Monday, July 2, 2012 at 11:29 pm.

Understanding Twitter

Twitter CEO Dick Costolo. Photo: (cc) Joi Ito.

Hooray! The semi-annual Twitter Openness Shitstorm(tm) is upon us again. This time apparently sparked by Twitter’s move to stop syndicating tweets to LinkedInthis developer blog post by Twitter’s newish product lead Michael Sippey, and the incredible amplifying effect Twitter (the service) has on the rare declarations Twitter (the company) makes about its future.

The worry, as usual, seems to be that Twitter — a thing we love deeply — is going to destroy itself as it tries to become more of a business. Or at least ruin the Twitter that we grew up with or the Twitter that could have been. Anyway, I get it. No one likes it when The Man takes things away, even if it’s as bizarre as wanting to use LinkedIn to read Twitter. But it’s also important to understand Twitter’s situation.

The biggest factor driving Twitter today is that it wants to remain an independent company. There were previous opportunities to become part of Google or Facebook or whatever, but now Twitter wants to remain its own property. To become a strong, independent company, Twitter must build a large, profitable business, sooner than later — or the dream is over. It’s possible, but it will require change, which makes people uncomfortable.

Twitter has many options, but ads seem to fit the best. It could have tried to become a utility, like AT&T, and charge for all the traffic (tweets) that go over its pipes. It could have tried to become a subscription service, like Netflix, and charge a monthly or annual fee to use Twitter. Or any freemium mashup. But charging money could slow things down, and as a network, Twitter’s utility and value grow exponentially as more people use it. (Also: People are cheap.)

Meanwhile, Twitter CEO Dick Costolo has something to prove: This is his third, biggest, and most promising chance to build a real-time social advertising business. His first attempts — at FeedBurner, the company he founded, and at Google, which bought FeedBurner — were not huge hits. But Twitter could be big, if it works.

Oh, and Twitter is expensive to run. With more than 1,000 employees, acquisitions, infrastructure, food, bribes, a new office, etc., my wild-ass guess is that could easily cost more than $250 million a year to run Twitter. While the company expects to make $1 billion in ad revenue in 2014, it’s still 2012. I’m guessing a big growth spurt is back-loaded into that projection, and that Twitter would be pretty happy to bring in $250 million in ad sales this year, and, say, $500 million next year as things scale.

So, here we are.

Given the way Twitter’s ads work — inserted into the tweet stream, sort of like radio ads — the company seems increasingly concerned with controlling how people read and experience the stream. This way, Twitter can maximize the number and quality of ads it serves. And if Twitter sees a breakthrough in getting ads to work, or in new ad products that it can charge more money for, or in new non-ad products that it sees integral to the Twitter experience, it can easily roll them out to most of its users. Not everyone’s going to love using Twitter’s website and apps, but the more people that use them, the better for Twitter’s business prospects.

Distributing ads across the entire Twitter network, including outside apps, doesn’t seem as much of a priority anymore. I don’t think LinkedIn is that important of a distribution partner to Twitter — nor Twitter that important a content source for LinkedIn — so let’s move past that. Perhaps Twitter wanted to display its ads on LinkedIn, and they couldn’t figure out a deal. Perhaps Twitter wanted a cut of banner-ad revenue from LinkedIn pages with tweets on them. Perhaps there was an ad-sales channel conflict. I don’t know. But Twitter doesn’t seem to be in a hurry to spray its ads everywhere tweets are displayed.

As always, Twitter could afford to do a better job communicating itself. It recently hired a new head of comms, so let’s see how it massages this next wave of “stricter” API guidelines. And as Nick Bilton points out at the NYT, Twitter could also make some major improvements among its own apps. For someone who’s supposedly as detail-obsessed as Twitter co-founder/chairman Jack Dorsey, the incomplete and inconsistent experience Twitter provides in some of its apps seems off-brand.

Anyway, that’s how you have to look at everything Twitter’s doing today: Twitter needs to build a business to protect its future. And if seizing control makes things weird, better get it over with now.

Where Twitter’s revenue once was a punchline, it’s now arguably the most important project at the company. Big money soon, or Twitter becomes Windows Live Chat Bird or Google+ for Glasses, and we all lose.

Related: Anil Dash: Why Your Complaint About Twitter Is Wrong

From the Archives: Wait, Wasn’t Twitter Supposed To Be Dead By Now?