Since the outset, there has been furious debate as to whether Twitter can become a sustainable business. How could a company run for over 2 years without any revenue or a sustainable business model? It defied the business strategist side of me, especially when they they turned down a $500MM offer from Facebook. There was even a “Twitter business model contest” to see who could come up with one. Part of the challenge comes from the fact that Twitter has evolved from a single-purpose status bar into a very efficient and direct 1:1  or 1:many communication platform. Increasingly, it’s how I find things out before it hits the news (anyone remember Flight 1549 that crashed in the Hudson? It was reported by Twitterers on the scene within minutes and a full 15 minutes before any major news organization).

In the nearly 3 years since its inception, the service has had its ups and downs — with serious downtime that comes with rapid expansion. Despite the growing pains, users put up with it because it was so addictively satisfying and to some, it represented the bleeding edge of social interaction.

Recently Twitter closed a $35MM series C round of funding which tells me there are indeed people who think there’s a viable revenue model in the works. As we saw with the CNN + Facebook status integration for Obama’s inauguration, there are opportunities for Twitter to do the same — or better — by integrating into other real-time events. Think about it: Twitter attracts super social people who want to share and what better way for brands to connect than via people who will spread the message because they want to? For them, it is less about the brand and more about the social interaction that they would normally do on their own. The question now is, how can Twitter monetize these activities without alienating its users (ahem, Facebook)?

When Google started out back in what seems like an eternity now (1998), one of their mantras was to “do no evil.” No one really knew what that meant, but for better or for worse, at the time it seemed anti-Microsoft and that resonated with many. The search wars were waged, Google won and rose to prominence. While the Myspace/Facebook rivalry plays out, the topic of “do no evil” comes back into discussion. First it was Beacon, the controversial ad service that Facebookers rejected. Then came the design changes that we live with now.

The recent controversy over Facebook’s new terms of service (ToS) essentially gave them extraordinary power: “irrevocable, perpetual, non-exclusive, transferable, fully paid, worldwide license (with the right to sublicense) to (a) use, copy, publish, stream, store, retain, publicly perform or display, transmit, scan, reformat, modify, edit, frame, translate, excerpt, adapt, create derivative works and distribute (through multiple tiers)….” Yes, it’s lawyerspeak but it certainly doesn’t sound enticing to me or any potential new user.

Needless to say, the public balked and Facebook caved and went back to its previous ToS. Now, the company seems to be backing away from its authoritarian stance, taking a more democratic approach by inviting users to craft the privacy policy. In a way, this is somewhat akin to the government asking its citizens to rewrite its laws. The question now is, how can Facebook monetize its massive traffic in a way that its users can accept and what value will users get in return?