SAN FRANCISCO (Reuters) - Twitter co-founder Evan Williams will hand the job of chief executive to Dick Costolo, the architect of Twitter's nascent advertising efforts, in a sign that making money is a top priority at the fast-growing Internet microblogging service.
Williams will focus completely on product strategy, effective immediately, he wrote in a post on the Internet company's official blog on Monday.
The move, Twitter's second CEO switch in its four-year history, underscores Twitter's increasing efforts to evolve from a popular, free-to-use Web phenomenon into a revenue-generating business that can justify the lofty valuation investors have bestowed upon it.
"Twitter is going to be one of the major Internet advertising platforms going forward," said Wedbush Securities analyst Lou Kerner.
"Monetization follows eyeballs and Twitter is amassing a huge base of eyeballs," said Kerner.
Twitter, which allows its more than 165 million users to send 140-character text messages, or Tweets, to groups of so-called followers, is one of the Web's most popular social networking services, along with Facebook and Zynga. It is closely watched by investors hoping to one day buy public shares of the company.
Some analysts and Internet industry observers believe that social networking sites pose a growing challenge to established Internet companies like Google, Microsoft Corp and Yahoo Inc in the battle for ad dollars.
Advertising spending on social networking sites like Twitter and Facebook will surge roughly 31 percent in 2010 to $3.3 billion, according to Internet marketing research firm eMarketer.
Costolo joined San Francisco-based Twitter as chief operating officer in September 2009 after he sold FeedBurner, an Internet company he had co-founded, to Google Inc in 2007.
Costolo launched Twitter's first efforts at selling ads on its service earlier this year, with advertisers including Virgin America, Starbucks and Sony Pictures Entertainment, offering so-called Promoted Tweets, short marketing and promotional messages that appear above search results for certain keywords.
The rates at which web surfers "click-through" on the ads, a measure that marketers use to track an ad's success, were "through the roof," Costolo said in an interview with Reuters on Monday. And he said that Twitter was on track to finish the year with a roster of advertisers in the "low hundreds," compared with the 40 or 50 companies that currently advertise on Twitter.
Costolo said that privately held Twitter does not disclose revenue or comment on whether the company is profitable.
In September 2009, Twitter received $100 million of funding from backers including Insight Venture Partners and mutual fund operator T. Rowe Price, in a financing round that valued the company at $1 billion.
Costolo told Reuters in May that the valuation meant that Twitter intended to "live in a world where we need to be generating hundreds of millions of dollars in revenue."
Trades of Twitter's private shares by investors on Sharespost, a secondary market for shares of private companies, in July imply a valuation of $2.8 billion.
Created by Williams, Biz Stone and Jack Dorsey in 2006, Twitter has become a popular communications tool for celebrities, politicians and businesses, and has played a role in several geopolitical events, such as the 2009 post-election demonstrations in Iran.
Dorsey, Twitter's first CEO, was replaced by Williams in 2008. The company said it was agreed at the time that Williams was the "best positioned to manage Twitter for its next phase of growth."
During his tenure, Williams said the company's staff has grown to 300 from 20, while registered users have surged to 165 million users, from 3 million users.
In an interview with Reuters on Monday, Williams said Costolo was not initially hired as part of a long-term plan to become chief executive. But Williams said that the time was right for the two to focus on what they do best.
"Today we're in a different phase, our company is much bigger and the CEO job requires more and more stuff that's not product and strategy," Williams said in an interview with Reuters on Monday, citing financials, budgets and hiring.
Reporting by Alexei Oreskovic; Editing by Richard Chang and Steve Orlofsky