Twitter grows up, adopts business plan

With an ad model, the online phenomenon looks more like a real business than a giant hobby, say analysts

Twitter is finally taking off the training wheels and moving into the world where real businesses tread with the launch today of its first advertising model.

The microblogging phenomenon has long avoide coming up with a business plan or even talking about one. Just last October, Twitter CEO Evan Williams told an audience at the Web 2.0 Summit in San Francisco that the company wanted to focus on developing the site, instead of on a business model.

But the time has come for Twitter to figure out how to make money over the long haul.

It's a decision that makes the company look less like a grand hobby and more like an actual business, said Rob Enderle, an analyst with the Enderle Group.

"Twitter is growing up," Enderle said. "It helps take them from a dot-com-like questionable start-up to a real business. Granted, they still will have to demonstrate an ability to make a profit ... This is actually very important. It is part of the necessary process that must occur before they can effectively either sell the company or sell stock."

There had been quite a buzz around the Internet over past few weeks that Twitter was planning to take the wraps off a business model for the first time at the company's developer conference, dubbed Chirp, this week in San Francisco. Then today, Twitter co-founder Biz Stone posted a blog unveiling the new Promoted Tweets ad platform.

Users will start seeing paid messages, which will be labeled "promoted," at the top of some Twitter.com search results pages, Stone said. Initially, as many as 10% of users will see the promoted messages. Twitter will work with Best Buy, Bravo, Red Bull, Sony Pictures, Starbucks and Virgin America, to roll out the first ads, he said.

Twitter is plans to roll out the Promoted Tweets in several phases, with today's announcement marking the first. Before the company develops the service further, it wants to analyze advertiser value and see what users have to say about it, Stone said.

"The Promoted Tweets program is a smart move on Twitter's part," said Augie Ray, an analyst at Forrester Research. "They needed to send a message that Twitter is not reliant on just one source of revenue, like search engine deals. Now they have a second source of revenue, advertising, and it's expected we'll soon learn more about a third source, paid business services."

Ray also is confident that Twitter users will gladly accept the new advertisements, even though they will look much like regular tweets.

"There is every reason to believe Promoted Tweets will be welcome -- or at least not rejected -- by Twitter users. Because the program will have built-in resonance features that reward advertisers who launch Promoted Tweets that others find interesting, we can expect to see these tweets tend toward more value rather than less," Ray said.

Dan Olds, an analyst with The Gabriel Consulting Group, isn't so sure that Twitter users will welcome the change.

"There will be a vocal minority of users who will hate any advertising at all," Olds said. "But many users understand that it's necessary and will accept it as long as it doesn't interfere with their usage. But if the ads look like regular tweets, that could cause some serious outrage from users who feel that Twitter is attempting to deceive them."

But walking that fine line between giving users what they want and developing a lasting money-making model is part of becoming a serious business, according to Stuart Williams, an analyst at Technology Business Research.

"Every business has different cultures, and their processes may lack maturity and experience," Williams said. "However, being in business means you want to make a profit, and every serious business wrestles with this problem every day. Announcing and delivering a well-considered business plan is one step toward being a serious company. Executing on the plan earns you respect."

Mikael Rickn's of the IDG News service contributed to this story.

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