Inside CEO Dick Costolo’s efforts to perfect the company’s revenue model and compete with Google and Facebook for ad dollars:

Twitter still makes money with licensing deals—Microsoft pays to get a real-time feed of tweets for its search engine, Bing. But Costolo firmly established the company’s primary identity as a communications tool that lets advertisers contribute content along with other users free of charge—and then pay extra to make their messages more prominent. The centerpiece of Twitter’s plans, what Costolo calls “the atomic unit of our ad strategy,” is the “promoted tweet,” a message from an advertiser that appears near the top of a user’s feed. Advertisers pay only when a user “engages” with the tweet—retweets it, say, or clicks on a link. The more people click on an ad, the more the ad appears. Twitter executives trumpet an engagement rate of 3 percent to 5 percent, compared with less than 0.5 percent for normal banner ads.

“Twitter, the Startup That Wouldn’t Die.” — Brad Stone, Bloomberg Businessweek

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