If Twitter won't do ads, then third-party devs will

How will Twitter make money? It's the $500-million question (the amount, mostly in stock options, that Facebook reportedly offered to buy Twitter) that has plagued the company since its rise to prominence.

Potential investors and technology analysts are notoriously cynical of Web start-ups that haven't yet established a business model. YouTube and Facebook were pelted with those same criticisms in the past, and now, the skeptics are demanding the same from Twitter -- shake your money maker.

Twitter co-founder Biz Stone finally has an answer. By charging for corporate accounts, Stone says, Twitter will earn revenue from such companies as JetBlue, Comcast and Dell, which already use the social networking tool to build brand awareness and grassroots advertising. In exchange, Twitter will work with these companies to build corporate-exclusive features.

Stone described one such feature -- an identity verification tool that would allow anyone to discern easily  whether a particular account is, indeed, owned by the person who the user claims to be.

"Like, users who want to know: is that the real Shaquille O'Neal or not?" Stone said. "Maybe we could help users by saying, Yup, definitely the real Shaquille O'Neal. That's a real account. We checked with them."

This could have come in handy last month when technology bloggers wondered aloud whether @theRealAlGore was actually, well, the real Al Gore. (It wasn't. But @algore is.)

Stone wouldn't go into detail about other features, but says the company has plenty of ideas kicking around. However, he was clear about one thing: Advertising is not the route they'll take. At least, not any time soon.

But just because Twitter won't place ads on its pages doesn't mean others aren't trying. Twittad allows users to ...

...  list a price and time frame for advertisers to place a static graphic ad, embedded into the backgrounds of their Twitter pages (the top image is one example).

The third-party service, launched in August, has attracted more than 1,600 sign-ups and 170 advertisers, according to James Eliason, founder and chief executive of Twittad, a Des Moines, Iowa, company.

Magpie is an alternative ad network that takes a very different approach. Instead of a background image, Magpie inserts text and link ads directly as Twitter messages (called "tweets") in a user's profile. This method has raised some concerns within the Twitter community.

"It's a horror show," Stowe Boyd, a blogger on social media with a well-established Twitter account, said in an e-mail. "The worst."

So, what's all the hubbub?

Some say tweet ads detract from legitimate conversation. Despite the controversy, Magpie has managed to attract 2,500 users showing ads and 400 advertisers in the six weeks since it launched.

Tweet ads may be more effective than images because most users don't access Twitter through the website, said Boris Ruf, founder of the German-based Magpie. Many users -- about 20 times more, according to Stone -- instead opt to browse Twitter feeds on cellphones or desktop apps, media that Twittad graphics can't reach.

Even though Twitter won't be jumping in with its own advertising program any time soon, Stone says he's "taking everything in." And, for the record, he prefers the Magpie approach.

"I think any kinds of projects that focus more on the Twitter updates are more compelling," Stone said.

But the real question on the minds of Twitter users and the company itself is whether the service should have ads in the first place.

"It's about the same discussion we had a couple of years ago with blogs," Ruf said. "In the end, if you are a Twitterer who really provides good content ... we say it's fair enough to also make some money."

Oh, and by the way, those "Facebook to buy Twitter" rumors were real after all.

"It's just not the right timing for us," Stone said. "We're big fans of Mark [Zuckerberg, CEO] and Facebook, and I think the feeling is mutual. It's more of a timing thing."

The "timing thing," it seems, is that they actually have a business model now.

-- Mark Milian

Photo: An example graphic ad on Twittad founder and CEO James Eliason's Twitter profile

Comments

[James]

Mark,

Thanks for mentioning Twittad in your story about advertising on Twitter.

What Twittad really comes down to is a fair balance between advertisers and the Twitter community. I chose to go the route of background ad placement (with 1-Tweet sent promoting the ad sale) because I am a believer that Twitter is a very effective form of communication between people. People do use TweetDeck and other non-web based services to update on Twitter..but does that mean that they should then see a bunch of ads in their Twitter stream? I believe that for Twitter to reach its full value, a more developed web version is on its way.

If we take a step back and think about the evolution of ads on other social media sites like, Facebook..it takes time to develop a format that works for everyone. As a Facebook user, would I want to send a advertisement in my Status Update? No. As a Twitter user would I want to send out advertisements to my followers, who are following me for other reasons than wanting to see ads? I personally would not do that.

It is very easy to get caught up in the pure size of Twitter, and a reported 1 billion Tweets sent so far. Sure, a ad model that pushes ads into those 1 billion tweets is very lucrative, but we all need to remember what Twitter is. If you are a company on Twitter and you are sending out coupon codes and promotions on your website inside of other Tweets, this is effective advertising coming from the company. See examples, like the author mentions, Zappos, etc.

As I posted on our Blog today, www.twittad.com/blog, developing the website into a sustainable ad model should be the first step for Twitter in my opinion.

Great story, I hope others chime in and give their opinions/ideas.

Cheers,
James Eliason
Founder, Twittad.com

[Jordan Ayan]

As a marketer and frequent user of social media and tools like Twitter, I think the option of "verified accounts," is excellent. It allows for a level of credibility that does not exist today.

When it comes to advertising from firms like Magpie, my feeling is it will damage the medium, and people will ultimately go elsewhere if advertising is constantly being inserted into the Twitterstream by their Peeps. I think there would be ways that Twitter could insert ads in their interface and not damage the communication flow, but stick it in the middle of a conversation, and people will move to other more socially friendly alternatives.

Jordan Ayan
CEO SubscriberMail.com
@jordanayan

[Julie]

Jordan, I have the same opinion! The belief that it's fair to be compensated for providing valuable content has some merits. The problem occurs when the vast majority of people you follow decide they should be compensated and all of a sudden you log onto Twitter and only see ads. I don't think people will tolerate scanning through ads to find the valuable content they signed up to see. I completely agree people will probably seek other outlets if Twitter doesn't retain the integrity of the conversations and content.

[Lee Graham]

Twittad.com is truly the best Twitter advertising method I've seen to date. It may not be exactly ideal for what web advertisers are used to, but its a hell of a lot better than Magpie. Who really wants to ruin your list of followers for a few pennies?

[Robert DeFranco]

Mark,

211me has an additional offering that is being integrated into Twitter. Twitter users can add invites, flyers, business cards, photos and mobile pokes to their tweets using 211me’s service.

Check out an example of a mobile flyer in a tweet "

211me We launched our iphone game Attack of the Killer Bugs here is the screen shot http://c2.211me.com/BFF1678 "

Our service then inserts advertising around the content. We are looking to add value to the tweet in addition to the advertisement.

Robert DeFranco
CEO
211me, Inc
My Sugrcard -
http://c2.211me.com/d618bff

[Kris Beldin]

Mark,

Great post/article. It's good to see they have some sort of vision. I think that could be a great tool for companies, and to have some additional analytical tools would be a real plus.

Thanks,

Kris

[Dan Schawbel]

One of the biggest problems with startup social networks is that they are focused on users and not a business model. That doesn't work anymore because of the economy, but Twitter still gets away with it because it's such a popular and important service. I think it's obvious that they should do what Facebook has done with their "corporate pages." You hit on a very important point in your story about how user names should be legitimate and it's worth paying for them to give corporations credibility. I could easily make a Microsoft account and start doing fake tweets there, just like I could start a fake Facebook page. I hope this gets figured out soon.