TDE2012: Twitter, Google's M&A guys: Hail the engineer!

After a lunch full of talk about deals, everyone at The Deal Economy 2011 has settled back in for the next panel. And with Groupon's IPO, Zynga starting its roadshow, rumors of a $10 billion Facebook IPO in the second quarter and Yahoo!'s potential suitors valuing it around $25 billion, this is a rousing conversation.

The panel featured Mike Brown, Director, Corporate Development at Twitter, and Aaron Crum, Principal, Corporate Development, Google. The moderator, David Kirkpatrick, is the author of "The Facebook Effect" and CEO, Techonomy Media.

Kirkpatrick opened up the session questioning Twitter's $8 billion valuation, drawing a smile from Brown, who used to be with Facebook. Kirkpatrick then asked whether we are in a bubble. Neither panelist would go as far as to give a yes or no. Instead, they turned to talks about value creation. Brown pointed to Ubercab and Airbnb, nonadvertising-driven companies. Crum thinks there's a flood of money, but there's companies like Zynga and Groupon creating real value: "Valuations are up, and we're cautious." Brown discussed talent value. "Look at Facebook's around-$50 million acquisition of Friendfeed. Its CEO Bret Taylor [also co-creator of Google Maps] is now CTO of Facebook, and he's the guy that redesigned their platform."

Kirkpatrick asked Crum if he regretted not buying Groupon. Crum couldn't comment but did say it's filling a need for SMBs. "Whether it's an industry, I don't know -- but Groupon is part of the solution. I don't know if its value is at $8 billion." Kirkpatrick pointed out Groupon is losing money and that Zynga, which isn't even five years old, is profitable, as is Facebook. Crum said Zynga effectively controls its own economics and it's a great business. Kirkpatrick agreed, favoring Zynga over Groupon.

Kirkpatrick asked Brown and Crum, "Do you think like a VC? Use the same criteria for valuations?" Brown offered this answer: "I worked in venture once; it's just a funny thing [valuations]. Typically it's driven by ownership percentage. If someone wants 20% of a company for $8 million, the company ends up being valued at $40 million. In corporate dealmaking, valuation matters, but the first thing we look at is the engineering team. Step one: Love the engineers and product vision (which could be far apart, but you can bridge that)." Crum wholly agreed.

Brown then talked about the rigorous interview process when Twitter hires people. "They go through a lot of people -- we make them write code on a board. 'Can they solve problems, and how well?' We don't have business units, we have a single-code base. We don't do add-ons, we rewrite code to fit ours." Kirkpatrick asked if there's a millions-of-dollars per-engineer calculation. Crum said, "We're very engineering-centric; most everything gets integrated in a unified code base. Cost per head? We track everything, but it's more complicated than that. And on M&A, we're not batting 1.000, but our track record for M&A is something we're extremely proud of. Andy Rubin, who runs Android, came in through an acquisition." Brown and Crum said they have incentivized retention programs to keep their best people in house as well.

Kirkpatrick then asked, "What about Microsoft's acquisition of Skype for around $8 billion to $10 billion? Do you feel like you should have done that?" Crum shied away from saying yes or no, but he did say, "Skype fits the mold, it's a great company. I won't say it was overvalued or that Microsoft got a great deal."

On one last point, Brown talked about the difference between the M&A strategy of Facebook and Twitter. "Facebook has myriad projects and sprinkles engineering around those areas, whereas Twitter looks to plug wholes we're trying to fill in order to drive in the direction we're trying to go."

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