Twitter chases first revenue with ad service

By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Microblogging service Twitter introduced a new advertising program on Tuesday, in a first step to prove that its popularity among web users can translate into a self-sustaining business.

Known as "Promoted Tweets," the ad program represents a much-anticipated move to address concerns about the revenue generating potential at Twitter and marks a key milestone on the road to an initial public offering, analysts said.

"Over the years, we've resisted introducing a traditional Web advertising model because we wanted to optimize for value before profit," wrote Twitter co-founder Biz Stone in a post on the company's blog on Tuesday.

Twitter, which lets users send short, 140-character text messages, or Tweets, to groups of "followers," is among the new breed of popular Internet social networking services, along with Facebook and LinkedIn.

The company struck deals to provide its stream of Tweets to Google Inc and Microsoft Corp for inclusion in their Web search results last year, but Tuesday's ad service represents the first fruits of an effort to build a business model around a recurring revenue stream.

Twitter said that it was currently testing Promoted Tweets with a handful of advertisers including Starbucks Corp, Best Buy Co, Sony Corp's Sony Pictures and Virgin America. Under the program, a Twitter message, such as a promotional offer by Starbucks, will appear at the top of search results on Twitter for keywords that companies specifically purchase from Twitter.

As Twitter broadens the program to include more advertisers, spokesman Sean Garret said, keywords on Twitter's search engine will be opened to competitive bidding by advertisers, similar to the way that Google's lucrative paid search advertising program operates.

Twitter also said on its blog Tuesday that the company planned to eventually serve Promoted Tweets ads beyond its search feature, offering the ads directly within users' message streams.