Twitter Hopes to Turn Tweets Into Profit

BY klee  April 16, 2010 at 3:17 PM EDT

Twitter may be one of the world’s fastest-growing social media tools, but the question of how the 140-character micro-blogging site could turn tweets into dollar signs has gone unanswered since its launch in 2006. Until now. The San Francisco-based company announced this week a plan to allow advertisers to post sponsored tweets near the top of some search pages that tie in relation to certain keywords. According to Twitter, Best Buy, Starbucks and Virgin America are set to become a few of the first advertisers.

“In a lot of ways Twitter is playing off the Google model to becoming a profitable company,” says Peter Shankman, a social media watcher and founder of Help a Reporter Out, a social media site for journalists. “[Google] first built a huge grassroots-following by being something people wanted to use. Then Google began using advertisers to turn a profit, which legitimized them as a company.”

The venture, which the company has billed ‘Promoted Tweets,’ is the latest move in Twitter’s quest for revenue. Last week, Twitter announced its acquisition of Tweetie the popular iPhone application. In late 2009, Twitter inked a deal estimated at $25 million with Microsoft and Google, to allow tweets to appear in the companies’ search engines. The company also says it may sell commercial accounts that allow numerous individuals to make posts.

Since its inception, Twitter has lacked a vehicle for translating its massive popularity into revenues, relying instead on millions of investment dollars from venture capitalists, giving it time to grow its audience. However, according to Compete, a web analytics firm, Twitter’s growth peaked in August 2009 with 23.6 million visitors. Since then, the company has seen a slow decline in monthly visitors. With subsiding growth, Twitter is now poised to capitalize on its swift rise–and justify its lofty $1 billion valuation–with a steady stream of profits.

Twitter’s co-founder, Biz Stone, acknowledged in a company blog that it’s taken Twitter quite sometime to develop a revenue-raising plan because it “wanted to optimize for value before profit.”

But whether Twitter’s 70 million users– who post some 50 million tweets daily– will embrace or shun advertisers’ tweets remains to be seen. “It’s really too early to tell if these tweets will be effective,” says Shankman. “As long as they’re not annoying, I don’t think people will be too turned off to them.”