Twitter bans third-party ad networks

In discussion of Twitter platform, COO Dick Costolo delivers bad news to ad networks

In a lengthy post on the Twitter Blog published early Monday morning, COO Dick Costolo discusses every avenue of the Twitter platform as well as the company's values and strategies going forward.

The most interesting point of the discussion is the news that, besides its own Promoted Tweets, Twitter will not be allowing any third-party companies to insert paid tweets into a timeline on any service that leverages the Twitter API. Costolo explains the rationale behind the decision:

Why are we prohibiting these kinds of ads? First, third party ad networks are not necessarily looking to preserve the unique user experience Twitter has created. They may optimize for either market share or short-term revenue at the expense of the long-term health of the Twitter platform. For example, a third party ad network may seek to maximize ad impressions and click through rates even if it leads to a net decrease in Twitter use due to user dissatisfaction.

Secondly, the basis for building a lasting advertising network that benefits users should be innovation, not near-term monetization. Twitter is uniquely dependent on and responsible for the long-term health and value of the platform. Accordingly, a necessary focus of Promoted Tweets is to explore ways to create value for our users. Third party ad networks may be optimized for near-term monetization at the expense of innovating or creating the best user experience. We believe it is our responsibility to encourage creative product development and to curb practices that compromise innovation.

This means that third-party ad networks like Ad.ly, Twad.ly, and TweetUp (which just launched in beta) may be in some trouble. As Costolo quickly points out, these ad networks were competing with Twitter for advertising dollars while all responsibility and costs for maintaining the stream and network rested on Twitter's shoulders.

TweetUp was never planning to advertise in-stream, according to CEO Bill Gross, so they won't actually be affected by today's announcement. Still, the news is a sure sign to third-parties that you cannot be too confident basing your entire business model on one aspect of Twitter's service.

The massive microblogging site has increasingly been putting pressure on third-party companies making a killing off its open API. Most recently, for example, Twitter acquired Atebits, the company behind one of the most popular Twitter clients for iPhone, Tweetie. About a month later, Twitter re-released the application to the App Store updated and rebranded as Twitter for iPhone, a powerful official client that is sure to steal users from other third-party clients, like Echofon and Twitterific.

Third-party companies, once again, must pay attention when building on top of Twitter's platform. Twitter is a company too and it is always looking to expand the usability of its service, even when that means overshadowing the work of countless other small niche companies.