Twitter's COO on Ad Strategy

I sat down with Twitter COO Dick Costolo at the Ad Age Digital conference to hear about Twitter's long-awaited, much-debated ad strategy.

I caught him right after he finished presenting to the conference attendees, where he was joined on stage by executives from Virgin America and Bravo (owned by CNBC parent company GE) , and right before he took off for San Francisco, to host Twitter's first ever developer's conference Wednesday, "Chirp."

Costolo is a busy man, but he's also in a rush with Twitter, telling me giddily before our interview started, "there's just so much to do with Twitter ... it's so exciting!"

Twitter's first ad model is, as expected, all about search ads, a familiar and unrisky model. Companies can pay for "Promoted Tweets" to appear with search results It's uninvasive, and the companies that are kicking off this model, like Starbucks and Best Buy, are active Tweeters already.

What will be far more challenging is when Twitter starts inserting "promoted tweets," i.e. ads, into users news feeds, where they could be found invasive and distracting. But Twitter is taking everything slowly, evaluating its ads carefully before it rolls out more.

The real surprise today is Twitter's focus on the "resonance" of its promoted Tweets. Twitter will use a secret sauce to create a measure of resonance—how much people are re-tweeting, repeating hashtags, and commenting on promoted tweets.

At first Twitter will charge for Promoted Tweets the old fashioned way, based on how many people see them. But down the line Twitter will charge based on Tweets resonance. And if a promoted tweet isn't resonanting it'll pull it down and won't force it on Twitter users.

The company wants to make its ads as effective as possible, because then it'll charge more, and presumably more useful ads are less annoying to people on the site.

Costolo addressed the fact that while Twitter search volume is "massive" (he wouldn't give an exact number), just a small percentage of that volume is on Twitter.com. The vast majority of it is on the tens of thousands of other applications built on top of Twitter.

Twitter plans to distribute its ads through all those other platforms, sharing the revenue. What's the split? Costolo is saving that and other details for "Chirp," which he'll be speaking at tomorrow.

I'll be reporting from "Chirp," where we'll dig into come of the issues facing developers now that Twitter is getting into their business—making money off Twitter.

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