Turning 140 characters into money

San Francisco: On The Tonight Show, Conan O'Brien used to get big laughs for mocking Twitter as an egotistical stream of mundane updates from celebrities. But when he got bounced from his late-night gig at NBC, O'Brien could no longer take to the airwaves to reach his fans, so Twitter became his open hailing frequency. He later thanked Twitter "for saving my ..."

O'Brien isn't the only one who is tapping Twitter's mass-media potential. The social network, which will celebrate its five-year anniversary in March, last year signed up more than 100 million people who sent more than 25 billion updates called tweets.

Surging popularity

Twitter Inc gained another key following in December: investors who competed for the opportunity to pour $200 million (Dh735.6 million) into the company, nearly quadrupling its worth to $3.7 billion. The new funding comes even as the company experiments with how to wring sales from its surging popularity and find the kind of business formula that drove up the fortunes of Facebook Inc and Google Inc.

Now Twitter finds itself at a crossroads, where it will finally have to answer the question: Can it make money? "2010 was the year Twitter became a phenomenon," said Forrester Research analyst Augie Ray, who tracks Twitter. "2011 will be the year that they have to prove they are a business."

The man in charge of turning Twitter into a business is Dick Costolo, a former improvisational comedian turned technology entrepreneur who joined Twitter in 2009 as chief operating officer. Costolo, who replaced Twitter co-founder and product guru Evan Williams as chief executive in October, is credited with helping Twitter roll out advertising initiatives that have attracted more than 80 big brands such as Starbucks Corp, Coca-Cola Co and airline Virgin America.

It will now be up to Costolo to determine whether Twitter becomes the next major independent Internet company like Facebook or the next promising start-up to get bought or flame out like News Corp's MySpace.

Twitter's challenge is twofold: making the product easier and more engaging and, most important, making money.

Social media networks have been reluctant to flood their sites with ads targeting the millions of people who interact with one another online. Instead they have sought out less obtrusive and more natural ways to connect users with marketers.

Cracking the code

For Twitter, that has meant trying to come up with ads that are so relevant and useful that users don't think of them as ads.

Costolo claims Twitter has "cracked the code" on that kind of advertising and predicts advertisers will soon spend millions of dollars on Twitter. Analysts say Twitter's efforts so far are promising.

Called Promoted Tweets and Trends, these ads show up at the top of Twitter feeds or trends. Advertisers pay anytime someone interacts with the Twitter update by clicking on a link, forwarding the update to friends or replying to it.

On average, 5 per cent of Twitter users who see a promoted Tweet interact with it, a rate that Costolo said was "an order of magnitude greater" than most online ad campaigns. Promoted Trends go for as much as $100,000 for a single 24-hour campaign.

Virgin America, for one, is a fan of Twitter advertising. The airline promoted the launch of its new service to Toronto in April by offering special discounts to Twitter users. The promotion gave Virgin America its fifth-highest sales day.

"We have definitely seen great success in partnering with Twitter," said Jill Fletcher, Virgin America's social media and communications manager.

But some advertisers are not yet sold. Costolo is banking that will soon change. He concedes that there is "a ton of work left to do on the advertising platform," but says he has never seen an advertising business work so well so quickly.

Twitter is ramping up by building a national sales force, hiring executives from Facebook and Google, and expanding its reach overseas, where it is experiencing torrid growth. It must continue that pace to succeed as a major Internet player.

"We all believe that Twitter could be one of the great internet companies," Costolo said.

"We know we have to prove that, and we know we have a lot of work to do."