UPDATE: I had no idea this meme was raging today -- seriously, not until Fred's post. But now I've read Allen's post and you can consider this post my response. I still don't think SMS will make them money. Back in August, Twitter introduced a new feature called "tips" -- a feature which appends short messages to those "Twits" or "Tweets" which are short enough to allow additional information within the 140 character limit.
The story was famously broken by Charlie O'Donnell and in a post which was carried by TechCrunch, among others, he immediately proclaimed "This is surely the precursor to mobile SMS keyword ads from Twitter."
But I wasn't so sure -- mostly because the math just doesn't support the thesis. Several days after Charlie's post was batted around the bloggosphere, I submitted this thesis on why Twitter won't do contextual ads. I still think it's one of the most solid reviews of the issue and I still think the math doesn't ad up.
Nonetheless, something happened last week which made me question, at least slightly, my resistance to the Twitter-will-make-money-from-SMS-ads school of thought: I received this Tweet from my friend Michael Galpert, asking/saying "looking to do something fun tonight anyone have ideas?" and appended to it was a Twitter Tip: "Do something unexpected."
Wow, if that's not contextual, I don't know what is.
So, I still haven't heard one convincing argument which tells me HOW Twitter would be profitable selling contextual SMS ads, but I am now convinced that Twitter does now HOW to be contextual.
Unfortunately for Twitter, that's the easy half of the battle.