What the $10-million acquisition of AdGrok means for Twitter’s business model and future

This article was written by Douglas Idugboe and originally published on Smedio.

Twitter, the wildly popular micro-blogging service, announced this week it’s acquiring the start-up keyword bidding company AdGrok for under $10 million. That’s not bad for a young company that just transitioned out of beta not too long ago. The AdGrok founders will immediately shut up shop and join Twitter in developing its fledgling “revenue engineering team.” That is, except AdGrok’s CEO Antonio Garcia-Martinez, who jumped ship to rival Facebook before the deal was inked.

AdGrok’s AdWords Tool Just What Twitter Needs

The AdGrok team will be handed the monumental task of expanding the new advertising platform of Twitter, a company that has failed to turn a profit since its inception in 2006. However, Twitter has a bright future ahead, and the AdGrok team with its brilliant tool that automates Google AdWords campaigns, could potentially transform Twitter’s revenue model into a profitable one.

Twitter is on an Acquisition Frenzy

Twitter is positioning itself to go full throttle with the development of its monetization platform of Promoted Products offerings. The promoted services would be geared towards corporate power users, including tweets, trends and accounts for small to medium size businesses. AdGrok’s Google AdWords dashboard is nearly identical to what Twitter has in mind for its promoted services. The acquisition is a good fit all around, and Twitter may be just getting started with its mergers and acquisitions deals.

Twitter’s TweetDeck Purchase

Earlier in the month, Twitter shelled out $40 million for TweetDeck, a third-party application for Twitter that tracks real-time conversations. Twitter hailed the acquisition, as a move that would enhance its services for power users, who are willing to pay.

“TweetDeck is a great example of a third-party developer that designed tools for the incredibly important audience of Twitter power-users and, in turn, created value for the network as a whole”, Twitter said in its press release.

Is Twitter On the Right Track to Make a Profit?

When Twitter was launched five-years ago by founders Jack Dorsey, Biz Stone, and Evan Williams, the company had an unconventional business model and no revenue plan. It was all about the tweets and the New Social Media experience. The Twitter team wildly exceeded expectations with the new media part of the equation. Twitter boasts 190 million users, sending out 65 million tweets a day and sees over 800,000 search queries per day.

Twitter is now an integral part of the way we communicate. And it has changed the landscape of traditional news reporting. But Twitter never realized its revenue-making potential. The company only implemented a paid advertising model last year. Still, although Twitter has yet to earn a profit, its earnings and growth are impressive. This past year, Twitter posted earnings of $45 million in annual revenue and is forecasting $100 million to $110 million in revenue for 2011. And the word on the street is that Twitter is well positioned to issue a multi-billion IPO sometime in 2013.

Twitter Changed the World, But Can it Also Transform the Advertising Business?

The advertising business no longer resembles the boozy idea being portrayed so brilliantly on the hit cable show “Mad Men”. Marketing campaigns are now launched on YouTube, Facebook, Twitter and other social media services. The advertising dollars follow the crowds, and Twitter with its 190 million and growing users, should be an ideal marketing platform. So far, Twitter has yet to come up with an advertising plan that appeals to businesses. But that may be about to change with its acquisition of TweetDeck and AdGrok. Whatever Twitter’s future, it’s sure going to be fun to watch the innovative company, as it uses its talent and resources to create a new marketing model for the 21st century.