Turning tweets -- and snaps -- into sales

October 23, 2012: 5:00 AM ET

Chirpify turns Twitter exchanges into monetary transactions. Now it wants to do the same on Instagram.

By John Patrick Pullen, contributor

FORTUNE -- There's no sign on the door, the shades are half drawn, and there's little art on the walls. Standing across the street from Chirpify's Portland, Ore. headquarters, you'd hardly think its first-floor office was even occupied. Its neighbors -- the upcoming cast of MTV's The Real World -- get all the attention. But Chirpify is there convincing users to tweet "buy," "donate," or "pay," to make real world transactions over Twitter.

Chirpify enables businesses and consumers to make in-stream transactions over social media. Using simple grammatical construction -- or what founder Chris Teso calls "conversational commerce" -- users can make purchases, donations, or transfers that circumvent the shopping cart, simply by typing out a properly ordered command like "Pay @jppullen $30 for lunch tab." Since the service's February 2012 launch, 10,000 members have signed up and more than 3,000 transactions have been made.

Over the past two months, the service has gathered momentum thanks, in part, to high-visibility users such as Green Day and Amanda Palmer using it to sell MP3s, T-shirts and the like. The company's goals go beyond celebritweets. "Our long-term vision is to de-centralize the commerce process across social networks," says Teso. Today, Chirpify announced the addition of  its services to Instagram.

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If you think of Twitter as a giant cocktail party, says David Wolman, author of The End of Money, Chirpify allows consumers to buy whatever is being discussed without even putting down their drinks. "If you know you want something, it shouldn't take more than a click, or typing the letters b-u-y," he says. "That's a pretty powerful idea, when it comes to the future of commerce."

Wolman's book explores the implications of our impending cash-free society, an apropos product to sell through Chirpify. Because of the serendipity of Twitter conversations, Wolman felt that he connected with readers with whom he wouldn't have found otherwise, but he also notes the Twitter sale was of the physical book. (Chirpify would likely influence e-book sales even more.)

More than a quick profit is at stake. CMOs have long labored to measure return-on-investment from social media. By reducing the steps to purchase something, Chirpify  creates a direct correlation between individual social media posts and the amount of purchases they generate. "People interacted with [Chirpify tweets] at a rate that was much higher than even Twitter's promoted tweets because there's actual utility in the tweet," says Teso. "It wasn't just a redirection somewhere else."

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For example, on Sept. 6, Green Day performed a new song at MTV's Video Music Awards. After the show, the band's Twitter account tweeted: "#VMA special! Love the new song? Get it now + all 3 new GD albums, deal ends tmrw Reply "buy" for $29.99 via @Chirpify." The purchase was delivered back as a direct message that says congratulations on the purchase, here's your download link. It is, in effect, a listing, payment, and fulfillment process, all wrapped up within two tweets.

Chirpify declined to release sales results of the Green Day sale, and the post has since been deleted, but the next day, Mediabistro analyzed the results. In the first four hours alone, there were 250 purchases, 1496 retweets and 596 favorites. That means the band pocketed more than $7,500 before midnight. And the next day, as the posts rippled across Twitter, they become exponentially more valuable than a paid Twitter-promoted ad.

But more valuable than money for Chirpify, the Green Day post generated users for the service. "Of the x-amount of people who replied "buy" for Green Day, 95 percent signed up and converted," says Teso. Similarly, indie rocker Amanda Palmer held a flash t-shirt sale where 97.1% of all people who replied "buy" signed up and completed the purchase. Before Amanda Palmer and Green Day, the site had been growing seven percent month over month. It's now up to 24%.

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Needless to say, the company is on the hunt for more influencers to drive adoption. Similar to the way that Twitter grew on the backs of Ashton Kutcher and Britney Spears, Chirpify is one rogue Radiohead album away from being a force in online commerce.

With eight people on staff, Chirpify runs a lean operation, even though a first round of funding brought backing in April. Drawing from the likes of Voyager Capital's Geoff Entress, former Facebook (FB) general counsel Rudy Gadre, and HootSuite CEO Ryan Holmes, the company raised $1.3 million. In addition to the platform's ease of use, investors were likely attracted by its revenue model.

Chirpify makes money in three different ways. First is a transaction fee — the company takes 4% from the recipient's end of each exchange. Second is by selling enterprise-level features, which cost either $29 or $99 per month, and include options like advanced reporting, fulfillment system integration, and branded registration pages. Chirpify's third revenue source comes through selling access to the service's API.

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Currently, all sales are processed by Paypal (EBAY), so Chirpify loses 2.9% (plus .30 cents on each transaction) on each transaction, but the startup has recently agreed to work with a yet-unnamed bank to process transactions in the future. With the savings, Teso estimates Chirpify will be in the black in 2014.

As that happens, expect the nature of conversation to change greatly on Twitter, Instagram, and other social networks that Chirpify comes to support. The platform's potential will lead to more product shilling and corporate messaging, not to mention visible monetary exchanges between accounts. And as if the amount of followers a user had weren't already important enough, friend lists will have invisible price tags attached to them. Variables like activity, retweets, and Klout scores will influence a user's ability to sell. "One hurdle might be how often a merchant, author, or artist is tweeting about their item per sale," says Wolman. "How do you do so in a way that doesn't contaminate the perceived authenticity of the Twitter conversation?"

Another concern: hackers. "Fraud is something we take really seriously as we become a payments platform," says Teso, who is recruiting security experts in Chirpify's next round of hires. "While Twitter accounts do get hacked more often because people get phished, at the same rate it's really public and really easy to tell who you're dealing with and if something had gone wrong." While that may be true, it will provide no relief to users wrestling with banks to return money to their accounts.

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But that likelihood didn't discourage online shopping, auctions, and deal-a-day sites, and it won't slow Chirpify's adoption, either. After all, with the move to Instagram, the service has one foot in Facebook's side door. A demonstrable success -- like Justin Bieber using a photo of an album's cover art to sell a digital download -- is all this startup needs to blow up overnight.

And that's why the firm's offices are so spartan. Employees didn't bother getting comfortable in their ground-level headquarters, because they knew the company would be moving to an 11th floor office next month. With 5,000 square feet, the new space will give Chirpify plenty of room to grow.

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