Twitter branches out as London’s ‘ecosystem’ flies

London is staking its claim as the Twitter capital of the world as a flock of local start-ups ride the communications network’s huge wave of growth.

While Twitter is the toast of its native Silicon Valley in California, London boasts more users than any other city in the world. Twitter allows its 40m users to post 140 character updates or “tweets” on the web or via mobile phones.

Even though Twitter itself is yet to generate any revenue, early-stage investors are pouring millions of pounds into small companies in the Twitter “ecosystem” in the London area.

London has produced the most popular of the many third-party tools used to post to Twitter, called Tweetdeck. Reading’s Tweetmeme, which tracks the most popular news stories discussed on Twitter, is attracting millions of visitors a month while Twitterfeed, based in Tooting, is used by thousands of publishers to post their latest headlines on to the site.

“In the UK we’ve got a real phenomenon going on,” says John Borthwick, the British-born chief executive of Betaworks, a New York company that has invested in Tweetdeck, Twitterfeed and Twitter itself. Just as Scandinavia took an early lead in mobile technology, “the UK has become fast-forward in terms of social”, thanks to high broadband penetration.

“We are the most active company in the Twitter ecosystem and London is critical to that,” says Mr Borthwick.

Twitter was launched in 2006 but really took off in the UK at the beginning of this year, thanks to support from celebrities such as Stephen Fry and Jonathan Ross. But many see Twitter’s potential as far greater than documenting the lunching habits of the stars.

“Twitter as a communications platform I’m a firm believer in”, says Sean Seton-Rogers, general partner at Profounders Capital, a venture fund. “As with Skype, it’s a revolutionary change.”

Last month, Profounders – which is backed by British dotcom royalty such as Peter Dubens and Brent Hoberman – invested in Tweetdeck alongside Betaworks and the Accelerator Group (TAG), an angel investor.

Saul Klein of TAG and Index Ventures, which also backed Skype, sees Twitter as part of a more fundamental shift in the internet to being a “live experience” rather than serving static web-pages.

“The web has gone through three major phases,” he says. “The first was publishing. The second was more personalised and social. What we are seeing now is the growth of real-time services, such as status updates and micro-blogging. The way you find value from that is fundamentally different to anything we’ve seen before.”

As messages flow through Twitter in their millions every day, the immediacy of that information creates a scarcity value that people could be prepared to pay for – just as Bloomberg and Reuters have found in the financial world.

“People will migrate to services that can sift the signal from the noise,” says Mr Klein.

Some investors in Twitter-related businesses are already seeing successful exits. Last year, Betaworks sold Summize, a search engine for Twitter, to Twitter itself. In July, Alterian, the marketing software provider, acquired Techrigy, which monitors blogs and social networks for sentiment about brands, for a total of up to $5m (£3m), depending on performance.

“We see [social media] developing faster than any other part of our space has ever developed before,” says David Eldridge, Alterian’s chief executive. “It’s such an early space we have the opportunity to define it by investing.”

Indeed, so new is the Twitter ecosystem that many of its pioneers are little more than one-man bands. Twitter makes it easy for developers to access its data – from tweets to users’ profiles – and does not charge for the privilege.

Nick Halstead, founder of Tweetmeme, built the original version of his news site in a weekend in early 2008. Its innovation is analysing not just the popularity of news and links posted to Twitter, but relationships between its users to gauge the trustworthiness of a source.

Millions of users now flock to the site for the biggest news stories of the hour, as defined by the Twitter community rather than newspaper editors.

After taking £500,000 in angel funding this year, Mr Halstead says Tweetmeme could break even this year, from advertising and by running specialist channels for big brands.

Similarly, Mario Menti started Twitterfeed in his spare time in 2007, to help himself keep track of BBC news via Twitter. By the start of this year, 100,000 people had added their own newsfeeds to the service.

As Twitter has broken out of the early-adopter niche, it has attracted more mainstream users and uses. For instance, thousands of jobseekers are using Twitjobs and TwitterJobSearch to find new employment.

Political enthusiasts could watch the MPs’ expenses drama unfold hour-by-hour and Kerry McCarthy, the Labour MP appointed as “new media campaign spokesperson”, is already being called the Twitter tsar. Tweetminster, which tracks the tweets of MPs, party activists and lobby journalists, is gearing up for party conference season.

But even though their names betray their origins, many of these businesses are expanding to include other social networks, such as MySpace and Facebook – just in case Twitter turns out to be a fad after all.