Really? I've yet to see Twitter even try to capitalize, let alone fail. The whole targeted ads approach is so incredibly obvious that I'm sure it's on their roadmap by now.

What about getting users to buy SMS quota top-ups?

I think an easy and non-controversial revenue model would be to build the ultimate twitter app - better than twirl or twitteroo or anything out there. That's where the contextual ads would sit. If people don't like it, they don't use the app.

Putting *any* ads in the feed itself is a dangerous move, I'd think. Not impossible, but frankly I'd be surprised if they ever did this.

There's a completely different revenue model as well: charging for using Twitter as communications infrastructure and audience base of other services. I am developing an idea for such a service, and I think it is viable (albeit a longer term proposition for Twitter).

Twitter's ad space would be virtually unbounded because the impressions are based on relationships, not page views ... when Michael Arrington sends out one tweet alone, it could provide 13,104 impressions.

I used to hate Twitter--HATED IT! Thought it was annoying, stupid, self-centered, and just another online THING with my name on it to worry about. Then I was practically forced to sign up one day and figured while I was at it I'd follow some big-name entrepreneurs, etc. Now (after a few months of poking around)...I can see myself paying say $4.99 a year to continue doing so, maybe more. The big problem with this is that it will halt or discourage its growing user base. If they threw a couple ads up there I wouldn't necessarily mind, but it would definitely tarnish the full effect. I don't use twitter to speak nearly as much as I use it to listen. Just my two cents.

So with all these factors I believe the best monetization scheme would be local ads. It would be perfect. So if I am a 21 male in San Diego living in PB, tell him about a big party at a bar that night. That would make sense to both the bar owner to pay for, and is easy for the dude to act upon. Or, if you are a 35 old mom in Almaden, go to this ice cream shop, free ice cream for your children for the next 4 hours.

Twitter should buy someone like Eventful.com and sell localized event ads. Or partner up with the people that manage/sell localized radio ads.

Another point, these ads will be helpful. Just like Googles Adwords ads are helpful. People will enjoy getting them, don't need a premium service. Google doesn't have a premium search engine with no ads. Besides subscription services are a pain in the butt to run.

Ryan

Users don't spend money -- businesses do.

The monetization problem many of these social networking sites (and I don't count blogs among those as blogs are MUCH more akin to traditional destination/content sites) are going to increasingly run into is the fact that their primary value to marketers is NOT as another media/advertising channel but as a PR channel.

Sure, you can slap up banners or overlay some other form of contextually/behaviorally-targeted advertising. And we will certainly spend SOME money on that, especially on sites with a large enough audience that can make it worthwhile once you break down your target segments. But due to the very nature of social networking sites, these style ad units (even with strong contextual/behavioral targeting) simply do not perform at a REMOTELY comparable level as they do to similar ad units on content/destination sites. And advertisers will only pay accordingly (i.e., not much.)

The area where sites like Twitter, etc have the most value to marketers is by using them for buzz monitoring and PR/reputation management. The problem for sites like Twitter is this does virtually nothing to line their pockets. Instead of throwing money at them for an ad campaign which will likely yield only very modest returns, marketers can gain FAR more value by keeping an eye on their reputation and engaging customers in genuine conversation directly (which requires only our time/effort and minimal out-of-pocket costs on our end.)

I'm as much a geek and user of these services as anyone here. But the business side of me also thinks the industry (and VCs/Wall St analysts in particular) are in dire need of a reality check on the value of some of these properties. There IS marketing value to many of these sites. But it's not a value that's easily quantified and almost certainly not a value that will lead to massive revenues for these sites akin to what we see from properties like Google, Yahoo, etc.

I am sure they will, if they are not already, in talks to sell the company to people who know how to make money.

Can you say advertising? Because that is how they will make money. Maybe

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additionally, twitter can charge for other high-need commercial accounts. they could charge governments and corporations who integrate the twitter network into their own communications and alerts systems.

the key is for twitter to continue to build a stable platform that IS the new standard internet communication channel.
once it becomes very obvious that twitter has achieved this, and they should be able to, then all of the other opportunities will fall into place.

micro-messaging alone is useful but with the open developer community using the API... anything is possible to expand the usefulness of a micro-message.... specifically because hyperlinks can be included.

future is bright for twitter.... if they stabilize and get past the common bugs in this extremely active social network.

sull

Facebook blew this for me when the first "Hot Singles in your Area" ad appeared on my profile, Facebook knows I'm married dammit, I'm looking for "Networking", and clearly have indicated I'm not interested in an online hookup. Failing to recognize this caused me to put Facebook into the sites I hate category.

I can come up with such 10 "Ultimate" business models. Please give us some innovative ideas.

Twitter should create a web services API fpr raw mentions of brand and contextual reputation mentions, and a premium reporting service for filtering, "redress based language", for brand owners and intermediaries.

