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Twitter tries to turn 140 characters into money

The social network experiments with ways to wring sales from its surging popularity and find the kind of business formula that shot up the fortunes of Facebook and Google.

January 30, 2011|By Jessica Guynn, Los Angeles Times

Reporting from 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 ass."

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.

Twitter Inc. gained another key following in December: investors who competed for the opportunity to pour $200 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 shot 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 the 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.

Even with surging interest in Twitter, Costolo insists "we have every intention of remaining independent."

Twitter has turned down takeover offers from Google and Facebook, and intends to compete with them for users and advertising dollars. Costolo wrote in a recent tweet that "too many people worry about exit strategies when they should be worrying about entrance strategies."

Part of his entrance strategy was helping Twitter raise cash to expand while relieving pressure for an initial public stock offering, which Costolo says is still on the distant horizon.

That investors valued Twitter at nearly $4 billion reflects its potential, not its actual business. Twitter will bring in $150 million in revenue this year, more than triple its revenue of $45 million in 2010, the first year the company sold advertising, according to research firm EMarketer. By 2012 Twitter's revenue will reach $250 million, far less than Facebook but more than News Corp.'s MySpace, EMarketer predicts. But that's only if Twitter can live up to its hype and show advertisers it's a must buy.

In addition to advertising, Twitter gets millions of dollars from Google and Microsoft Corp. to show tweets to users of their search engines. Twitter does not disclose its financial information, but those distribution deals, worth about $25 million, were enough to make it profitable in 2009.

"Twitter is big, it's here to stay and it's an important part of the Internet," said Twitter investor Fred Wilson of Union Square Ventures. "What has to happen next is that Twitter has to figure out how to make money. That's the next step, and they are well on their way."

The Web's third-most-popular social network began as a side project growing out of founders Biz Stone and Williams' work on blogging software and Twitter Chairman Jack Dorsey's fascination with dispatch systems. Twitter lets users send 140-character messages, or tweets, to followers. Now more than 95 million messages ricochet around the world each day, spreading news instantly. More and more people are taking part in this global conversation.

Twitter has been embraced by political leaders and celebrities who use it to promote themselves and companies that use it to promote their products. The NFL is creating a feed of updates from players, coaches and fans in the buildup to the Super Bowl.

Protestors in Tunisia seized on Twitter to foment a revolution that might have been crushed without the viral power of Facebook and Twitter to instantly spread news and video. The torrent of firsthand accounts from around the globe has achieved such cultural significance that the Library of Congress plans to archive them.

Twitter also was instrumental in fueling dissent this week against Egyptian President Hosni Mubarak's 30-year rule, accelerating the flow of news and video and connecting protestors until Egypt's government pulled the plug on the Internet.

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