Chapter 2 of the Real Time Web was announced late yesterday as both Google and Microsoft have closed real time firehose search deals with Twitter.  These deals put Twitter in the enviable position of being a real-time infrastructure play, whereby they can specialize in the collection of data and other companies can do the heavy-lifting of monetization.

This is a pretty massive set of deals for Twitter, and although financial terms of the deals were not disclosed, this move puts them solidly on the road to an IPO instead of acquisition.   Once again, Twitter has outsourced it’s development, this time for real time search and advertising revenues.

Here’s a few reasons this move was highly strategic:

1. Google, and secondarily Microsoft and Apple, were the only likely buyers due to the high price of Twitter (now valued at over $1b) and the market cap required to absorb such an expensive purchase without revenue/stock price accretion, as I mentioned in my blog post earlier this year.   With the push of Bing, that competition had come down to two, with Microsoft being the weaker buyer and Google being the stronger, perhaps only realistic buyer that could maximize value from the purchase.  When there’s only one buyer, that’s not good for the seller.

2. The deals are a win-win for all in the financial markets.  Most companies acquire when the deal is accretive to their stock.  Twitter stands the most beneficial of the three for revenue multiples, as its revenue should have the highest growth rate.  A cursory glance at P/E’s from Google Finance show’s GOOG at 35 and MSFT at 16.   So at a fraction of the cost of acquisition, each of these companies will get 35x and 16x kickers in their stock price for every $1 of revenue they produce for themselves in the Twitter deal (after something like a 50% revenue share with Twitter), while keeping their respective $3b in the bank, which is what an acquisition would have cost.  And, even if some money had to be paid upfront, almost $3b in cash retained should earn at least $75 million in revenue a year.  Perhaps they each received stock as well, although there’s no reason to speculate on this one. Meanwhile, Ev, Biz and a collection of much of the tech/VC community as investors will now be on a rocket path to revenue from both major search partners, which opens the IPO door, where they will perhaps earn a much higher PE considering the growth potential of the real web, perhaps 25-40, or even higher (Google’s IPO PE was 118).

3. This lowers risk for everyone.  Twitter continues to be a tiny company, and building its own search and advertising infrastructure would have been a remarkable feat in 1-2 years.  Moves like acquiring One Riot search would have gotten them nowhere near this goal, which they could still do anyway on top of these deals.  It would have required hiring talent away from Google and Microsoft, making them far less friendly.  To get to its $500m-ish revenue estimates this year, Facebook has over 900 employees while Twitter has less than 100.

Now, everyone is on the same team to make the real-time web happen.