Twitter today in a blog post by @Biz Stone introduces its business model for the company. The new product is called Promoted Tweets.

For folks who have been following my work over the past 1.5 years you know that I’ve been thinking a ton on the advertiser and user benefits of Twitter.  So I’m excited Twitter finally is working on this.  I will just say upfront – this is not an easy thing to do – that is match advertising to the real time web.

I predict Twitter will not get it right on the first try – for many reasons.  A few big reasons are 1) it’s hard as hell and 2) Twitters entry into this is overhyped and the expectations are way too high.  It will fail no matter what on the first try.

Twitter has to figure out a scalable business model around advertising for the social web. One obvious product that is working for Twitter is their search. Most people I talk to use Twitter search in one form or another to find out what the conversation is verses actually tweeting themselves. I explained this user behavior of Twitter in a post recently called Twitter Data Suggests A New Class Of Web User – 80/20 Rule Applies.

Here is what I mean by the new kind of user on Twitter:

The Twitter user base seems to follow the classic 80/20 rule in terms of activity driving value – 20% of the user provide 80% of the value. That being said the search and discovery value of twitter is valuable to the mainstream user. This is why the overall Comscore Twitter user numbers are different than Twitter’s registered user numbers. Most users are generally lazy and want things done for them. That is why users browse and search Twitter data. Active Twitter users are “proxies” for lazy mainstream users which is pretty much everyone.

Mainstream people are trying to figure out the value of Twitter. Twitter’s value is in the resulting data from interactions of these early adopters or “proxies” that drive “action” within distinct user groups. Action is the result of the engagement data or interaction data among users. These results cause users to take an action on something. Action meaning avoid, ignore, comment, retweet, buy, sell, share, and/or some other thing that is important for the user. Although Twitter is noisy, there is big time signal in those tweets.

Twitter rewards real time interaction and curation which translates into discovery which tranlates into loyalty. So even though not everyone tweets everyone can benefit from the select that are tweeting. The 80/20 rule applies. This is a marketplace developing and it’s untapped.

Search Redux – Twitter Business Model

Twitter is implementing nothing more than a real time version of sponsored links driven by the Web 1.0 business model around “keywords”. Advertisers are in essence getting a link except the algorithm for placement is how well the tweet works for users. In other words Twitter is using data from their own platform to define context and relevance. This notion is completely different from traditional search dominated by Google. So in a way it’s the same as traditional search but different and unique to Twitter at the same time.

Initially Promoted Tweets will be only for Twitter search then will extend for Twitter clients once it has been proven to be useful for users.

According to Biz Stone he explains this “we plan to allow Promoted Tweets to be shown by Twitter clients and other ecosystem partners and to expand beyond Twitter search”.

Here are some key highlights that I see as important from the Twitter announcement:

Promoted Tweets will also be timely. Like any other Tweet, the connection between you and a Promoted Tweet in real-time provides a powerful means of delivering information relevant to you at the moment.

There is one big difference between a Promoted Tweet and a regular Tweet. Promoted Tweets must meet a higher bar—they must resonate with users. That means if users don’t interact with a Promoted Tweet to allow us to know that the Promoted Tweet is resonating with them, such as replying to it, favorite it, or Retweeting it, the Promoted Tweet will disappear.

My Angle: Good for Agencies, Bad for Indie Ad Platforms

I like the direction that Twitter is taking. At least they are taking a position finally. It’s important because Twitter has been under fire from the ecosystem in how they are handling developers. There is no question the developers are interested in the distribution on the Twitter platform (a must have to keep a robust developer community). However, the missing link is monetization for developers and benefits to adverstisers. Getting a revenue model going for Twitter is very important to feed the ecosystem both developers and advertisers. Great news is that Twitter is messaging that user experience is job #1 then monetization.

Nailing down a distribution and financial benefit for Twitter’s stakeholders (developers and advertisers) is really important for Twitter’s future.  Getting it right will be the challenge.

The overall ad model of the social web opportunity is a bigger picture. I have always been in love with the Twitter advertising opportunity and see the benefits there – it’s a huge opportunity in advertising.  However, I’m not sure that 3rd party companies (like Tweetup) will be the one to dominate given that Twitter is now entering the market.

Solving the advertising solution value proposition is a crap shoot for anyone especially a startup.   The question is not is it going to happen, but instead how is it going to happen. One or handful of players will get the formula right.  It’s clear that Twitter wants to be the platform so the only path for others will be an agency model.

Working with Twitter reminds me of standalone keyword platforms in the late 90s prior to Google Adwords where the flaw then was depending on one company for distribution.  The same is true now for Twitter and depending on one company puts startups and big 3rd party companies “eggs in one basket” which can be a fatal flaw especially when the Twitter itself is getting into that business.

For startups looking to crack the nut in social advertising it’s a potential fatal flaw to consider.  For agencies look at how you’re serviced by Twitter and make sure your brands image is not tarnished by their ranking algorithm.

Getting it right will be difficult for Twitter because they are a young company.  Getting into the ad business means that Twitter will have to quickly build out a culture of dealing with ad clients and start “doing some business”.

There is a culture issue that needs to be fixed at Twitter on that front.  Also they need to get the formula right on scaling the Promoted Tweets who gets paid and how the money will flow.  They need to be simple to understand and to buy.  I see this as a problem area and one that is difficult to do with machines.

I would love to hear any other opinions in this area.

Update:

Twitter COO Dick Costolo gives a great interview on CNBC. I like how he makes a point to say that there will be a big focus on the ecosystem and “getting Paid Tweets right”.