Twitter has its eye on the money with Google and Microsoft deals

Twitter Inc will make about US$25 million ($35 million) from internet search deals with Google Inc and Microsoft Corp, announced in October, enough to push the site into profitability, people familiar with the matter said.

An agreement that made Twitter's messages searchable on Google's site will generate about $15 million, said the people, who asked to remain anonymous because the terms aren't public. A similar deal with Microsoft's Bing search engine will earn Twitter about $10 million.

The multi-year agreements will allow Twitter to make a small profit in 2009, said the people, who estimate that its operating costs are about $20 million to $25 million a year. The San Francisco-based company, which started in 2006, has about 105 employees, according to its website.

Until earlier this year, Twitter wasn't even focused on revenue - let alone profit. The company attracted millions of users with a free service that posts 140-character messages, known as tweets. Chief executive officer Evan Williams said two months ago that the company was spending almost all its time improving the product, rather than seeking ways to make money.

Twitter has more than 58 million global monthly users, according to ComScore Inc, a research firm in Virginia. The service is the third most popular social-networking site in the US, after Facebook and News Corp's MySpace.

The company's co-founder, Biz Stone, declined to comment on its finances, saying only that Twitter is proud of the work it accomplished in 2009.

"We're thrilled about the partnerships we've formed this year and we're looking forward to opening Twitter even more in the future." Jane Penner, a spokeswoman for Google, declined to comment, as did Pete Wootton, a spokesman for Microsoft.

Twitter got help achieving profitability by reducing expenses, the insiders said. The company used to pay more money to telecommunications companies for distributing its billions of tweets over wireless networks. Twitter's popularity has given it bargaining power with phone companies, helping it renegotiate deals to bring down costs.

Employees are now the biggest expense, said one of the people. That means maintaining profitability will depend on whether Twitter keeps a lid on the size of its workforce.

The payments from Google and Microsoft underscore the growing value of the data coursing through Twitter's network. Executives of both companies have said their search sites would be considered incomplete if they didn't include the millions of messages that get posted on Twitter every minute. "The next time you search for something that can be aided by a real-time observation, say, snow conditions at your favorite ski resort, you'll find tweets from other users who are there," said Marissa Mayer, Google's vice-president in charge of search products.

Tweets also are a source of product information, with shoppers using Twitter to share views on their purchases. Making that kind of information available on Google and Bing may help them sell more advertising, and provide more relevant search results to shoppers.

Twitter, which started in 2006, has raised about $155 million in venture capital. A round in September for $100 million valued the company at $1 billion, according to an insider. The size of the valuation, along with Twitter's lack of a revenue plan, was reminiscent of the dot-com era, David Garrity, principal at GVA Research LLC in New York, said at the time.

Since then, Twitter has given more details about how it plans to make money. In addition to the search deals, it is planning an advertising program for early next year. The company also will charge for commercial Twitter accounts, which would let businesses analyse tweet traffic.

Chief operating officer Dick Costolo, who joined Twitter in September, was key to getting the search-engine deals done, a person familiar with the matter said. Costolo helped found FeedBurner and worked at Google as an ad product manager after his company was acquired.

At FeedBurner, Costolo worked on selling ads on web news feeds. The goal at Twitter now is to add advertising without disrupting the way Twitter works, Costolo said last month at a conference.

"We want to do something that's organic and in the flow of the way people already use Twitter - and not 'here's the tweets and here are the ads'," he said.

- BLOOMBERG