Experts Wonder if Twitter Will Pay Off

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    NEWSLETTERS

    TK
    After a new round of funding, many wonder if Twitter can finally make it.

    Twitter Inc. has spawned a new way to communicate by limiting messages to 140 keystrokes. So here's a way to describe the Internet's latest craze within Twitter's space restrictions:

    It's a potluck of pithy self-expression simmering with whimsy, narcissism, voyeurism, hucksterism, tedium and sometimes useful information.

    One vital ingredient has been missing from the mix so far — revenue. That raises questions about whether the nearly 3-year-old service can make the leap from intriguing fad to sustainable business.

    Twitter intends to start testing ways to make money this spring. And co-founder Evan Williams promises it won't drive away the more than 6 million people who have set up accounts on the unconventional communications network.

    "We don't see any reason why this can't be a very large and profitable entity," said Williams, the San Francisco-based company's chief executive. "We have enough traffic on our Web site that we could put ads on there and maybe we could make enough to pay our bills, but that's not the most interesting thing we can do."

    Williams, 36, won't say what he has in mind besides selling ads, but he and the handful of other people who own privately held Twitter seem confident the mystery strategy will pay off — even as a devastating recession destroys much-larger companies.

    Just three months ago, Twitter rejected a $500 million takeover offer from an even bigger phenomenon, Facebook Inc., the owner of the world's largest online hangout.

    Although shooing away Facebook was risky, Twitter still isn't under immense pressure to generate revenue. The 29-employee company has already raised $55 million, including a $35 million round recently completed with Benchmark Capital and Institutional Venture Partners.

    Like Facebook, MySpace, YouTube and other communal Web sites that have become Internet sensations, Twitter gives people a stage where they can express themselves and connect with kindred spirits.
    Twitter's twist is a more succinct approach, which has been likened to the 21st-century version of a telegraph.

    Here's how Twitter works: After setting up a free account, people are encouraged to post frequent updates about what they are doing, seeing and feeling. The messages, known as "tweets," must be limited to 140 characters and can be sent from a mobile phone or a computer.

    Although the updates are available for anyone to see, Twitter users usually set up their accounts to monitor the tweets of people they know or admire. These "followers" are automatically fed tweets from the people they are shadowing.

    With more than 265,000 people tracking his messages, President Barack Obama has the most Twitter followers even though neither he nor his staff have tweeted since he moved into the White House last month.

    Many other politicians and celebrities, such as basketball star Shaquille O'Neal (more than 72,000 followers) and former rap music sensation MC Hammer (more than 55,000) regularly share tweets.
    Twitter also has become a way to peek at dramas unfolding behind closed doors.

    When Yahoo Inc. laid off hundreds of workers last year, some of the casualties used Twitter to provide a blow-by-blow account of their final day at the office. Surgeons at Henry Ford Hospital in Detroit recently gave a rare glimpse inside an operating room by tweeting about the removal of a tumor from a patient's kidney.

    Twitter also has proven to be a valuable source for breaking news, sometimes even beating long-established media outlets to the punch.

    When US Airways Flight 1549 made an emergency landing on the Hudson River last month, a picture of the accident scene was quickly posted on Twitter by Janis Krums, a Sarasota, Fla., entrepreneur who was on one of the ferries that rescued passengers from the water. In November, Twitter provided harrowing, first-person accounts of the terrorist attacks in Mumbai that killed 164 people.

    But Twitter mostly amplifies the humdrum of ordinary folks with apparently nothing better to do but share their monotony. There's plenty of posts along these lines: "Sitting at Corner Bakery in Frisco, Texas. Lunch was good." Or, "Another boring day at work, ugh." Or even, "I really do enjoy picking my nose." (A widely practiced pastime, based on recent tweets).

    Finding out what's happening on Twitter is getting easier through a search engine called Summize that the company snapped up for an undisclosed amount last summer.

    Both Williams and another Twitter founder, Biz Stone, suggested the search technology could emerge as their company's crown jewel. Its value lies in its ability to quickly sift through a steady stream of tweets to provide almost instantaneous insights about what's going on around the corner or around the world. Not even Google's Internet-leading search engine can match that now.

    Stone relates how he used Twitter's search engine to ease his anxiety after he recently heard loud noises around his neighborhood. A quick search on Twitter informed him it was just a local celebration down the road.

    The search engine will become even more valuable if people keep flocking to Twitter.

    The site attracted 2.7 million U.S. visitors in December, a nearly eight-fold rise from the end of 2007, according to Nielsen Online. But Twitter's traffic increasingly is coming through mobile phones, making its usage more difficult to monitor. Nielsen estimates 666,000 U.S. users accessed Twitter on mobile devices in December.

    The service is especially appealing to people between 18 and 34. About one in every five people with Internet access in that age group used Twitter or a similar service to update their status at least once, according to a survey of more than 2,200 adults in November and December by the Pew Internet & American Life Project. Meanwhile, usage of Twitter and rivals such as Jaiku, Pownce, FriendFeed and Plurk was seen in just 5 percent of respondents between 45 and 54. Only 2 percent of people older than 65 had tweeted, according to Pew.

    This matters for Twitter's financial future because most younger people don't make a lot of money, which could make it more difficult for the company to appeal to advertisers.

    Even so, corporate America is paying attention.

    Several major companies, including JetBlue Airways Corp., have set up Twitter accounts to monitor what people are saying about their brands. The companies sometimes send out tweets offering to address a complaint.

    All that chatter could yield a huge moneymaking opportunity if Twitter chooses to mine the data and sell the insights to marketers, said Marita Scarfi, chief operating officer for Organic Inc., an
    Internet advertising agency. "It could be rich vein for brand analysis," she said.

    And though Twitter hasn't sold any ads yet, it is being used as a marketing tool. Computer maker Dell Inc., for instance, is offering exclusive discounts to its more than 18,000 followers on Twitter after holiday promotions broadcast on the service produced more than $1 million in sales.

    Both Williams and Stone hinted the company is exploring ways to charge for expanded commercial access to Twitter, but emphasized that all personal accounts will remain free.

    Online retailer Zappos.com is a big fan of Twitter, using it for promotions and customer feedback. But the Las Vegas-based company won't necessarily stay on board if Twitter starts imposing fees on businesses, said CEO Tony Hsieh.

    "It would depend on what they're charging for," said Hsieh, who has attracted more than 58,000 followers since opening his Twitter account about a year ago. "We don't see it as a marketing channel, but as a relationship channel."

    Comments like that feed the doubts about Twitter's future. Its prospects are clouded even further by the resistance that Facebook and MySpace have faced as they have tried to inject ads into forums where people primarily goof off or fraternize.

    "It's the same kind of challenge for these sites," said Peter Daboll, who has studied consumer behavior on the Internet for years, including in his latest job as CEO of Bunchball Inc. "How do they build on their great audiences and keep them engaged, without alienating them with a bunch of crap?"