Would advertising kill Twitter? If not done properly, absolutely.

Microblogging behemoth Twitter has seen a massive increase in popularity lately – partly due to the much-ballyhoed Ashton Kutcher vs. Larry King and CNN race to be the first to one million users, partly due to Oprah the Queen of Everything making her debut, and partly because more and more people are realizing that Twitter is awesome and fun. They’re also realizing that, yes, they do care what you had for breakfast while you were on vacation in Omaha. Under all of these media microscopes, the elephant in the room is impossible to miss – how does Twitter go ahead and become as good at making money as it is at making trivial yet interesting conversations?

Looking back at the beginning of Twitter, it was a tool made popular by the edgy, hip South by Southwest crowd. Following in the footsteps of those who went before – MySpace, Facebook, and the lot – it took a while before the hipsters were joined by businesses trying to sell to them. Suddenly, in the past year or two, Twitter has become the favored golden child of the Interwebs, replacing Facebook, who replaced MySpace (and thus MySpace begat Virb, and Virb begat Friendster, and I begat an aspirin and a lie-down).

The question now becomes, does Twitter actually have a chance to take all this success and all these millions of users and turn them into what every business venture truly needs: profit? Popular wisdom says that, when it comes to monetizing boatloads of users on a website, you have two choices: charge people to use the service, or drop a ton of ads on the site. Both of these strategies scare the heck out of me in regards to Twitter, and either could spell the beginning of the end of the site’s relevance if done wrong.

Consider pay-to-use. There’s no way Twitter could ever charge regular users without completely decimating their user-base, particularly when fifty new “Free Twitter” services would be standing by, flush with venture capital funding, ready to aggressively steal all of Twitter’s disenfranchised Tweeples. Celebrities would also fly the coop (more bird references, har har); the major Twittering celebrities are arguably more valuable to Twitter than Twitter is to them, so why would they pay for the privilege of lending their name, credibility, and fame to a service that’s charging them?

The idea of having businesses pay to use Twitter has been bandied about before. This, in my opinion, is the best possible way of bringing pay-to-play to the Twittersphere. Businesses small and large have begun making incredible use of Twitter – look at the success of Zappos, Mimobot and JetBlue (two biggies, one smaller company, all making creative and successful use of Twitter). Given Twitter’s astronomical growth and influence, would these and other companies be willing to pay a monthly fee in order to have access to this large, trendsetting audience? Absolutely.

The other monetization method, almost as old as graphical web browsers, is online advertising. Sure, it makes sense to those of us who serve ads online for a living – why wouldn’t we want a 30 or 50 or however many million user pool to advertise to? But again, the pressing question is how one does it. Some say (and I, for one, agree) that the demise of MySpace as a network worthy of being taken seriously can be directly tied to its transformation from legitimate social network to massive conglomeration of ads with your name and birthday in the middle of them. Facebook, too, has badly tarnished its reputation with its attempts to serve ads to its users – just look at stories from late 2007 and the revolt against their “social advertising” attempts.

It’s truly sad to see both of those sites in such disarray simply because they wanted to actually make money at their businesses. MySpace and Facebook both once held the position Twitter now finds itself in. Once the ads come, the South by Southwest-attending trendy core of users migrates to the next big thing, feeling betrayed by the free service they’ve been using and enjoying for years (and, to be honest, they’ve been conditioned to expect to be free of both charge and advertisements). So what can Twitter do to prevent itself from suffering such a fate?

Innovate.

While Facebook’s “social advertising” was an unmitigated disaster, they had the right idea – take what you do best, and make it your twist on traditional advertising. No banner ads. No contextual text ads. No pop-ups (for God’s sake, no pop-ups). Take the social interactions that drive your service’s popularity and craft advertisements that fit into that shoe. Twitter could do this – Twitter users could have a checkbox in their profile that allows Twitter’s ad partners to Tweet ads to them occasionally, based on keywords taken from the Twitter user’s Tweets over a certain period of time. Unobtrusive to the Twitterer, as it’s a part of their regularly scheduled program, well targeted, and with great potential to include advertisers’ Twitter names.

In the end, the most important thing is that Twitter monetizes. This isn’t 1998, and the venture community won’t value a service without some method of its making money. It’s up to Twitter to decide how to do that without alienating its user base and turning itself into another fallen social media giant. Twitter needs to ask itself a few questions before proceeding: is being the next MySpace so bad (after all, they got a ton of money from Google in exchange for their advertising problems)? How much credibility are they willing to sacrifice for cash, if any? And, perhaps most importantly, how influential are the Twitter first-movers, and how much damage would Twitter suffer by seeing them leave?

You can follow the author or Chitika on Twitter at @DanielRuby or @Chitika