Rapidly growing microblogging site Twitter might have found a way to generate revenue. The social media platform, which has been around for two years, has been criticized throughout its recent growth spurt for having no discernible business model. A change to the company's terms of use on Thursday, however, allows Twitter to run advertisements if it so chooses.

Among its community, Twitter itself is the only party that has not been able to monetize its 44.5 million monthly visitors effectively (traffic as of June 2009, according to comScore). Many users work with Twitter to promote their brands, publicize deals and engage customers. Some services, such as Magpie, even serve ads into a user's Twitter stream, delivering a revenue opportunity for both Magpie and the user -- but not Twitter.

The real winners with the terms of use change are Twitter's venture capital backers, which have been watching a company grow quickly without any revenue to match the wealth of eyeballs. On the company's official blog, founder Biz Stone writes , "[W]e leave the door open for advertising. We'd like to keep our options open as we've said before."

The terms, which are subject to change, state that the "services may include advertisements, which may be targeted to the content or information on the services, queries made through the services, or other information." Additionally, "In consideration for Twitter granting you access to and use of the services, you agree that Twitter and its third-party providers and partners may place such advertising on the services."

Twitter announced some other changes to its terms which may look a bit dull at first but are actually quite important. Users continue to own all their tweets – digital gold, right? – but they give Twitter the right to "use, copy, reproduce, process, adapt, modify, publish, transmit, display and distribute" them. Why? Because, Stone says, "that's what we do." Users also authorize Twitter to make their content available via its application programmers interfaces, better known as APIs.

No decision has been made yet as to whether ads will run. Stone is concerned about alienating his users, and potential advertisers may be concerned about the risk of seeing their brands displayed alongside offensive – or competing – content.

The "flourishing" of the Twitter "ecosystem," as Stone puts it, may actually dilute the effectiveness of Twitter as an advertising platform. Alternative ways to access Twitter, which do not involve the website, compromise traffic results, minimizing the potential for advertisers. Serving ads into users' Twitter streams overcomes this problem but presents a host of others. In my experiences using Magpie, a third-part Twitter ad service, followers became confused by the promotions, thinking they were real tweets. One day, I had several friends ask me if I was planning a trip (I also contribute to travel blog Gadling) – because of a Magpie ad they saw in my stream.

Twitter is prudent to alter its terms of use and equally prudent not to take any immediate action. Right now, the company needs options, and this move provides them. Yet, potential does not translate to results. Twitter still has to figure out how to make the cash register ring.


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