Last week, Twitter announced its plan to generate revenue by selling add-on tools to business users instead of making money through simple banner ads. That being said, Twitter is not rolling out advertising as it plans to develop ad-based business models combining an analytic tool with sponsorship or advertising, like Mashable’s Twitter Brand Sponsor or Facebook Pages. Here are my thoughts.

1. Twitter, one of the fastest growing social networking companies in the world today. In the past 12 months, Twitter has experienced strong growth, growing +1000% YoY in terms of customer adoption, according to Nielsen. Based on various reports, Twitter has anywhere between 4 and 19 million unique daily users today. For instance, according to ComScore, Twitter grew 131% in March 2009, with its total site U.S. visitors now at 9.3 million (vs. 19 million users worldwide), up from 4.3 million in February, and up from 1 million in 2008. But most importantly, the company has become one of the hottest brands in the world, with leading Hollywood actors (e.g. Ashton Kutcher, Britney Spears), athletes (e.g. Lance Armstrong, Shaq), media companies (CNN), TV show hosts (e.g. Ellen, Oprah Winfrey), politicians (Barak Obama), and others, keeping their fan-base updated through Twitter at any time.  For instance, more than 1.8 million+ users are now following Ashton Kutcher on Twitter on a daily basis (against 1.5 million followers for CNN). Of note, according to Nielsen, Twitterhas a user retention rate of 40%, which is not unusual for new social networking sites.

2. Twitter sees business tools and advanced advertising models for revenue. Last week, Twitter co-founder Biz Stone announced that the company was developing various add-on tools and services set to be introduced by YE 2009 for the businesses users of Twitter instead of making money through simple banner ads. A few weeks ago, Twitter also announced its plan to launch paid pro accounts. Recently, Twitter also told the New York Times that it was looking at outside initiatives carefully as it plans to launch its own premium service this year. Those outside initiatives could include the likes of Glam Media’s integration of filtered Tweets, TwitterCounter, or StockTwits. Clearly, Twitter is not rolling out advertising. Of note, TwitterCounter charges for front-page placement users looking for more followers. Ultimately, Twitter could develop a solution combining an analytic tool with sponsorship or advertising like Mashable’s Twitter Brand Sponsor or Facebook Pages.Facebook enables brands to setup pages at no cost, and buy ads to promote them to a very specific subset of users while tracking performance with the Facebook Insights platform. Twitter is well-positioned to benefit from growing interest from brands and corporations. Twitter is already supporting ExecTweets, a service that aggregates Tweets from top executives and is sponsored by Microsoft and ad network Federated Media.

3. Today, Twitter is just one of the many social networking companies with lots of potential that is not generating any cash. Twitter’s announcement comes as a response to the many questions around Twitter’s ability to become profitable at some point. Twitter’s announcement makes sense based on the disruptive aspect that could have simple banner ads on it business. Ultimately, Twitter’s add-on tools and services and ad-based business model could benefit myriad of corporations already using Twitter and help them promote their products and services more efficiently.

4. If Google does decide to acquire the microblogging company, Twitter’s strategy could change quite dramatically. Several weeks ago, rumors indicated that Google, Apple, Microsoft, and News Corp were allegedly in early talks to acquire Twitter. In fact, some reports indicated that Google was apparently willing to buy Twitter for US$250 million+. Apple was apparently in late stage negotiations to buy Twitter in the past few weeks, but is unlikely to follow suit at this point based on the recent comments from Apple and Twitter. Since then, Twitter, Apple, Microsoft, and Google denied those potential rumors. In our view, there is a good chance for Twitter to be acquired by a company like Google. While this would makes sense for Google, as it could leverage Twitter’s search engine (search.twitter.com), the reality is that Twitter needs Google more than vice versa based on the pressure surrounding Twitter to become profitable and establish a solid business model. It might be wiser for Google to either forge a strategic partnership with Twitter or wait a bit longer until the market returns and Twitter starts generating some cash.

Bottom line: Twitter has become a hot commodity with very high growth potential. Today its success relies on its simplicity and the growing popularity of social networking services. At the end of day, we should give credit to Twitter for deciding to monetize its service through add-on tools and trying to develop ad-supported models that go beyond simple banner ads. Only time will tell if this decision was the right strategic move.