On Twitter's (NYSE:TWTR) fourth quarter earnings call, CEO Dick Costolo confirmed the company agreed to license its data to Google (NASDAQ:GOOG) (NASDAQ:GOOGL). The agreement will give Google access to Twitter's firehose of tweets to create a better real-time search experience on Google. Twitter's previous agreement with Google ended in 2011.
Fellow Fool Leo Sun believes Twitter is taking a big risk by licensing its data to Google. And while there are merits for Twitter wanting to maintain control over how its data is presented, I think the risk is much smaller than Leo says. Where Leo thinks direct links to individual tweets will reduce time spent on Twitter's website, I think the deal should have the exact opposite effect.
Nobody's going to Google to search Twitter
The primary goal for Twitter in its deal with Google is to attract more people to its website. If a visitor is logged into Twitter already, a link from Google will direct that user to a page that displays an individual tweet. If the visitor isn't logged in or is unregistered, the link will take that person to a new homepage that will display interesting content and a couple of ads.
The risk is that users will bypass Twitter's search feature and go to Google to get a more complete real-time picture. So, they'll see Twitter results next to news stories and other websites. But that risk seems minimal. It will be hard for Google to provide a better real-time search product than Twitter without compromising its typical search results.
Just as Amazon.com is the go-to resource for product search -- so much so that Eric Schmidt considers it Google's biggest threat -- Twitter is the premier resource for real-time search. Google's presentation of Twitter results isn't going to change that. If anything, it will reinforce that case.
A win-win situation
For Google, the benefits are obvious. It will improve its search results and gain access to the same data as Bing. Still, the impact will be relatively small on the company that receives billions of search queries every day.
The impact on Twitter could be much bigger. First, the partnership with Google opens the door to attract new users to its website. Twitter claims that it already has more than 500 million people that visit the website without logging in, but Google can extend that reach even farther.
Second, and perhaps more importantly, the Google deal will provide an excellent test case for monetizing logged out visitors. The big difference between where Twitter was in 2011 -- when it ended its previous partnership with Google -- and where it is now is that Twitter is developing a logged out experience. Google will be instrumental in driving visitors to that experience, which is aimed at both displaying ads, engaging visitors, showing them the value of Twitter, and encouraging them to sign up.
Costolo expects the company to iterate quickly based on the feedback it receives from the logged-out homepage. And Twitter's opportunity extends beyond Google. The company receives free advertising from television programs including Twitter handles next to personality's names and hashtags. This naturally drives traffic to Twitter's homepage, where visitors previously got stuck. The new logged-out homepage is aimed at fixing that problem.
CFO Anthony Noto believes the company can monetize the average logged-out user at about half the rate of the company's logged-in users. With nearly double the number of visitors to active users, that implies Twitter could double its revenue from its efforts to monetize traffic from users without a Twitter account. And if the deal with Google and the new homepage can translate into better user growth -- which has notably fallen short of expectations lately -- it's an even bigger opportunity for the company.
Noto guided for 2015 revenue between $2.3 billion-$2.35 billion, representing growth of 64%-68% from 2014. Analysts expect Twitter to produce results slightly higher, and if the company sustains its pace of new feature rollouts and partnerships from the first few weeks of the year, it could produce even stronger revenue growth.