Can Twitter Make Money?

Twitter plans to become the leader in instant news–and make itself into a sustainable business in the process.

At the microblogging company Twitter’s San Francisco headquarters, in the sixth-floor conference room, founder Evan Williams was declining to tell me anything about the company’s strategies to earn revenues when, suddenly, his cofounder Biz Stone blurted, “Whoa!” It was 10:10 a.m. on January 7, and it would prove to be the latest Twitter Moment, showing how far the service has moved beyond its early status as an amplifier of personal minutiae and confession. A minor earthquake had just struck: a magnitude 4.1 temblor centered 45 miles to the southeast. Throughout the Bay Area, thousands of Twitter users seized their smart phones or PCs to peck out 140-character-or-less tweets–updates in the form of text messages, Web-based instant messages, or posts on Twitter’s website. Quake-related tidbits coursed through the company’s servers at the rate of 296 per minute, according to tracking done by the U.S. Geological Survey.

The quake was felt more strongly in Mountain View, the site of Google’s headquarters–which was metaphorically appropriate. In the first seconds and minutes after the quake, anyone tapping “earthquake Mountain View” (or the name of any other nearby municipality) into Google’s search field found that the only hits pertaining to the new quake were … tweets. While the Google results page included direct information feeds from the USGS and a slick Google Maps display of recent temblors, none reflected the latest event. Official USGS-confirmed data on the quake wouldn’t show up until 10:20 a.m. But at 10:12 a.m., the sixth-highest search return was a rolling scroll of tweets posted “seconds ago”: Wow, that was an earthquake jolt in Mountain View!

The elevation of such observations to the main results page of the Web’s dominant search engine was more than just a coming-of-age for the nearly four-year-old service. Twitter’s performance as a communication channel during the Mumbai terror attacks in November 2008 and the Iranian election protests last year, its emergence as a political organizing tool during the 2008 U.S. presidential election, and its unexpected role in assorted emergencies (There’s a plane in the Hudson. I’m on the ferry going to pick up the people. Crazy) had already planted Twitter in the zeitgeist. What the Google hits really represented was the first significant opening of the revenue spigot. Google had recently agreed to pay Twitter for a real-time feed of all tweets; this deal, and a similar and earlier one with the Microsoft search engine Bing, were reportedly worth $25 million combined, making Twitter profitable for the first time. That was big. “I sent a text to Ev the day that we closed the [Google] deal, and I said, ‘I’m going to throw up,’ ” Stone says. “He texted back, ‘I know.’ ”

With the deals, Google and Bing were acknowledging Twitter’s power. The company has helped define a new development: the real-time Web, in which information is generated and consumed almost instantaneously, with social networks, blogs, and other news sources operating in increasingly interlinked ways (CNN Breaking News, for example, has nearly three million followers on Twitter). “Twitter has provided a new building block for the social Web,” says Jonathan Zittrain, cofounder of the Berkman Center for Internet and Society at Harvard University (see “Twitter and the Real-Time Web”). “Amidst the clamor of ‘Just had a great bowl of soup’ and other trivialities there can be mined some amazing information.”

Twitter and the Real-Time Web
On the real-time Web, information is created and consumed instantly, often through blogs and social networks such as Twitter and Facebook. The phenomenon exploded last year, as the surging use of URL-shortening services indicates; Web addresses must be shrunk in order for links to fit inside 140-character tweets. Twitter attracted new users and expanded its reach, but it still carries a lot of babble.

Twitter has experienced exponential user growth in three years. But the rate slowed at the end of 2009.

But the question remains: how can a simple technology that’s become a crucial part of the Internet be turned into a cash cow? Last September, the company reportedly gained more than $100 million in new funding, atop earlier rounds totaling around $60 million. (Returning investors included Benchmark Capital, Institutional Venture Partners, Union Square Ventures, and Spark Capital; the new players joining them included T. Rowe Price and Insight Venture Partners.) “It definitely feels like there is a shift occurring on the Web–and we think it’s a multibillion-dollar opportunity,” says Brian Pokorny, a partner with SV Angel in San Francisco, which has invested in Twitter and other companies involved in the real-time Web.

