Last week I engaged in a blog discussion regarding how Twitter will monetise its service offering. It got me thinking about social media in general and about whether or not such products can ultimately generate value for their investors. I probably caused some mild offence by suggesting that social media sites need to think beyond the Google ads model as a revenue driver. Shouldn’t delivering value to the user be the prime motivation for site owners?

I find it quite bizarre that so many site owners are obsessed with driving traffic to their sites in order to squeeze out a few more cents of revenue, on the basis that a tiny percentage of users will click on some ugly random ad words placed strategically around the site. Oddly, nobody seems to question this model. At this point I should probably point out that I don’t own the ads you may have seen at the top of this page sometimes. In fact if I had my way I would gladly pay to keep them off site because of the devaluing effect they have on my own brand.

So notwithstanding the irony that paying to remove ads has now become a valid revenue model in itself, I reckon there are a lot more creative ways to make a social media site pay. The most obvious option is the multi-tiered subscription based approach whereby users can receive a basic level of service for free and choose to pay for additional services. Dating sites are probably the most popular example of this approach and my friends over at Smallworlds are taking this track too. The second approach is to sell something for which there is a demonstrable need and do it in a stylish way that carves out a niche. That’s what we are doing with iWantMyName. But how can sites like Twitter earn cash when they don’t appear to have anything tangible to sell apart from access to their network?

Twitter has so much cash to burn that there is no urgency to find a revenue model – yet. Building trust and growing the user community is far more important than spamming users with site ads at present. There have been quite a few ideas floating around about how Twitter will monetise but many of them are red herrings. I believe Twitter does have a plan and the key lies in the fact that the interface is so clean and simple at present. By offering only limited functionality now it creates a fertile ground to add revenue generating value drivers downstream.

I think contextual search will play a big role in the approach that Twitter ultimately adopts and other site developers should watch and learn as this evolution occurs. Twitter is ripe to move into an enterprise setting too, but it cannot do this until there is much better search functionality. Microblogging may not replace email entirely in the future, but it certainly will put a big dent in it. How long will it be before you can add images and document attachments directly to your Tweets?

What I love most of all about micro-blogging services is that I have complete control over who I subscribe to. That is a feature people will pay for and that is the one problem that regular email software can never properly address. On that basis alone I think micro-blogging services will eventually win as opposed to stepwise adaptation by the encumbent technologies.