Content-Search Deals Make Twitter Profitable
Twitter is ending 2009 on a high note. The microblogging site has reached profitability after inking $25 million of deals that make its content searchable by Google (GOOG) and Microsoft (MSFT), Bloomberg BusinessWeek has learned. In October, Twitter said it had struck multiyear arrangements that make users' short blog postings available on Google.com and on Bing, which is run by Microsoft. Those agreements carry sufficient value to help Twitter achieve a small profit for 2009, say two people familiar with the company's finances, who asked to remain anonymous because Twitter's books are not a matter of public record. Like many social media startups, three-year-old Twitter focused early on adding subscribers rather than generating revenue. That's left many analysts and investors wondering how and whether the company—often cited as a candidate for an initial public offering or acquisition—would make money. Twitter co-founder Biz Stone declined to comment on the company's finances, but wrote in an e-mail that the company is proud of the work it accomplished in 2009. "We're thrilled about the partnerships we've formed this year and we're looking forward to opening Twitter even more in the future," Stone wrote. In exchange for making short blogs, known as tweets, searchable on Google, Twitter will receive about $15 million, the two people say, adding that the Microsoft partnership is worth about $10 million. "The deals were huge," says one. "With two scoops of the pen, a lot of revenue came in." Telecom expenses slashed, tooRepresentatives of Microsoft and Google declined to comment. When the arrangements were announced, none of the companies involved disclosed their value. Tech blogs, including AllThingsDigital, had said only that the deals were worth several million dollars apiece. Twitter also achieved profitability by reducing expenses, the people say. The company used to pay a lot of money to telecommunications companies for distributing billions of text messages over wireless networks. Twitter users can send and receive messages over both its Web service and text messages. Now that Twitter has become so popular, it has gained bargaining power with telecom companies and has managed to renegotiate so many deals with carriers that the company pays far less for the services. "Those used to be the biggest line item," says one source. "Generally speaking, those costs have gone away. Now people are the biggest line item." Whether Twitter can remain profitable depends in part on how quickly it increases staff size. Twitter is one of the world's most popular Web services, with about 58 million global monthly users, according to comScore (SCOR). Still, it has a relatively small head count. Approximately 105 people work for the company, according to a count of the employees listed on Twitter's "about" page. Entrepreneurs and investors estimate that the annual cost of running Twitter is approximately $20 to $25 million. Since Twitter was formed in 2006, it has raised $155 million. "Searching up-to-the-minute data"At the time the deals were announced, executives at Twitter heralded the Google and Microsoft arrangements as a watershed. "We pulled off the unimaginable—announcing important partnerships with Google and Microsoft on the same day," Stone wrote on Oct. 25 in "Twitter Week in Review," a weekly e-mail that Stone sends out to the company's employees, investors, and business partners. Bloomberg BusinessWeek reviewed a copy of the e-mail. The payments Google and Microsoft were willing to make to Twitter underscore the growing value of the massive volumes of data coursing through Twitter's network. Executives of both companies have said their technologies would be considered incomplete if they did not include the millions of messages that get posted on Twitter every minute. "We believe that our search results and user experience will greatly benefit from the inclusion of this up-to-the-minute data, and we look forward to having a product that showcases how tweets can make search better in the coming months," Marissa Mayer, Google's Vice-President of Search Products and User Experience, wrote on the Google blog on Oct. 21, after the deals were announced. "The next time you search for something that can be aided by a real-time observation, say, snow conditions at your favorite ski resort, you'll find tweets from other users who are there and sharing the latest and greatest information." Tweets are also a valuable source of information on products, with consumers frequently using the site to share views on various products. That carries enormous value for Google and Microsoft. As a result of this information, search engine providers could sell more advertising and provide more relevant search results, generating more revenue when consumers click on their ads. fees for commercial Twitter accountsFor most of Twitter's three-year history, executives and company investors have repeatedly said they were focused more on growth than generating revenues or profits. That helped fuel apprehension over the company's business model. Over the last year, however, executives have started to talk about the various ways the company has been exploring to generate revenue. In addition to the search deals, Twitter plans an advertising program for early next year. The company also will charge for commercial Twitter accounts that would let businesses analyze tweet traffic. Chief Operating Officer Dick Costolo, who joined Twitter in September, was key to getting the search engine deals done, one person familiar with the matter said. Costolo had helped found FeedBurner and worked at Google as an ad product manager after the company was acquired. At FeedBurner, Costolo developed a business model based on selling ads on Web news feeds. The goal at Twitter now is to add advertising without disrupting the way the service works, Costolo said last month at a conference."We want to do something that's organic and in the flow of the way people already use Twitter—and not: 'Here's the tweets and here are the ads.'"