But to make any business model succeed, Williams says, Twitter must keep attracting new users–and prove that tweet-borne information is actually useful. “We are honestly still focused on ‘How do we create more value?’ ” he says. “We have all of this content talking about what’s happening in the world right now, and we think there is a lot more value to be gained by users, giving them the right content at the right time. That will lead to advertising and revenue possibilities, but those are completely dependent on people getting value out of it and businesses getting value out of it. But we don’t think we are there yet.”

The deals with Google and Bing were, therefore, crucial first steps–not only toward

bringing in significant revenue but, potentially, toward helping show new legions of users the value of Twitter. Just what Twitter might devise as a business model, however, is impossible to tell, says Randy Komisar, a partner in the venture capital firm Kleiner Perkins Caufield and Byers (which has not invested in Twitter). Will it be keyword-based advertising, sale of market research data, placement of sponsored tweets, or something else? “The speculative game is pointless,” he says.

Bit.ly, the leading service for Web-address shortening, experienced nearly 1,000-fold growth last year. In December, people clicked open Bit.ly-shortened addresses nearly 2.3 billion times.
A Billion Twitterers?

Last July, a set of purloined documents laid bare Twitter’s agony over how to grow as a business. TechCrunch, a technology-­business blog edited by the Silicon Valley gadfly Michael Arrington, posted a remarkable trove of internal Twitter business documents, obtained by a hacker who used a stolen password to enter an employee’s Google Apps account. (The TechCrunch posting remains live today.) The documents included meeting notes that captured the angst Twitter felt even as the number of users was skyrocketing, early last year. There was fear that Facebook would coöpt the Twitter model and that Google would “kick our ass at finding the good tweet.” The brainstorming was endless: the management team floated ideas from giving away phones preloaded with Twitter to developing a “TV Twitter.” They fretted over how to keep employees happy. So much ground was covered that it wasn’t possible to discern any one strategy.

But if a single strategy did not surface, grand ambitions did. “What does a completely relevant product look like for a billion people?” one unsigned note wondered. Most striking, the pilfered files included projections that by the end of 2013, not only would Twitter have a billion users, but it would take in $1.5 billion in revenue and $1.1 billion in net earnings–and become “the pulse of the planet.” In our interview, Williams would not elaborate. “It’s clear there are a lot of ways to make money,” he told me. “We want to do it right. We want to do it in a sustainable and scalable way.”

Twitter is hardly alone among online social-networking sites in its struggle to find a viable business find a viable business model (see “Social Networking Is Not a Business,” July/August 2008). As Williams suggests, the path to technology commercialization is rarely an obvious one. It wasn’t Google’s search technology but its success in selling ads based on keywords that fueled the company’s growth. “We always think of these companies as taking a direct line from A to B to C,” Komisar says. “But if you look closer, what you see is how crooked the line is that they have to navigate.”

A growing number of tweets come from applications running on other websites. Relatively few are sent as text messages.

Before Twitter’s birth nearly four years ago, Williams’s big score was his creation of Blogger, a simple-to-use blog hosting service that Google bought in 2003. Blogger was not the original idea but, rather, a by-product of a complex project-management tool for the Web that Williams was trying to develop at a startup called Pyra Labs (see “What Is He Doing?” November/December 2007 and at technologyreview.com). Similarly, Twitter itself was born at Odeo, a Williams-founded startup that was trying to develop a way to distribute podcasts. There, an engineer named Jack Dorsey created a messaging tool–the genesis of Twitter–that he thought would be good for dispatching bike messengers or emergency services. After Apple crushed Odeo’s audio ambitions by offering comparable services on iTunes, Dorsey, Williams, and Stone bought the company and eventually spun out Dorsey’s tool as Twitter. (Dorsey is now Twitter’s chairman; Williams is CEO.)

And Twitter itself is evolving. Consider the original question a tweet was meant to answer: “What are you doing?” This early emphasis on the personal and the trivial changed as news started to break on Twitter–earning it intense interest from the mainstream media–and as people began using it to network with potential colleagues and keep abreast of the thinking and activities of politicians, stock traders, celebrities. Then users began to redistribute news from media organizations, and the news organizations themselves started to tweet: Twitter became a river of news. The evolution is bound to continue. “Twitter is a tool so basic that it doesn’t suggest how you should use it,” says Amy Bruckman, a computer scientist at Georgia Tech. “I guarantee that in a few years we will look back at how we

used Twitter and laugh.”

