Why Twitter needs to Ads?

Over the past few years Twitter has become one of the most popular sites on the net, a powerful, near ubiquitous platform for communication. Yet founders Biz Stone and Even Williams steadfastly resisted the urge to monetize the site. Now Twitter is finally ready to embrace a business model, just in time to save the increasingly clogged and cannibalized company from itself.

The big news is today’s announcement that the company will begin running advertisements through a “non-traditional” service called “Promoted Tweets.” There is really nothing innovative about it. Companies can buy search keywords as they do with Google, and ads will be displayed as sort of paid tweet at the top of the search results. This would allow a companies message to cut through the chatter, and big names like  Best Buy (BBY), Bravo, Red Bull, Sony Pictures, Starbucks (SBUX) and Virgin America have signed on to be the first participants.

A lot of the business press has focused on this development as an important revenue stream, but the lean team at Twitter has plenty of funding. The real issue is twofold. The growing user base, including tons of spammers and scammers, is creating a flood of useless information that is undermining Twitter’s usability. Second, a growing number of users are running the service through external clients like Tweetdeck and Tweetie, cannibalizing Twitter’s potential revenue streams. The company needed to act now to bring users back under its umbrella and find ways to separate useful information from the ambient roar.

“Over the years,” wrote Biz Stone on his blog today, “we’ve resisted introducing a traditional Web advertising model because we wanted to optimize for value before profit. The open exchange of information creates opportunities for individuals, organizations, and businesses alike. We recognized value in this exchange and planned to amplify it in a meaningful and relevant manner.”

The untended growth of Twitter was beginning to undermine its value, even without profit in the equation. Stone talks about amplifying, but Twitter’s recent moves are more about streamlining. As my colleague Jim Edwards points out, Twitter’s model will  reward ads that resonate with users, and deep six those that don’t. This will undoubtedly serve as a laboratory for Twitter to study the larger question of what posts are relevant to readers and how to eliminate clutter. If Twitter can fix these issues, and make some money at the same time, it will have steered the company back in the right direction just in the nick of time.