How Twitter plans to (finally) make money

At today’s CM Summit, a marketing-focused event hosted by Federated Media, Twitter COO Dick Costolo outlined how his company plans on incorporating advertising into its micro-blogging platform. 

As announced at Chirp, the company’s developer conference, Twitter’s first step to monetization is through “promoted tweets” that will be pinned to the top of search results on Twitter.com and third-party applications. The company also announced annotations at the conference.

“We didn't want ads in a ‘demilitarized zone'," said Costolo. "Companies are already communicating with customers, so we want to allow them to promote them in search and other places.”

The centerpiece of the company’s plan is its invented metric: “Resonance.” Eschewing impressions, Twitter is preferring to use a proprietary formula that includes all the ways people interact with a tweet: favoriting, retweeting, following, clicking on the tweeting account’s homepage and other metrics.

Tweets with a high resonance metrics will stay promoted, those with low numbers will be bumped off the page. Through a custom dashboard, marketers will be able set budgets for promoted tweets and set them to appear against keyword searches on Twitter.com and on third-party applications.

The platform’s extension into third-party applications is a sore subject for many developers. After the company purchased Tweetie to be the company’s official iPhone application, many developers felt betrayed. Many developers are also leery of the company's efforts to tighten its control over data like annotations. However, Costolo said that only 30 percent of Twitter’s traffic is on Twitter.com. The rest is through API calls forcing Twitter to aggressively rewrite its API to give the company more control in order to monetize.

So far, Costolo says the results have been positive. The company’s first six advertisers report that 2.6 percent of tweets were clicked, replied or retweeted. One company timed tweets to specific times and events during the day and was able to push that number over seven, he said.

Other notes:

• 190 million uniques a month on Twitter.com.
• 65 million tweets a day
• Costolo said that the many inactive accounts on Twitter are proof that Twitter "is a consumption environment. A lot of people have accounts but don't tweet," he said.
• 30,000 new registrations a day
• Over 200 people work at Twitter.