Can Twitter Cash In?

Stream of mundane updates or business?

Twitter is at a crossroads. “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 company’s worth is valued somewhere north of $3.7 billion. Now it must answer the question – can it make money?

The nearly $4 billion valuation reflects its potential, not its actual business. This year Twitter will generate around $150 million in advertising revenue – more than triple the $45 million earned in 2010 its first year of paid advertising.

Twitter believes it has “cracked the code” to come up with ads that are relevant and useful so users don’t view them as ads. Hmmm – is that possible?. Called Promoted Tweets and Trends, these ads show up at the top of Twitter feeds and trends. Advertisers pay when someone interacts with the Twitter update by clicking on the link, forwarding the update or replying to it. Currently only 5% of Twitter users are interacting with promoted tweets. According to CEO, Dick Costolo, there is “a ton of work left to do on the advertising platform,” but he says he has never seen an advertising business work so well so quickly.

By 4Q 2011 we’ll know if Costolo and Twitter are on the road to becoming either the next Facebook – or the next MySpace.