By Chris Lee

Microblogging network Twitter has been the standout Internet phenomenon of the last two years, but despite its popularity which includes a user base of 145 million people globally, the site has so far not managed to fully monetise its offering.

Mike Grehan is vice-president and global content direct of search marketing exhibition Search Engine Strategies (SES). NMK caught up with Grehan to find out how Twitter was getting on with its monetisation strategy and also found out what value the microblogging site could potentially provide to marketers.

Briefly explain how Twitter currently generates money.

Twitter hasn't been in any real hurry to monetise their product. So they didn't go immediately for any traditional Web advertising model. Publicly they say they wanted to add value before profit. And that's a nice PR line. But it's probably more a case of them looking at Twitter, scratching their heads and simply having no idea how to monetise it at first. And that's pretty much the same way Google started - an idea for an algorithm and no real business plan.

In April they launched promoted Tweets - basically an ordinary tweet that an advertiser wants to get to a wider audience. You'll see these from companies such as Starbucks when you do a search at Twitter. It's a bit like sponsored listings at Google when you do a search. They have expanded their product offering and now have promoted accounts. It's part of their "who to follow" suggestions algorithm. And then more recently they have started reaching out to partners to distribute their promotions (for instance, the HootSuite social media dashboard app carries Twitter promotions).

What impact have sponsored tweets and trends had?

That's what everyone is wondering. If you take the McDonalds "McRib is back" campaign at Twitter - they bought the promoted trend product at around $80,000 for the day on 5 November -  as an example, not good you might think. The tweets and re-tweets poured in at about nine per minute all day, but the vast majority of them were brand negative.

"McRib is back and it's as bad as you remember" is a typical example of the kind of response they were getting. This is where sentiment analysis is going to become so important in these types of campaigns. There were some brand positive tweets, so they really need to research what the overall reaction was from a sentiment point of view. In all fairness to McDonalds though, this is a test for them and Twitter provides very little to work with in terms of targeting or how good or bad an ad may perform.

There again, when Google launched its AdWords product they knew little or nothing about the audience, just data about the keywords. And now they're making billions out of it. So there's hope for Twitter advertising developing and maturing in the same way (AdWords is currently celebrating its tenth anniversary).

How stable is Twitter's position? Are early adopters getting tired of it yet?

I think, much as with Facebook, people jump in with every intention of "joining the conversation" and then a lot drop out. And in a similar way, a lot of accounts at Twitter are basically bots, not human beings. I haven't seen any stats on what the join/leave ratio is, but I'm pretty confident that Twitter is very stable. There's the natural organic growth they have (just as Google and Facebook had) without having to spend millions on marketing.

Having said that, MySpace was the darling social networking site until people got bored and migrated to Facebook. But the one thing all of these social networking sites have is audience data. That's worth fortunes (as long as you don't scare people off with privacy issues). And as long as Ashton Kutcher tweets every time he changes his underpants, there'll be a huge audience re-tweeting.

Do you see any potential rivals to Twitter at the moment?

Personally, I don't see any challengers in the West. Certainly in China, for instance, the three web giants here – Google, Facebook and Twitter - are overshadowed by their Chinese counterparts. So there's no real world dominance. But if I were investing money in a start up at this time, it certainly wouldn't be in a location based microblogging service. Foursquare and Gowalla are gaining traction, but nowhere near the number of users as Twitter.
 

What will Twitter look like in a year's time?

I think they will certainly expand their offering beyond just a 140 character based microblogging platform. The other explosive area online, of course, is video. So it's likely that you'll see more video interaction at Twitter in some way. There are already video microblogging services out there, but none with the exponential growth that Twitter has. And most certainly it will concentrate its efforts on mobile and geo location-based advertising.