Twitter says no to ads; So how can site survive?

Biz Stone says the microblogging site will turn to paid tools, services rather than ads

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With Twitter Inc. co-founder Biz Stone ruling out advertising on his company's social network, the question for the online business world is this: What will Twitter do to ensure it can survive over the long term?

Stone, in an interview at Reuter's 2009 Technology Summit on Monday (see video), said that Twitter is steering clear of running advertising on its microblogging site but added that it will one day launch new paid tools and services.

Online pundits and bloggers have been closely eyeballing the increasingly popular Web site and criticizing Twitter's lack of a business plan. Many experts have been doling out dire warnings about the future of the microblogging site unless it comes up with a viable plan for making money sometime very soon.

Stone added that Twitter has hired a full-time product manager to analyze how it should develop paid services.

"It's becoming clear that advertising isn't a panacea in general and Twitter's execs apparently don't feel that the downsides of advertising would be outweighed by what revenue they could bring in," said Gordon Haff, an analyst at Illuminata Inc. "That said, they haven't really said much about what their business model will be. They refer to tools. But client applications are already available for free from a number of companies. And some of the most obvious tools, such as search APIs, are already likewise available for free and it's always difficult to go from free to a charge."

Ultimately, Haff said, it may be wise for Twitter to steer clear of advertising. "But taking advertising off the plate leaves open the question of what will they, exactly, put in its stead," he added.

Last month, Stone told Computerworld that Twitter has plenty of money in its coffers, so there is no rush to develop a business plan. Instead, he said, it wants to focus on growing its network, increasing its user base and adding new features to its site.

"It's not tough for us because we have a lot of money in the bank and patient investors [and a] patient board," said Stone during the interview in Twitter's San Francisco offices. "We want to focus on this before profit. If we focus on profit, then we take people away from focusing on features."

But while Stone has said there's no Twitter business plan in the works, he did say that company executives do hope to examine several different money-making ideas later this year. The company doesn't plan to quickly announce a major plan but will first "try stuff out and see what sticks," he added.

Twitter will likely first look at a business plan focused on commercial users, though that doesn't mean that Twitter-using companies like Starbucks Corp. or Zappos.com Inc. will have to start paying to use the social network.

Caroline Dangson, an analyst at IDC, said it's a bold move for Twitter to rule out advertising.

"I believe search advertising linked to the new search box on user's profile pages could have been an interesting revenue-generator and that Twitter could have found the right balance so that ads would not be intrusive to the experience," she added. "This would have worked well, in my opinion, along with the model of charging for premium services and applications."

Dangson noted that she suspects avid Twitterers -- say, the top 5% to 10% -- might pay for additional services and tools, but the majority of Twitterers will simply continue using the free services.

Ezra Gottheil, an analyst at Technology Business Research, noted that Twitter still faces a lack of user "stickiness."

Last month, Nielsen Online reported that while people are joining the microblogging site in droves, a whole lot of them don't stick around for long. In fact, the online research firm found that some 60% of new Twitter users do not return to the microblogging site the following month.

That, according to Gottheil, is going to be a problem long term when it comes to making money.

"It's not clear that Twitter can keep all or most of the eyeballs it is now attracting," he added. "That is Google's problem when addressing the business market. Twitter is wise to choose to build enduring business services. I do think there are potential business applications for Twitter or something like it."

But Gottheil noted that Twitter isn't announcing a plan -- just a plan to have a plan. And what that plan will end up being is now the question.

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