Indeed, with the help of Twitter’s application programming interface (API), which enables outside developers to access its content, constellations of applications and startups have already expanded the service’s reach (and some have begun selling advertising). StockTwits, for example, provides an easy way to sift through any tweets that discuss stocks. TweetDeck helps twitterers find categories of tweets to follow. Bit.ly creates shortened versions of Web links that can fit inside tweets. TweetMeme aggregates links found within tweets. Twitpic offers photo distribution. (Most famously, it carried a close-up photo of the US Airways jet adrift in the Hudson, passengers huddled on its wings. The shot was captured by ferry passenger and twitterer Janis Krums.) And so, in November, Twitter ditched “What are you doing?” Now tweets answer the question “What’s happening?”

Despite growth, many Twitter users aren’t very active. Most have few followers …
A shifting Web

The change in Twitter’s prompt reflects a shift in the nature of the Web itself. Not only has the medium grown far more social, but online social networks increasingly trade in important real-time information. Adding to the cacophony are proliferating blogs, reports from news organizations, reader comments, and feeds from various other sources. Data feeds, search engines like Google, and easy-to-use widgets–those little on-screen tools that do things like display stock prices or news headlines–can provide instant access to much of this information. “In 2009, we saw this incredible shift of users–and of their attention and focus–to the real-time Web,” says John Borthwick, CEO of Betaworks, an Internet media company in New York City that has invested in or launched startups including Bit.ly, TweetDeck, and Summize, a Twitter search tool bought by Twitter in 2008. “It represents a whole new round of innovation, disrupting the way people do the fundamental things they do online.” And, he adds, sites like Twitter and Facebook–which has 350 million account holders–are increasingly the first stop for people seeking real-time news.

Of course, that’s easy to say–but it’s hard to measure and document. Twitter will not share numbers, and third-party measurement of Web audiences has long been dodgy (see “But Who’s Counting?” March/April 2009 and at technologyreview.com). Measurement is hardest of all with media such as Twitter, because the most common unit of Web usage–page views–doesn’t really apply. Tweets, after all, aren’t pages; they’re the units that make up data streams moving across many platforms and being consumed in myriad ways. As people spend less time on pages and more time sampling streams of data, tracking their behavior becomes extremely difficult. “The majority of what goes on with Twitter doesn’t happen on our website,” Williams says. “Quantifying Twitter is really hard. That is part of why we don’t share numbers, because they are always misleading. We are getting better at it, but it kind of drives us crazy.” Still, one proxy–Web-address shortening–gives a sense of how much Twitter and the real-time Web have grown. The number of times people clicked on Bit.ly addresses to open them exploded last year; in December, people did this nearly 2.3 billion times.

In this evolving world, Twitter stands out in many ways. In contrast to communications within many online social networks, tweets by their very nature aim to report something to the world at large. (Facebook posts have long been private by default, but the company is trying to encourage more public posts through changes in its privacy settings.) RJMetrics, a business analytics firm in Camden, NJ, estimates that Twitter has 75 million accounts and that 15 million are responsible for most traffic. Though Facebook’s membership dwarfs those figures, “in terms of relative availability of data, Twitter is number one with a bullet,” says Eric Marcoullier, a cofounder of Gnip, a company based in Boulder, CO, that aggregates available information from sites like Facebook, Twitter, and Digg for other websites and companies.

… and aren’t doing much tweeting.

As a result, Twitter has “enormous opportunities” to sell data for commercial use, says Brad Feld, a managing director at the venture capital firm Foundry Group, also in Boulder, CO (it is not a Twitter investor). A local restaurant might want to be notified if Twitterers are saying something negative; Toyota might want data on mentions of its products–as well as competitors’ products–to adjust a sales pitch or a product feature. Packaging and providing such data, for a fee, is clearly something Twitter could start doing, Feld says. He adds that the company could eventually sell keyword-based ads as well.

Tweet Rank

Though Twitter aspires to be the planet’s pulse, its own physiology is a bit weak in some areas. The company has no apparent ownership rights to the basic technology for microblogging; its only real assets are its brand and user base. And while Twitter data in theory should be salable to

companies, the marketplace is still skeptical. A recent survey by Kognito, a business intelligence firm, found that only 14 percent of market research companies surveyed had immediate plans to mine social-networking data at all.

