An agreement that made Twitters messages searchable on Googles site will generate about $15 million, said the people, who asked to remain anonymous because the terms arent public. A similar deal with Microsofts Bing search engine will earn Twitter about $10 million.
The multiyear agreements will allow Twitter to make a small profit in 2009, said the people, who estimate that its operating costs are about $20 million to $25 million a year. The San Francisco-based company, which started in 2006, has about 105 employees, according to its Web site.
Until earlier this year, Twitter wasnt even focused on revenue — let alone profit. The company attracted millions of users with a free service that posts 140-character messages, known as tweets. Chief Executive Officer Evan Williams said two months ago that the company was spending almost all its time improving the product, rather than seeking ways to make money.
That left many analysts and investors wondering how Twitter would convert its popularity into earnings. Twitter has more than 58 million global monthly users, according to ComScore Inc., a research firm in Reston, Virginia. The service is the third most popular social-networking site in the U.S., after Facebook Inc. and News Corp.s MySpace.
No Comment
The companys co-founder, Biz Stone, declined to comment on its finances, saying only that Twitter is proud of the work it accomplished in 2009.
“Were thrilled about the partnerships weve formed this year and were looking forward to opening Twitter even more in the future,” Stone said in an e-mail.
Jane Penner, a spokeswoman for Mountain View, California- based Google, declined to comment, as did Pete Wootton, a spokesman for Redmond, Washington-based Microsoft. When the agreements were announced in October, none of the companies involved disclosed their value.
Twitter got help achieving profitability by reducing expenses, the people familiar with the situation said. The company used to pay more money to telecommunications companies for distributing its billions of tweets over wireless networks. Twitters popularity has given it bargaining power with phone companies, helping it renegotiate deals to bring down costs.
Workforce Costs
While telecommunication fees used to be the companys single largest expense, employees are now the biggest line item, said one of the people. That means maintaining profitability will depend on whether Twitter keeps a lid on the size of its workforce.
“We believe that our search results and user experience will greatly benefit from the inclusion of this up-to-the-minute data,” Marissa Mayer, Googles vice president in charge of search products, said in a blog posting after the deals with Twitter 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, youll find tweets from other users who are there.”
Consumer Tweets
Tweets also are a source of product information, with shoppers using Twitter to share views on their purchases. Making that kind of information available on Google and Bing may help them sell more advertising, and provide more relevant search results to shoppers.
Twitter, which started in 2006, has raised about $155 million in venture capital. A round in September for $100 million valued the company at $1 billion, according to a person familiar with the deal. The size of the valuation, along with Twitters lack of a revenue plan, was reminiscent of the dot-com era, David Garrity, principal at GVA Research LLC in New York, said at the time.
Since then, Twitter has given more details about how it plans to make money. In addition to the search deals, its planning an advertising program for early next year. The company also will charge for commercial Twitter accounts, which 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 helped found FeedBurner and worked at Google as an ad product manager after his company was acquired.
At FeedBurner, Costolo worked on selling ads on Web news feeds. The goal at Twitter now is to add advertising without disrupting the way Twitter works, Costolo said last month at a conference.