Twitter rebuffs a Facebook poke?
Maybe it wasn't just egregious Valley gossip-baiting when Federated Media CEO John Battelle asked Facebook founder Mark Zuckerberg earlier this month if his company was going to buy Twitter.
Kara Swisher of AllThingsD reported early Monday morning that actual acquisition talks held between the two companies have fallen through.
The deal would have been for $500 million in Facebook stock, Swisher wrote.
Facebook's not big on acquisitions. The only sizable purchase the company has made was of a start-up called Parakey, and that was really just a way to bring on board founder Blake Ross.
Twitter's a different story. The microblogging service competes directly with Facebook's own "status" feature, to the point where many Twitter users have configured their Facebook statuses to display their Twitter statuses. It's also, after Facebook, the most-hyped company to come out of the Bay Area in the past five years. (Sorry, Digg. You're in third.)
The two also have a moderate connection: early Twitter investor Marc Andreessen sits on Facebook's board. Then again, that kind of six-degrees-of-separation factoid is commonplace in the Valley.
The problem with the proposed Facebook acquisition was that, according to Swisher, Twitter's executives and investors thought it would be better for the company to come up with its own business model rather than sell out this early--in spite of the fact that the recession is going to make it really tough for prerevenue companies.
Plus, in addition to the "typical concerns about integration and costs" (per Swisher), Twitter reportedly was concerned about what that "$500 million in stock" really meant, given that Facebook's paper valuation is significantly different than the $15 billion "preferred" valuation at which Microsoft invested $240 million last year.
And, honestly: Facebook's still trying to evolve its own business model (to put it lightly). In this economic climate, does it really want to be handing more than $500 million in stock for a company that, while hyped, has even murkier plans for profitability? Twitter CEO Evan Williams has alluded to paid business accounts, but we still haven't seen anything concrete.
Caroline McCarthy, a CNET News staff writer, is a downtown Manhattanite happily addicted to social-media tools and restaurant blogs. Her pre-CNET resume includes interning at an IT security firm and brewing cappuccinos. E-mail Caroline. 
Twitter SHOULD pursue the TXT providers as Sen. Kohl bears down on that $100 bil market which is billed at $800-1200/MB - plus, it would provide instant credibility to a potential "twit-split" with carriers who already control the SMS market and surely would look great by doing a deal with such a start-up.
You know a few million in investment & 10Xs that amount PR/Spin/Marketing spent on publicizing the fact that it was done ... Just look at how Apple gets it's split & work from there ... Twitter has a sizable advantage but it is FriendFeed that may ultimately be the real competition as they too avoid silo costs associated with hosting content.
IMHO