There's gold in them 140-character messages. Maybe.
As long expected, Twitter has started experimenting with advertising to make money from the 50 million 'tweets' its users post every day.
Twitter sceptics -- of whom there are legions -- may scoff that adding unwanted adverts to the millions of unread Twitter messages is like trying to sponsor noise pollution.
But Twitter's cheerleaders will point to the four-year old Californian start-up's efforts to integrate making money with its raison d'être.
Rather than simply slapping a banner advert onto every Twitter user's homepage, advertisers can try to insert their messages into the 'conversation' that's going on between Twitter's tens of millions of users.
(How) will it work?
Twitter has dubbed its first foray into advertising 'promoted tweets'. (A 'tweet' is a 140-character message posted by a user onto Twitter).
With promoted tweets, advertisers can buy a single advert placed at the top of a user's Twitter 'timeline' -- the list of tweets from the other Twitterers that a user follows – by paying to 'own' a particular keyword.
Initially, promoted tweets will only be shown when Twitter users conduct a search from Twitter's search box. The idea is eventually every user's timeline will always have a promoted tweet at the top, based on the keywords in its most recent tweets.
So far, so Google -- that's pretty much exactly how Google makes money from its search engine, only with 'live' results based on current tweets, rather than an archived index of web pages.
And if the revenue potential sounds a bit paltry to those of you with proper jobs involving heavy equipment or serving tables, remember Google is now a $185 billion company!
Get engaged with your favourite faceless corporation
Twitter is going a step further to try to make promoted tweets integral to its service.
Twitter users can choose to re-tweet (pass along) promoted tweets to their own followers, click on links, or reply to the advertiser, just as with a normal tweet in a timeline.
The media industry calls such interaction 'engagement'. It's a key difference between online advertising and the old method of buying space in a magazine or in a TV ad break and crossing your fingers.
Twitter says engagement will be key to the promoted tweets system. If users don't re-tweet promoted tweets they'll be dropped, reducing the amount the advertiser pays.
Twitter is doing this for two reasons:
- Firstly, many companies have been getting free advertising on Twitter by posting up special offers or new product details, and getting them re-tweeted.
- Secondly, if the promoted tweets are dull or spammy, they should quickly fall away, which will stop Twitter users being faced with bad ads.
This is the brave new frontier of advertising, but it could be worth a fortune.
Only today the marketing agency Vitrue estimated that a company's Facebook fans are worth $3.60 a year in traditional media terms -- making 1 million fans worth $3.6 million -- because of how fans spread a company's message through the Facebook network.
On the other hand, Twitter's own move could flop badly.
Searching Twitter for 'Starbucks', one of advertisers in the promoted tweets trial, the results are headed by a Starbucks tweet that has been re-tweeted 86 times. That doesn't seem much, given the service went live yesterday.
Billions or bust
Older Fool's may be getting déjà vu. A decade ago, hundreds of companies raised billions of dollars on 'build first, bill later' business models that went nowhere.
Perhaps all that's changed is they now grow and go one at a time!
- Remember Friends Reunited? Launched after the dotcom bubble burst, it grew fast and was purchased by ITV (LSE: ITV) for £120 million in 2005. Yet nostalgia isn't what it used to be -- the site was sold last year for £25 million.
- Then there's Bebo, the social networking site founded by Brits that once rivalled Facebook. AOL paid $850 million for the site in 2008, but falling user numbers mean it could sell Bebo or pull the plug within two years.
- Even once-mighty MySpace could be doomed. Founded in 2003, the first of the 'Web 2.0' user-focussed sites shot to prominence as indie bands used it to sidestep the music industry. It was bought by News Corp in 2005 as part of Rupert Murdoch's attempts to make money from the Web. But the days when every kid aspired to have an unreadable MySpace profile are long gone -- its user base was overtaken by Facebook in 2008, and its advertising is messy and reportedly ineffectual. While Murdoch has backed the site, the tech pundit and fallen dotcom darling Henry Blodget says it's valued at "next to nothing".
The one thing all these social networks turned Billy-no-mates have in common is that they were acquired by old media companies looking to muscle into the new online landscape.
Unfortunately, despite proving they hadn't a clue by being forced to make acquisitions, these acquirers invariably meddled with their new purchases -- to the sound of golden geese getting throttled.
In contrast, the social networks that are still growing -- Facebook, Twitter, LinkedIn, Ning, and (to stretch the definition) Digg -- remain in private ownership. This means they respond quickly to users and the marketplace, not the whims of grandstanding executives.
Facebook for one has said it plants to float eventually, with some expecting an IPO later this year that should value it at at least $5 billion. Facebook is already profitable, and respectable estimates peg turnover at $1 billion in 2010.
Twitter has a long way to go to make such revenues, although contrary to popular belief it is generating money. In late 2009 it signed deals with Google and Microsoft said to be worth $25 million to allow their search engines access to its data to improve their real-time search results. This income should already be covering Twitter's costs.
More from Owain Bennallack:
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