Twitter needs to win more eyeballs, motivate users to tweet more, and make sure the most useful tweets reach people who might benefit from them. The company understands this. “We are coming out of a year, 2009, which was really about scaling up,” ­Williams says. “We’ve gotten really good about getting [employees] in here and showing that there is interesting scale to work with here. Just like people who are thinking about using Twitter, people coming to work at Twitter thought it was some trivial thing–‘What are you having for lunch?’–not a global real-time way of finding out what is happening right now. As people learn that it fills a role we actually need filled, we will attract more engineering talent and more users.”

And one study of 2,000 U.S. tweets found that much content is of limited use.

The deals with Google and Bing made Twitter profitable. But they are also a means to another end: Twitter skeptics might well be won over if their Web searches start turning up useful tweets. By the same token, a tweet that lands high in Web search results will encourage the person who sent it to keep making timely and useful observations, says Dan Weld, a computer scientist at the University of Washington, Seattle. “When people are able to search tweets more effectively, it will change the content,” he says. “People’s behavior will be affected. But this will require real-time distribution and highly effective search.”

Making real-time search effective is tricky, though. It’s not enough just to give searchers the newest tweets that happen to contain a requested keyword. The reputation of the twitterer means something; if you want fresh information about the Haiti earthquake, for example, you’d like to hear it from responsible sources, not just from anyone who happened to include the word Haiti in a tweet. As a first step, Google evaluates tweets in part with a technological analogue to its PageRank technology, which analyzes the link structure of Web pages to judge their relevance. Generally speaking, the more links to a page–and the more pages linked to the linkers–the more relevant Google’s search engine considers it. Similarly, Google concludes that the more people who “follow” a Twitter user–and the more people who follow those people–the more credible and relevant his or her tweets probably are.

But such efforts are only the beginning. Consider a real-time search for “iPod.” An engineer doing such a search might be seeking insights into its software, a high-school student might be most interested in friends’ opinions or whether the gadget’s retail price has dropped, and a music executive might want to look for trends in what kinds of music people are downloading. Finding out what specific people want might require some analysis of their social networks, their past tweets, and the tweets of the people they follow, says Eugene Agichtein, a computer scientist at Emory University who is doing research on social search.

The location from which a tweet was issued can be an enormous help. Messages from mobile devices with GPS receivers can include location information. Twitter began allowing such information to be attached to tweets last summer, and Google and others are exploring ways to use this data to provide more relevant real-time results. “If you follow me and know that I work in Mountain View or live in Menlo Park, you just assume that when I publish something–’I saw five fire engines’–you know it’s in the general Bay Area,” says Dylan Casey, Google’s product manager for real-time search. “But that comment would become even more powerful if you knew the exact geolocation.”

Twitter itself recently refined its home page’s “Trending Topics” feature–a compendium of the most common phrases appearing in messages–to allow s to see what subjects are being discussed where they live. (Twitter determines the location partly on the basis of twitterers’ IP addresses or their reported home cities.) The new feature, called “Local Trends,” is the next logical step in making real-time search more relevant and interesting. “Search isn’t just a box and a button; it’s about serendipity,” ­Williams says. “It’s about hopefully, and ideally, surfacing information to you that you, as a twitterer, didn’t ask for, but wanted–and right at that moment. In the world of real-time search, the Holy Grail is that you anticipate what the user wanted. Our opportunity and challenge is solving that problem–thinking of how users behave in the ecosystem. It gets you much quicker to realizing the value of Twitter.”

There is no one magical algorithm that provides serendipity without spam, relevance without rubbish, to all people in all places. But Twitter and other companies see tremendous opportunities in the ocean of tweets–and, more generally, in mining the social Web for information that people want. “What’s really important here is the notion of the social Web and using your social network–people that you trust–for information discovery,” says Feld. “We’ve got a long way to go here, which is really exciting for any entrepreneur playing in this domain.” Even if the future business model of Twitter is not certain, the fast-changing nature of the Web itself provides evidence enough that one will emerge–and might even represent the next seismic shift in the Internet industry.

David Talbot is Technology Review’s chief correspondent.

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