Ad invasion of Twitter just beginning

Research firm predicts advertising revenue for microblogging service to triple this year

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Microblogging service Twitter, which is ambitiously trying to grow revenue, is expected by Internet research firm EMarketer to more than triple advertising sales this year to $150 million.

Twitter generated $45 million in ad revenue in 2010, the first year the microblogging service sold advertising. However, the company didn't announce its advertising program until last April, so the $45 million figure doesn't reflect a full year of ads. Major advertisers include Sony Pictures, Doubletree Hotels, Red Bull and Starbucks.

(Also see: Twitter says it's now valued at $3.7 billion)

EMarketer also predicts Twitter ad revenue will hit $250 million next year -- assuming it continues to increase users and provide a return on investment to advertisers this year.

“If Twitter can grow its user base and convince marketers of its value as a go-to secondary player to Facebook, it will succeed in gaining revenue,” said Debra Aho Williamson, eMarketer principal analyst. “In 2011 it must work overtime to give its early advertisers a positive experience.”

While Twitter's advertising revenue will continue to be dwarfed by Facebook's -- EMarketer expects the social networking giant to pull in $4.05 billion in ad revenue this year and $5.74 billion in 2012 -- the microblogging company's ad sales should surpass those of Myspace by next year.

Twitter was founded in 2006 and, as EMarketer notes, has become a household word. But despite its high media profile, only 8 percent of online Americans have accounts. Worldwide there are an estimated 190 million Twitter users. However, that number is misleading because Twitter, according to Nielsen Online, has a retention rate of only 40 percent. In part that means a lot of people sign up, tinker around briefly and then stop using Twitter, without actually deleting their accounts.

Twitter's assumed value has grown rapidly in the past 16 months, from $1 billion in September 2009 to $3.7 billion in December 2010. Recently it received $200 million in funding from Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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