April 14, 2010 in Business

Advertising appears in Twitter searches

Ads in tweets likely in coming months
Jessica Guynn Los Angeles Times
 
Tags:twitter
Associated Press photo

Dick Costolo, chief operating officer at Twitter, speaks Tuesday during his keynote presentation at the Ad Age Digital Conference in New York.
(Full-size photo)

SAN FRANCISCO – Twitter Inc. has rolled out advertising on its site for the first time, a significant step in converting the social network’s explosive growth into cash.

Called promoted tweets, the ads from such companies as Best Buy Inc., Sony Pictures and Virgin America began appearing atop search results Tuesday.

But a more controversial move is expected later this year, when Twitter plans to test placing ads in users’ message stream.

The advertising scheme, which was unveiled in a company blog Tuesday, quickly became one of the most talked-about topics on the Twitter site. Some said they didn’t mind ads popping up in their Twitter feed; others threatened to leave the service.

The decision could mark an inflection point for Twitter, the third-most popular social network after Facebook Inc. and News Corp.’s MySpace.

Like other social networks, Twitter has agonized over how to profit from its popularity without upsetting users. Twitter co-founder Biz Stone called it a “stubborn insistence on a slow and thoughtful approach to monetization.”

Now Twitter, based in San Francisco, is gingerly putting a concept into play in hopes of uncorking a steady stream of revenue. It’s relying on an advertising model that is a twist on how Google Inc. places sponsored advertising next to search results.

Google for years faced similar doubts before defying skeptics by turning its search engine into a moneymaking machine.

“People are wondering if that’s what’s going to happen with Twitter now,” Forrester Research analyst Josh Bernoff said. “There are a lot of ways to do this wrong. That’s why they are being so careful.”

Users have flocked to Twitter, which has become a pop-culture icon for pioneering a whole new form of communication. Bloggers in their bathrobes and celebrities broadcast 140-character messages, known as tweets, that others may read. Twitter had 22.3 million users in March, up from 524,000 a year earlier, ComScore said.

Expectations are sky-high for the 4-year-old start-up that has raised more than $150 million in venture funding. It was recently valued at $1 billion.

“Twitter’s success depends on its ability to gather attention and turn that attention into money,” Bernoff said. “So far, Twitter has been incredibly successful at gathering attention and a total flop at making money.”

Twitter took an initial step toward profit last year when it clinched deals with Google and Microsoft Corp. to put its real-time updates in search results. That brought in enough money to make Twitter profitable on an operating basis. Twitter has other moneymaking ideas, such as adding commercial or premium accounts.

But for now it’s hoping that advertising will give the company the biggest boost.

The ads will enable businesses to inject themselves into the conversation on Twitter. When a Twitter  user searches for a word that an advertiser bought, a 140-character message labeled as an ad will pop up at the top of the results. One ad will remain at the top of each page of search results, the company said. Twitter will score these ads on how well they resonate with users. Those that don’t grab attention will eventually vanish.

Companies will pay per thousand people who see the messages. Eventually Twitter will charge based on how users interact with the ads. It will further hone the advertising using location data.

Later this year, promotions will begin appearing in a user’s Twitter stream even if the user does not follow the advertiser. That’s the riskier proposition: Twitter users may feel those ads are too intrusive.

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