How freewheeling Twitter became a money-spinning juggernaut

AROUND MIDNIGHT on Christmas Eve of 2009, a handful of employees at Twitter received an unconventional holiday greeting from Dick Costolo, then the chief operating officer.
“It was an e-mail that said, ‘We have to move really, really fast. There’s no time to rest because we have a massive opportunity in front of us,” recalled Anamitra Banerji, who headed the team that built Twitter’s first advertising product. “It was kind of crazy because we were all on break, but that attitude was exactly what we needed at Twitter.”
The company is now on the verge of fulfilling the opportunity Costolo foresaw as it prepares for the most highly anticipated initial public offering since Facebook’s debut last May. The offering is expected to value Twitter at up to $15 billion and make its early investors, including Costolo, very wealthy indeed.
Yet Twitter’s quick transformation from an undisciplined, money-losing start-up into a digital media powerhouse took every bit of whip-cracking that Costolo could muster, along with a rapid series of product and personnel decisions that proved effective even as they disappointed some of the service’s early enthusiasts.
Costolo was a comparative late-comer at Twitter, joining the company three years after it’s 2006 launch, but the company increasingly bears his imprint as it hurtles toward the IPO: Deliberate in decision-making but aggressive in execution, savvy in its public relations and yet laser-focused on financial results.
Costolo has not flinched in pruning and reshaping his management team, while Twitter, the company, has been ruthless in cutting off the smaller companies that were once a part of its orbit. A one-time comic actor who cut his teeth in business at Andersen Consulting before starting several companies, Costolo may never be as closely associated with Twitter as Mark Zuckerberg is with Facebook, yet he is arguably just as important.
“The founders consider Dick a co-founder, that’s how deep the connection is,” said Bijan Sabet, an investor at Spark Capital and a Twitter board member from 2008 to 2011. “He’s not this hired gun to run the company. He understands building out the business but also the product, strategy, vision.”
Twitter declined to make Costolo available for comment, citing the pre-IPO quiet period.
When Twitter’s then-CEO Evan Williams brought on Costolo, an old friend and colleague from Google Inc, as COO in September of 2009, the three-year old company was already under pressure.
The microblogging service was gaining hip, young users at an unprecedented pace, and its trio of co-founders — Williams, Biz Stone and Jack Dorsey — had been splashed across magazine covers as the embodiment of San Francisco cool. Yet the whispers in Silicon Valley were growing louder: Twitter didn’t have the technical chops to make the service reliable at huge scale, and it didn’t have any way to make money.
“Having been on the core original team of engineers, we didn’t have the skills among us to build a world class service,” said Alex Payne, an early Twitter engineer, noting that many of the team members came from smaller start-ups and non-profit organizations rather than established Web giants like Google.
Williams viewed fixing the site’s notorious technical problems as the top priority but was ambivalent about the business strategy. For months, people familiar with the situation say, Williams weighed options ranging from display advertising to licensing Twitter’s data to becoming an e-commerce hub to offering paid “commercial” accounts to businesses.
Costolo — who had sold Feedburner, an advertising-based blog publishing service he founded, to Google for $100 million — had no such doubts. By his second month on the job, he had helped persuade Williams to green-light engineering positions to build Twitter’s first ad unit, which would become the “promoted tweet” — the cornerstone of Twitter’s business today.
“Dick’s conversations with Ev were key,” said Banerji, now an investor at Foundation Capital. “He had a fundamental belief that this was the future of Twitter monetization and said, ‘You have to do it.’“
Over four months in early 2010, Costolo, working closely with Banerji and Ashish Goel, a Stanford engineering professor who specialized in the science of auction algorithms, to refine the promoted tweet. It resembled an ordinary Twitter message in every way, except that advertisers could pay for it to appear at the top of users’ Tweet streams and search results.
Costolo threw his heft within the company behind the advertising strategy. In early 2010, as the ads team drew up a related product called “promoted trends,” Costolo privately told them to make sure he was in the room when they pitched the product to Williams, so it would get pushed through.

A central mechanism governing the promoted tweet was “resonance,” a concept coined by Goel. Because Twitter users can re-circulate or reply to tweets, including paid advertisements, the company had the real-time ability to gauge, which ads were most popular, and those ads could then be made more prominent. And because the ads appeared in the same format as other tweets, they were perfectly suited to mobile devices, which could not handily display traditional banner ads.
When Costolo unveiled the promoted tweet in April 2010, Twitter announced it as a trial for only five brands, including Starbucks Corp. and Virgin America, and users almost never saw the ads.
But by the summer of 2010, Costolo felt confident enough in his concept that he began seeking a deputy to ramp up the company’s sales effort. For months, he courted Adam Bain, a rising star at News Corp, and at the same time began assiduously courting marketers, from corner suites on Madison Avenue to industry conferences on the French Riviera.
“Hashtags,” which help people find the conversations they’re looking for on Twitter, soon grew ubiquitous on TV, appearing in Super Bowl commercials, at Nascar races and on the Oscars red carpet.
“It wasn’t easy for Twitter to explain to people why they should buy content on Twitter until they sold it as a companion to TV,” Ian Schafer, the chief executive of Deep Focus, a digital advertising agency. “Now you’re even seeing the networks selling Twitter’s inventory for them. That’s magic.”