1. Twitter is already experimenting with web-based ads in the Japanese version of their site.

Their stats show that a large chunk (was it 40%?) of their web traffic comes from Japan, so it's only logical that they experiment with web-based ads on the Japanese version of the site.

A visit to the TwitterLocal.net Leader Board also shows that Tokyo, Japan is the city that sends the most tweets (the last couple of times I visited, the tweet traffic from Tokyo was more than double that of San Francisco).

2. Track keywords are a built-in way to ensure relevance

Twitter knows the Keywords that we're tracking, and can use that information to bring us relevant ads.

In other words, if an advertiser submits a text ad and the text ad contains keywords that 1000 users are tracking, Twitter can:

(a) easily tell advertisers that at least 1000 people will find the ad relevant; and

(b) deliver that ad with a a lot of confidence. There would be no need to mine what we say to guess what is relevant.

The big caveat? Twitter would have to partner with some really fabulous co's so that I want to join. If its just Microsoft offering me a demo link to the new SQL server, I'm opting out.

So twitter wouldn't just be telling you about the bar, it would send you your tweet with a piggybacked ad. You could just read the tweet and ignore the ad. Plus it should obviously try to target you. If you tweet more about baseball and movies, it will prioritize that instead. Eventually it would almost always notify you of cool stuff. If will be even better at that once it does the MySpace data portability stuff, then twitter would really know what you like.

In the end consumers don't really have a choice. Twitter's service is really expensive. They need to pay for things. I would think people would much rather have tweets with ads than no Twitter at all. Wouldn't you rather help Twitter by being understanding about the ads? They could use some more money to make things more reliable.

One problem I see with things like Twitter, Youtube, and Facebook is that they are not monetizing early enough. Now when they try to mix in ads their users seem to get really upset because they got use to the free ride. I would recommend putting at least some monetization scheme upfront, even a tiny amount, at least so their users don't forget the fact that the service needs to survive.

On a side note, Twitter really needs to at least do some basic SEO on their website. That really should be done sooner than later. Not only will it help for ads later on their website, but it will get more people finding the site from search engines => more users signing up.

Question to Twitter - why don't you ask your users and get them involved? You did when you wanted to know if people wanted the "is twittering" out the FB app!

This is not only redundant, but repetitive, not to mention it says the same thing three times.

I did manage to overcome the sentence and move on, and I agree that advertising should be one of the many streams that Twitter develops, but only one of them (and maybe not even the most lucrative). They will be able to tap into several sources of revenue, including subscriptions and advertising, but the big question is whether low-cpm ads and a relatively small number of paying customers can truly support the service, let alone generate the high profit margins that valuations suggest.

Make something people want. = A Product

Make something people want [to pay for.] = A Potential Business

Make something people want to pay [more than it costs you to produce] for. = A Business

Re: ads piggybacking tweets, got it. That might work, but when an ad takes up ~40% of the message space, that is intrusive. But maybe doable with tinyurl and a disclaimer (ie: Ad: tinyurl.com/39sdk) Perhaps if the ad is crytic, its kinda like a wild card - don't know what you'll get until you click. =)

re: monetization upfront. You're spot on. We get used to using a tool (say youtube) without ads, then when they try to introduce ads, they have to tippytoe around the fact that it costs many, many millions of dollars to run such a service.

I just don't think it is rich enough from a data-mining perspective... your average twitter feed assumes a fair amount of previous context and implicit understanding of a users 'topical area'. The ratio of noise words to targetable words is not great.

Test it yourself: Stumble through a sequence of people until you get one you have a weak connection to. Read their stream. Count how many targetable words there are per post versus total words. Comparatively, a blog is a much richer source of targetable words per post.

Compare this to the ratio of targetable words in a stream of user search engine queries.. much larger ratio.. they are hunting explicitly for information versus broadcasting random thoughts and updates.

My bet is that if you implemented such a system, the money you could make is directly proportional to the ratio of targetable words to noise words in the data stream.

Then other SMS type applications could flourish. For example a dude once had this budget manager idea managed through SMS, with a SMS affiliate program there would be an incentive to develop that.

Maybe someday. It is starting to look more hopeful after the iPhone came out, things are starting to open up, and wireless carriers are starting to try to be more innovative rather than controlling.

But hey the largest localized digital ad network wouldn't be bad either. Google would want that.

On the other hand, there are many companies now using twitter for promotion and user engagement. These companies would surely be happy to pay for this service. I don't think ads are the ultimate revenue model. They are getting old and stale and social web services needs to think more creatively, beyond advertising.

I've blogged a bit on the topic in response to this post: http://skwpspace.com/2008/05/10/why-twitter-is-relevant-and-how-it-can-make-money/

We think at this point Twitter probally should still focus on expanding its free membership base. Traffic is the key for ebusiness. When your traffic is large enough, you can find a better revenue model.

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More here
http://buzz2point0.blogspot.com/2008/05/twitter-business-model-why-google-is.html

I can come up with such 10 "Ultimate" business models. Please give us some innovative ideas. ?