From Business Week (original article)

How Much Are Twitter’s Tweets Really Worth?

Google and Microsoft are paying millions for tweets, but even they can’t tell whether their deals will pay off

By Spencer E. Ante

Google (GOOG) and Microsoft (MSFT) are paying Twitter $25 million to crawl the short posts, or tweets, that users send out on the micro-blogging service. It sounds like big money. Enough for Twitter to turn a small profit in 2009, say two people familiar with the company’s finances.

But do the math and the payments look less impressive. Last year, Twitter’s 50 million users posted 8 billion tweets, according to research firm Synopsos, which means Google and Microsoft are paying roughly 3¢ for every 1,000 tweets. That’s a pittance in the world of online advertising. Top media sites often get $10 or $20 per thousand page views; even remnant inventory, leftover Web pages that get sold through ad networks, goes for 50¢ to $1 per thousand. The deals put “almost no value” on Twitter’s data, says Donnovan Andrews, vice-president of strategic development for the digital marketing agency Tribal Fusion.

Truth is, no one has figured out how to make real money off of tweets yet. Google and Microsoft are paying $15 million and $10 million, respectively, as a bet on the future. By laying out what are relatively tiny sums, they get first crack at experimenting with Twitter data. Both are already including tweets in search results. Sean Suchter, general manager of Microsoft’s Search Technology Center, predicts the company will end up profiting. “Many times in history when you amass the attention of users, that has proven to be a moneymaking endeavor,” he says.

Location Data Could Help

A few entrepreneurs are showing ways to advertise via Twitter. Sean Rad, chief executive of Beverly Hills-based ad network Ad.ly, has signed up 20,000 Twitter users who get paid for placing ads in their tweets. To determine the size of the payments, the startup has developed algorithms that measure a person’s influence. Reality TV star Kim Kardashian, with almost 3 million followers, gets $10,000 per tweet, while business blogger Guy Kawasaki fetches $900 per tweet to his 200,000 fans.

For Google and Microsoft, the real payoff may come from tying tweets to local information about products. Twitter is building software that will automatically allow users to add location data to every tweet. Armed with user locations, Microsoft and Google could sell more targeted ads and provide more relevant search results. “That is potentially very useful,” says Microsoft’s Suchter.

Google isn’t focused on making money from its Twitter deal in the near term. Amit Singhal, a Google fellow, says Twitter’s data are necessary so that people who use its search engine get more complete information. “I never think about dollars and cents,” he says. “My job is to run the best search service.”

Twitter and its venture backers, however, need to see the deals pay off. The three-year-old company has said it hopes to go public someday, but it needs a viable business model to live up to its latest $1 billion valuation. It’ll take a long time to get there at 3¢ per thousand tweets.

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