To many, that title seems to be a bit of an oxymoron. The question I am often asked is, “how does Twitter make money?” At the risk of writing yet another commentary on the popular micro-blogging network, I think a bit of an explanation behind how Twitter got to where it is today is in order. I think there is a valuable lesson to be learned in how Twitter, almost by accident, became one of the most powerful social media tools in existence today.

As I have explained previously, Twitter is a simple enough concept – 140 characters, follow people and they follow you, answer the question “What are you doing?”. So why did it grow almost 1400% last year? People already had ways to communicate with each other. Isn’t it a bit of instant messaging combined with e-mail? In my opinion, the answer to “why Twitter?” is simple.

The key is that Twitter would not be nearly as useful, nor successful, without the slew of 3rd party tools built for, and that interact with, the platform. If you ever listen to one of the founders of Twitter talk, you’ll hear that it started out, really, as a side project. It was something created so that developers could communicate with each other while working on another project. What they built was a simple communication platform with an open API (that’s geek talk for a “plug” where you can have the software you write talk with the existing software).

One of the first useful tools to pop up was a search engine that could search the entire “Twitterverse” and identify anytime a particular search term was “Tweeted”. Now you could not only talk with people in your immediate circle, but you could actively search out others talking about topics you were interested in. In business terms, this was the golden goose. Obviously, Twitter felt search was critical enough that it actually bought popular Twitter search provider, Summize, in the summer of 2008. You can now go to http://search.twitter.com and search for any topic you would like. In fact, Twitter has even integrated search into its new home page design.

In no particular chronological order, some of the other tools that made Twitter what it is today are:

Desktop Managers: Much the way Microsoft’s Outlook or Apple’s Mail make e-mail so much more accessible, organized, and useful, a desktop manager makes Twitter so much more useful. No longer do I have to use the limited funtionality of my Twitter web page (though it is improving). I can have my Twitter stream divided into columns so I can see all of the people I follow, my replies, and my direct messages in a single glance. In addition, a good desktop manager will fully integrate search so you can automate your conversation monitoring. My two favorite desktop managers are TweetDeck and Seesmic Desktop. TweetDeck is great for most, however, Seesmic has many added tools for the power user, such as multiple accounts and the ability to automate many different search terms. Both also integrate Facebook status updates. However, I really enjoy Twitscoop integrated into Tweetdeck so I can see the trending topics in the Twitterverse.

Auto Feeders: This allows you to take any RSS feed and automatically shoot it over to your Twitter account with a link. The king of the heap is Twitterfeed, which allows you to now automatically post things like blog posts to Twitter. This can also be extremely powerful when intergrated with a social tagging service. With the addition of this one simple tool, Twitter has become the most powerful content aggregator in existence.

Follower Tracking: Now you can manage who you follow and who follows you with tools such as Friend or Follow. This allows you to quickly see who you are following that is not following you back. In addition, you can see who is following you but you are not following back. You can get a quick idea of who the Spammers are on Twitter and the ones trying to game the system.If you really want a blow to you self-esteem, you can even sign up for Qwitter, which will send you an e-mail when someone stops following you and the last Tweet you sent so you can see if something you say rubs someone the wrong way.

Automated Monitoring: Closely tied to the search functionality, you can use a service such as TweetBeep or TweetLater to automatically e-mail you whenever someone Tweets about a particular search term. It makes conversation monitoring automatic. In addition, with TweetLater, you can automatically follow or unfollow someone when they follow or unfollow you and can schedule Tweets to go out at a later date.

There are literally hundreds of 3rd party applications built on the Twitter platform, and I use that term for a reason. Twitter has really become the backbone communication vehicle. It is up to you to come up with your own cocktail of tools to make it the most useful to you.

The question, then, always come back to how Twitter makes money. The short answer is – they don’t. However, as noted author and smart guy, Don Peppers, says, “what’s more important today, capital or customers?” The answer is obviously customers. If I have customers, I can get capital, yet it is always the capital that we are measured by, isn’t it?

With 32 million unique visitors last month, which was 13 million more than the previous month, Twitter definitely has the customer base. The fact that there is a feeding frenzy from the biggest brands in technology, such as Microsoft, Google, Facebook, Apple, and more throwing 10 figure numbers at Twitter goes to show that where there are customers, there will be money. However, now there are a myriad of ways to monetize a customer base of that size. You can:

• Monetize with the old standard of display advertising (though I wouldn’t recommend it)
• Take the Google approach and go with contextual advertising
• Charge 3rd party software vendors to “plug” into Twitter
• Charge commercial users for added value
• Sell the data to big brands on the back end for focus-group-type purposes
• Charge companies to add increased functionality to their home pages
• Or any one of a plethora of revenue models

Simply put, the possibilities are endless. So the answer is that Twitter may not make money right now, but it possess something much more valuable – the hearts and minds of passionate consumers worldwide.

What about you? What are some of your favorite 3rd party Twitter applications? What are some of the ways you think Twitter might be able to monetize its customer base?