New Twitter topic: Ads appear on site
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 advertising 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 such as Ashton Kutcher broadcast 140-character messages known as tweets that others follow. 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 uses 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.
Chris Bruzzo, Starbucks Corp.’s vice president of brand, content and online, said his company welcomed the new avenue to reach more users and participate in their real-time conversation. “When people search for ‘Starbucks’ in Twitter they will be more likely to see our tweets with this new product,” he said.
It’s too soon to say whether Twitter is on the right track, Forrester Research analyst Augie Ray said.
“Done right, promoted tweets will spark engagement and influence. Done wrong, the paid media will fail to resonate and quickly disappear. Done really wrong, promoted tweets could create negative reaction, causing more harm than good,” he said.
Stone emphasized that Twitter’s business model was a work in progress.
“This is a new thing and we expect to iterate to make it better,” he said.
Twitter plans to reveal more information about how it will share revenue with third-party software developers Wednesday at its inaugural developers conference, called Chirp, in San Francisco.
Over the last year, companies such as Ad.ly Inc. of Beverly Hills, Sponsored Tweets of Orlando, Fla., and MyLikes Inc. of San Francisco have sprung up to broker advertising deals in which brands pay Twitter users to plug their products.
It’s unclear whether advertisers will switch to Twitter’s ad system or continue to work with third-party companies. MyLikes founders Bindu Reddy and Arvind Sundararajan said Tuesday that they had raised $630,000 in funding from former colleagues at Google.
“The Twitter ad strategy is definitely interesting, but we think that ads created by influencers whom people are actually following can be much more powerful,” Reddy said.
