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.

TITANS OF TWEET: Twitter founders Evan Williams (far left), Biz Stone (in eyeglasses), and Jack Dorsey (far right) hoist cold ones with Ted Wang, a law partner at Fenwick and West (seated on bar), and venture capitalists Fred Wilson of Union Square Ventures, Bijan Sabet of Spark Capital, and Peter Fenton of Benchmark Capital. The number of Twitter users surged to 75 million last year and the company inked deals worth a reported $25 million with Google and Bing, but its real fortunes depend on proving that tweets have value. “We don’t think we are there yet,” says Williams. But, he adds, “it’s clear there are a lot of ways to make money.” Credit: Mauricio Alejo

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.”

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.

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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.