How will Twitter make money? (A web 2.0 conundrum)

How will Twitter, the hugely popular micro-blogging service (among the tech-savvy crowd anyway), make money? That's the polite version of the question posed today by Allen Stern over at his CenterNetworks blog. Stern writes: "As Twitter usage has grown, have they f'ed themselves out of a real, sustainable business model?"

Twitter doesn't charge for use of the service, though there can be some costs associated with sending SMS messages (with both Twitter and users footing the bill depending on whose sending and which country they're based). Additionally, Twitter doesn't (yet) serve ads -- and to make matters worse, many of its regular users access Twitter through third-party clients, such as Twitterific, which utilize Twitter's own free APIs.

Stern continues:

Most of the heavy Twitter users use the service via the API and "offsite". I actually use the Web site and refresh the page every few minutes while I am at home. How can they monetize the API usage? If a Twitter user already paid $15 for a piece of [third-party] software, would they then be willing to pay Twitter for their account? It's like paying for mIRC and then having to pay for the use of IRC itself.

In a fun post on his own blog, Dave Winer responds by saying that there are far harder problems than this particular web 2.0 conundrum (my words not his).

When I was in college, professors used to ask questions that are much harder than the question Allen Stern asks in this piece.

The NY Times crossword puzzle is harder.

Geez, installing a new hard disk in a MacBook is harder, and as I've found out that's pretty easy.

According to Winer, Twitter has a number of potential business models, all of which rely on the service acquiring a large enough user base in the first place.

• Become a distributor of third-party apps and services that use Twitter and take a cut in return.
• Design and sell hardware such as a cellphone with "Twitter baked in".
• Or, better still, partner with mobile device makers and carriers to offer superior Twitter integration.
• And finally, sell the service to a carrier.

The first and third suggestion seem the most viable. Setting up a Twitter products and services store would be similar to Skype's shop that sells USB phones and other products that utilize Skype's API. And partnering with mobile carriers seems a "no brainer" and might provide a way to reduce SMS costs. Although, as Winer also points out, making Twitter more stable should be a first priority.