As a serious answer; Lots of web-based revenue sources are volume based. The more they grow the more they can make. In advertising this is somewhat exponential - the more popular your service, the larger CPM (cost per thousand page views) advertisers are willing to pay (all other things being equal & to a point).
As such, if you don't need a revenue source when you start, it makes sense to build your business first and add revenue later. You could make more in your first month of revenue than all other previous months combined. Twitter could easily add some combination of advertising, premium accounts or premium customisations at any point.
However, whether that's good in practice or not is another matter...
Currently, they have none. They have lots of expenses though. One of the biggest is the SMS fees... they pay for receiving and sending them. I heard an interview with Evan in which he said that the fees are in 5 figures per month!
How would they make money in the long run? Sell pro tools and statistics... similar to the way Feedburner makes money. Just study Feedburner and you'll see plenty of parallels.
If you generate enough SMS messages through an official SMS portal, they begin to start paying YOU by the message, because they are making so much in SMS charges.
What's the source of your statement? I've talked to few cell companies and they never offered anything even remotely as attractive. Best we could do is get a discount. You're talking about revenue sharing. I've never seen anyone extract that out of them.
Interesting, but does it still work if you are sending far more messages than you are receiving? I haven't used Twitter, but I imagine that for every SMS they receive they have to send out dozens of update SMS (to all "friends").
You have to hand it to him for being so honorable. I think he knew there wasn't a good chance he'd make that money back, but he didn't want to screw his investors. Evan Williams is a model entrepreneur.
From what I gather it seems like he wanted out of the project. At some point it seems he decided "I'm not really a podcast guy, I'm a Twitter guy" [not a quote]. He did what I think was a pretty honorable thing and took the hit himself. He could have easily shared the loss with his investors. I would of course agree it was risk they signed up for, but he chose differently.
There's nothing honorable about buying high and selling low. It's bad business and if this were the creed of our "model entrepreneurs" the world would be a worse place indeed.
The more important question is, What in the Jumping Jack Flash IS Twitter. I have been to the site twice, heard people ooh and aah over it, and for the life of me I have no idea what it is. Dot com bubble anybody?
PG talks a lot about this kind of thing in his essays (and book). (Zemaj's answer is pretty good, too.)
There are two models I can imagine for Twitter: 1) working in advertising, or 2) become a feature of some larger business.
You might also speculate that there would be some permutation of Twitter that would be interesting enough to become Twitter Pro or somesuch. But those kind of things are not often very exciting.
