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Twitter unveils plan to make money from advertising

April 13, 2010 |  7:47 am

Twitter is banking that 140 characters can turn into advertising gold. 

Biz Millions of Twitter users will begin seeing paid advertisements appear on the site Tuesday as Twitter attempts to wring money from the growing popularity of its service.

Twitter is going to allow businesses to place ads next to Twitter search results. Later this year, Twitter will place ads within users’ Twitter feed that it says will be relevant to them.

They will be called “Promoted Tweets” and Best Buy, Red Bull, Sony Pictures and Virgin America will be the first brands to try them.

Expectations are high for Twitter, which raised more than $135 million in venture funding at a $1-billion valuation last year. The company has agonized over how best to commercialize the site without upsetting tens of millions of users. 

The company clinched deals with Google and Microsoft to put its real-time updates in search results last year. That brought in enough money to make Twitter profitable on an operating basis.

Twitter is banking that advertising will give the company an even bigger boost.

“Stubborn insistence on a slow and thoughtful approach to monetization – one which puts users first, amplifies existing value, and generates profit has frustrated some Twitter watchers,” Twitter’s co-founder wrote on the company blog.

The company is taking a cautious approach. Promoted Tweets will deliver relevant information, and those that do not draw interest from users will disappear, he said.

“We strongly believe that Promoted Tweets should be useful to you,” Stone said.

How it works: Promoted Tweets lets brands place short messages at the top of search result. One ad will remain at the top of each page of search results. Advertisers will be charged on a cost-per-thousand basis. Twitter will also play around with other payment possibilities.

“Of all the places Twitter could include ads, this is the least obtrusive and the most relevant. People will not desert Twitter for this,” Forrester analyst Josh Bernoff said.

Twitter has also discussed adding business accounts with additional features.

Twitter's efforts to make money will be closely watched. In all, Twitter has raised more than $150 million. It hired Ali Rowghani as its first chief financial officer in February. An initial public offering is not in the immediate cards as Twitter focuses on boosting advertising revenue.

“Believe me, when your name is Biz and you're a co-founder of Twitter, it also means putting yourself at the mercy of folks like Stephen Colbert who hit home runs with lines like, 'So, I assume that 'Biz' in 'Biz Stone' does not stand for 'Business Model'," Stone wrote.

 -- Jessica Guynn

Photo: Biz Stone Credit: Randy Stewart

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