The world may be buzzing about Twitter, but will the San Francisco-based messaging services with high cool factor ever be a money maker?

Peering into the future of a Web startup - Twitter is just three years old - is always a risky affair. For now, most believe Twitter is wise to build up its user base, which is already happening. The free service, which allows users to send messages of up to 140 characters, is the Internet's fastest-growing social-networking site, according to media-market research firm Nielsen - and more than 60 percent of Twitter's users are between the ages of 25 and 49. Unique visitors to Twitter's Web site skyrocketed from 475,000 unique users in February 2008 to more than seven million in February 2009. And those statistics don't count people using the service on their mobile phones.

Some of those users have become citizen reporters during events such as the May 13, 2008, earthquake in China, the November 2008 terrorist attacks in Mumbai, India, and the Jan. 15, 2009, landing of a US Airways jet on the Hudson River outside Manhattan. In fact, Twitter reports - also known as tweets - from people on the scene are often the first accounts available.

Those events have given Twitter an invaluable buzz boost, says Shawndra Hill, an operations and information management professor at Wharton. "The primary reason Twitter has taken off is that celebrities and businesses are using it. Consumers want to feel like they are in touch with celebrities. Businesses want to be in touch with customers. And it certainly doesn't hurt that CNN says, ‘Follow us on Twitter.'"

"Twitter is clearly tapping into a need for people who want to convey short, frequent tidbits about themselves," said Wharton legal studies and business ethics professor Andrea Matwyshyn. Kevin Werbach, another legal studies and business ethics professor at Wharton, agrees. "Like most of the big Internet success stories, Twitter is taking off because it serves the needs of many different communities," said Werbach, who has been a Twitter user since the early days of the service. "It's fun and a way to socialize, but it can also be an information-gathering and business tool. From a broad perspective, Twitter lowers the barrier to publishing online even more than blogging, and at the same time it makes the social-networking experience much more interactive."

"I find the Twitter phenomenon to be a charming little surprise of the Web 2.0 world," says Wharton marketing professor Peter Fader, "but I'm skeptical about its long-run sustainability and impact."

Predicting Twitter's business prospects has become a bit of a virtual parlor game in Silicon Valley as observers guess how the service might ultimately turn a profit. Twitter CEO Evan Williams has been coy about the company's revenue plans. In December 2008, Williams said that Twitter "will make money .... I can't say exactly how, because we can't predict how the businesses we're in will work." On the company's site, Twitter says that it "has many appealing opportunities for generating revenue, but we are holding off" to focus on building its service and growing the user base.

Revenue vs. Traffic
Wharton faculty say Twitter needs to walk a line between growth and making money. For instance, Twitter could focus on becoming profitable yet shortchange itself by failing to scale its base of users. By comparison, Facebook's rapid growth has propelled it to be the 10th largest site on the Internet, with 57.35 million unique visitors in February, according to comScore.

Twitter recently announced its first revenue-generating experiment by partnering with advertising agency Federated Media to create a site called Exec Tweets, which allows users to track and follow business executives. Currently, Exec Tweets, which launched March 23, has a single advertising sponsor - Microsoft. Exec Tweets aggregates executives who already are active Twitter users and displays them on one site.

While Wharton faculty acknowledge that Twitter doesn't have to find a business model this minute, there may not be a lot of time. It's quite possible that a third party could find a way to make money off Twitter before the company itself does. Twitdom, a startup that tracks Twitter applications, already counts 610 applications that piggyback off Twitter's service. Any of those applications could find a way to take Twitter's flow of comments and make money from them, Fader points out. "There are a variety of third parties that could monetize Twitter by scraping tweets and adding value. There are auxiliary models that could emerge."

Wharton faculty argue that Twitter's best future may be as part of a larger service. Indeed, Facebook and Twitter have already partially integrated their services; Twitterers who also use the Facebook service can have their tweets delivered as Facebook status updates. Salesforce.com, which makes on-demand customer relationship management software, has integrated Twitter into its application. And Matwyshyn says Twitter would make a lot of sense as part of Google's Gmail or Yahoo Mail.

"Facebook had the perfect diffusion of innovation. It started out as popular with the young and went to the general public," notes Fader, who argues that popularity with a younger demographic is a good gauge for future growth. "Twitter isn't doing that. Twitter is a feature. There are things you can potentially do with it, but it would do much better when folded into something else."

Excerpted from the April 15, 2009, edition of Knowledge@Wharton. Reprinted with permission of Knowledge@Wharton, PARS International Corp.

School Brief provides insights from top business schools that are especially relevant to the meetings industry.

This Convene series is sponsored by the Rosemont Convention & Tourism Bureau, www.rosemont.com.