Facebook could become the Web's go-to social portal, the sort of platform that News Corp. (NASDAQ:NWS) hoped (in vain) that MySpace would become.
Does FaceFeed spell the end of Twitter? Not yet. "I registered with FriendFeed yesterday to secure my name, but will keep it on low priority for now," wrote Maria Schneider, a former editor of Writer's Digest and keeper of the popular Editor Unleashed blog, in response to my tweet asking for reactions.
And now for the investing lesson ...
I'm guessing that most people see this deal as Schneider does: something to watch. Certainly, investors should pay attention. Our study of disruptive businesses in Motley Fool Rule Breakers shows that patterns tend to repeat themselves. In this race, FaceFeed looks like Yahoo! (more data, more properties) and Twitter resembles Google (clean interface, open platform, do one thing exceptionally well).
I'm siding with history by saying that there'll always be room for both approaches, but I'm studying the outcome for my own investing. If that pattern doesn't hold, it would create implications for evaluating all future rebels; call it another variable in an already-complex equation that's worth solving.
But that's also just my take. Now it's your turn. How do you think FaceFeed will affect Twitter? Drop a comment in the box below and let us know what you think. If there are enough comments, I'll include the best in a follow-up story next week.
