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The use of Micro-Bogging tools (particularly Twitter) has taken off over the past year.

Twitter is now hosting over 7 million unique users every month, which is a more than 1000 percent increase from a year ago. This high level of user growth has been accompanied by a skyrocketing company valuation, which is currently estimated at over 1 billion USD. However, these increases in use and valuation have not been correlated with a large increase in revenue. Most micro-blogging services have not yet developed clear revenue generating strategies.

Twitter recently took a step in this direction. They announced that they have developed a multi-stage plan to allow companies to pay for Tweets (messages) that will be prominently displayed within users’ messages. They have also revealed that they are treading very lightly with these changes, to limit the risk of turning off users with the advertising.

Twitter will initially allow advertisers to purchase the top tweet that users will see after doing a search. Advertisers will purchase keywords, somewhat similar to how Google sells search-related ads. Twitter will only display one sponsored tweet in user’s search results, and the advertisement will have to be a normal tweet that the advertiser previously tweeted on the system. Twitter hopes that this style of advertising will help users become more accepting of the advertising. The sponsored tweets will look very similar to normal tweets, which may help with this, but this could also be a risky move. General search engine companies (such as Yahoo) have tried to ‘hide’ advertisements in search results in the past, and many users resisted this type of advertising.

Another risk with micro-blog search advertising is that many people searching for information on Twitter are not likely looking to purchase something. Studies have shown than a large percentage (over 30%) of people searching on general search engines (like Google) are doing planned-purchase related searches. Therefore, individuals are often accepting of relevant advertising in general search engines, since it helps their purchase process. However, this may not be the case with micro-blogs, where people are often searching for news or current event-related content.

Twitter will use a different pay model than Google’s pay-per-click model, since the aim of these advertisements will often be different than with general search engine ads. In the beginning, advertisers will pay per thousand people that view a promoted tweet. However, as Twitter builds up more data about the impact of different tweets, they will shift to a model of pay-for-“resonance”. Resonance will be a mix of how often individuals reply to tweets, how often they click on advertisers’ profiles, and how often they re-tweet a message. Only sponsored tweets with minimum levels of resonance will continue to appear. Others will be dropped, and advertisers will have to create a higher-impact tweet if they want to continue to appear in users’ message streams.

It will be interesting to see how much value advertisers see in this form of advertising, and how much they are willing to pay for this type of interaction with customers. Micro-blog advertising could end up being an effective way for companies to increase awareness when hot issues are happening. However, this will only work if users are willing to accept integrated ads in their message streams and search results.