Twitter, Arguably Overvalued, Finds Way to Make Money

Microblogging site Twitter seems to have at last pinned down a way to make money and maybe even justify its supposed $1 billion value.

The company on Tuesday unwrapped Promoted Tweets, a platform where advertisers’ tweets sit above search results.

It’s a business model Twitter has long-rejected because, as co-founder Biz Stone wrote in a blog post, “we wanted to optimize value before profit.” (We’re guessing that means execs wanted to make sure they had the eyeballs and active accounts to prove to advertisers that spending money with Twitter will yield returns.)

But Twitter had to come up with a revenue-generation plan, and soon. Even with no income to speak of, the company’s worth has soared over the past year – from a reported $250 million in January 2009 to a staggering $1 billion, the Wall Street Journal said, in September 2009. That’s the kind of unsustainable business model that led to the dot-com bust.

So here is Twitter’s ad strategy: Promoted Tweets will start out with companies including Best Buy, Bravo, Red Bull, Sony Pictures, Starbucks and Virgin America. Their ads will display as tweets when search results tie into their respective products. So if you search for “energy drink,” one can presume a Red Bull ad will appear in the results window.

There is a catch. If Twitter users don’t re-tweet to the Promoted Tweets, or list them as favorites or reply, the advertiser’s tweet will be pulled from the search results, according to Twitter. Plus, only one Promoted Tweet will show at a time.

“We strongly believe that Promoted Tweets should be useful to you,” Stone wrote. “Promoted Tweets will be clearly labeled as ‘promoted’ when an advertiser is paying, but in every other respect they will first exist as regular Tweets and will be organically sent to the timelines of those who follow a brand.”

Twitter didn’t reveal how much it charges advertisers for Promoted Tweets, nor did it indicate what might happen if users don’t respond well to Promoted Tweets.

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