The rumor mill is in full gear over speculation that Google may acquire Twitter. The news comes from two separate and unnamed sources that claim talks between Google and Twitter are in the late stages, according to TechCrunch's Michael Arrington.

However, Arrington says he has spoken to a third source that says talks are just in the early stages. Arrington says his third source claims the talks may only result in the two companies collaborating on a real-time search engine for Google. There's no word on how much a Google-Twitter deal could be worth, but most estimates put it in the $1 billion range with Google paying a mix of cash and stock.

[ In other aquisition news, IBM's deal for Sun is reportedly close to complete. | Stay ahead of advances in technology with InfoWorld's Ahead of the Curve blog and newsletter. ] "

I thought Google wasn't buying?
This latest rumor comes only a few weeks after Google CEO Erich Schmidt called Twitter a "poor man's e-mail system" at the Morgan Stanley Technology Conference in San Francisco. During the conference, Schmidt said Google would wait for "prices to get better" before attempting any acquisitions. However, it was clear from his talk that Schmidt and Google had been putting a lot of thought into Twitter's future. Schmidt's Twitter musings included incorporating the service into traditional e-mail and for Twitter to evolve beyond what Schmidt called a "note phenomenon."

The reasons behind Twitter's Google-ification
Many believe a Google-Twitter deal makes sense since Twitter has the potential to take a bite out of Google's search business. Twitter Search does an excellent job of cataloguing real-time information from its users, and some have argued this ability threatens Google. However, at first glance that premise doesn't seem realistic to me. The idea that people would turn to Twitter as their primary source of information is preposterous. Yes, perhaps during real-time events Twitter might enjoy a surge of popularity. This scenario already played out earlier this year during the US Airways crash near Manhattan and last year's terror attacks in Bombay. Nevertheless, Twitter Search as it stands now is not the best way to find movie times, a stock price or even a Wikipedia page. But put Twitter in the hands of a Google rival like Microsoft or Yahoo and you have a potential game changer in the search business.

What Twoogle might look like
A Google-Twitter deal could be a win-win situation for both companies and the everyday user. Google's enormous computing power could put an end to the infamous "fail whale," and the search giant would be able to monetize Twitter with its advertising programs. For Google, as Computerworld's Seth Weintraub points out, Twitter could help create "a better pool of data from which to pool [Google News] stories and gauge their popularity. It could also help Google's lagging social networking site, Orkut, by establishing connections between Google users."

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Until this week, the major analyst houses have said the current recession is not as bad as what the tech sector suffered though in 2001 and 2002 after the dotcom bubble popped. Forrester, IDC, and Gartner still all agree that IT spending is down, but whether this recession is worse than the dotcom fallout is now a matter of debate.

The fact that analysts were maintaining that IT is not in as much trouble today as it was during the last recession has served as something of a beacon of hope for tech workers.

[ Learn more about how the financial crisis is affecting IT and the high-tech industry, plus what IT can do to help, in InfoWorld's special report. ]

But that changed earlier in the week when Gartner issued a report saying that 2009 will be worse than 2001. The analyst house projected global IT spending would decline by nearly 4 percent this year over last, citing a "general slowdown in demand for products and services across the board," to which IT is not immune.

While Forrester and IDC also see spending in a downward spiral, the firms do not exactly concur with Gartner.

Forrester this week circulated its "U.S. IT Market Outlook for Q1 2009," a rather bleak document that begins with the words, "The U.S. market keeps getting worse than we and many economists had expected."?

But Andrew Bartels, Forrester principal analyst and vice president, insists the tech sector is not in as bad a shape as it was after the dotcom bust. Bartels was careful to not comment specifically on Gartner's findings, but explained that in 2001 Forrester saw a 6 percent decline in spending, followed by 11 percent in 2002, whereas when Forrester published numbers for 2009 this week, it projected a 3.1 percent decrease in IT goods and services purchased by business and government, rather than its original estimation of a 1.6 percent increase.

[ Related: Forrester's Bartels first predicted we wouldn't see a repeat of the 2001-2002 bust in InfoWorld's Is tech in more trouble than we think? ]

"IT is down, just not to the same degree. We see 2009 as worse than we thought it would be in December, but we don't see it getting worse than we're predicting now," Bartels said. "The difference is that the decline today is for two or three quarters, not the two to three years we saw in 2001 and 2002."

IDC, for its part, has re-forecast its spending projections down twice since July 2008, according to IDC Research Director Robert Mahowald, who also would not comment directly on Gartner's numbers or methodology.

Mahowald pointed out, however, that IDC re-examined 93 markets and found all those were headed downward in 2009 except three: managed telepresence, consumer broadband, and SaaS.

Which brings us to two things all the analyst firms agree on: First, as CFOs and CIOs look for ways to shift IT dollars from capital expenditures to operational efficiencies, enterprises will tap SaaS and cloud-based resources more. Even Gartner projects that cloud computing spending will soar in 2009.

Second, the current economic downturn -- regardless of whether it proves to be worse than the dotcom wake -- will not last forever. Gartner referred to the current economic turbulence as a "bleak outlook near-term."

Forrester's Bartels said demand for IT products and services is not cancelled, merely delayed, which actually creates pent-up demand. As such, he is already hoping that indications of recovery will emerge this year.

"In Q4 2009 we might see some early signs of recovery," Bartels said. "Certainly by 2010 we'll start to see some better numbers."