Twitter Finally Reveals Business Model: Sell Ads

There has been speculation for over a year about how Twitter would make money off of its huge user base. The answer turns out to be remarkably simple. It will sell ads the same way that social networks like Facebook and big portals like Yahoo! (YHOO) do. Twitter said, "We hope you'll share in our enthusiasm as today we unveil a simple service we're calling Promoted Tweets."

The ads will appear on top of the search pages that Twitter members use to search the micro-blogging company's lists of other members. According to Twitter's own blog page, "We are launching the first phase of our Promoted Tweets platform with a handful of innovative advertising partners that include Best Buy, Bravo, Red Bull, Sony Pictures, Starbucks, and Virgin America -- with more to come."

Will Twitter Users Rebel?

Many companies already use "tweets" on Twitter to promote their products and services, so the new program is a logical extension of that. But the new Promoted Tweets may annoy Twitter users. It is one thing for a company to use the standard "tweet" system to talk about their goods and services. It is quite another for ad messages to appear out of this system and on the top of Twitter search pages.

Twitter will face the same problem that Facebook did when it first launched its advertising program. Users will wonder if they are being targeted by advertisers who track their behavior on the site. This, in turn, may cause members to attack the ad messages and Twitter management.

But Twitter had to find a way to make money. The company is four years old and has not yet put together a plan to make itself profitable. This has raised questions about the firm's valuation, which some estimate could be as high as $1 billion.

Another issue for advertisers is how many Twitter members actually use the system. The company's membership has been put at 75 million, but one estimate says that 25% of members are completely inactive.

Twitter now gets to face the same questions that other ad-supported online businesses do. How effective is it to advertise on the site, and will users revolt at the change?