Tweet Ad Tweet Ad Twee…

Twitter will begin selling a service called Promoted Tweets today.

On its blog, twitter posted an entry entitled “Hello World.” In it, Twitter explained how the advertising service will be rolled out.

To quote the CEO:

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. 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’.”

We hope you’ll share in our enthusiasm as today we unveil a simple service we’re calling Promoted Tweets. It’s non-traditional, it’s easy, and it makes a ton of sense for Twitter. Our COO Dick Costolo will be talking about this much anticipated offering in detail today at the AdAge Digital conference. Tomorrow at Chirp, both Dick and our fearless leader Evan Williams will further discuss this program and what it means for the Twitter ecosystem.

Best Buy, Bravo, Red Bull, Sony Pictures, Starbucks, and Virgin America are reported to be the first advertisers. Twitter currently has 70 million users, and has a valuation of $1.4 billion. Its revenue sources currently come from selling both Google and Microsoft Bing the right to display tweets in search results.

Will it work?

The worst answer to a question is to answer with another question: Does it matter?

Youtube has never been profitable.

Myspace has always lost money. Myspace is still running because it was purchased by a media company with strong cash flow.

Facebook has 300M users and generated 300M dollars in revenue last year. This was not enough to break even.

So can Twitter be Profitable?

Twitter has an advantage on the Internet: it was the first on the market. It re-defined ADD (attention deficit disorder) by embracing it. When Twitter first arrived, people thought that communicating in 140 characters was laughable. Further, some of we bloggers thought Twitter would not provide any substance.

Yet, Twitter thrives. Why?

Twitter brought people “there” when a plane crashed in the Hudson River. It brought news immediately to the people. It made its name for itself several times over with events like that.

Twitter’s business model is based on reporting information and ideas in real-time and packaging it to users within 140 characters. So long as users don’t tune out to advertised “tweets,” Twitter may have a chance to generate substantial growth in revenue.

Speculating on Twitter’s likelihood of success (from a revenue perspective) at this point is fruitless. It is a forecasting exercise, and forecasting brings little value.

Let me try anyway, but in the form of if…then (you may probably wish at this point that programmers should not be bloggers).

Twitter will succeed in generating growing revenue and therefore profit if it:

  • quickly identifies which ads work and which do not
  • has a method for continually improving its ad display/click model
  • adapts its business model in a way that it focuses and therefore dominates real-time on mobile search (believe me, reading 140 characters on a phone or smartphone is somehow “different” than reading 140 characters on a computer)
  • thinks of incorporating advertising with location-based mobile search

Positive tell-tail signs that Twitter is succeeding will be known if:

  • Google and Bing up its spending with Twitter
  • Google, Microsoft, or Apple begin to panic about its relevance in mobile search
  • One of the search competitors bids for Twitter (Twitter is unlikely to sell, but the mere rumor of it will suggest that Twitter is succeeding)