Among social sites, Facebook and Twitter are often mentioned in the same sentence. Both services attract an extensive and ever-expanding base of users. The two are also increasingly competing for consumers’ time online and facing growing pressure to demonstrate that each has a sustainable plan to generate revenue.

Facebook is best known for making personal connections between friends, although the site also hosts public web pages for products, organizations and brands to promote their content. Twitter is primarily a broadcasting service, a so-called “microblogging” platform, for communicating 140-character (or less) musings on topics large and small. Through the aggregation of these “tweets,” Twitter has tapped into the collective consciousness around events ranging from the Arab Spring and the death of Osama bin Laden to Super Bowl picks and the daily activities of celebrities.

“When people think about either [Facebook or Twitter], it’s natural to make the comparison, but historically they are very different,” notes Wharton operations and information management professor Shawndra Hill. Yet, Hill adds, this is beginning to change. “The lines today are becoming quite blurry.”

Indeed, Twitter’s recently unveiled profile-page changes resemble Facebook’s timeline design to some degree. Meanwhile, Facebook now allows users to subscribe to public posts from non-friends in the same way that anyone can follow updates from a public Twitter account. According to Hill, Twitter’s recent moves to change its profile pages, as well as take more control of its developer ecosystem, illustrate how the company is trying to find a sustainable business model. Currently, Twitter’s revenue is largely advertising-based through tweets that companies pay to have displayed at the top of search results and lists of trending topics, and in users’ timelines.

“What Twitter is doing today isn’t sustainable,” Hill says. “Twitter needs to figure out its business model if it’s going to become a public company. Twitter has to emphasize what it believes has value and can’t be easily duplicated.” Twitter’s features, like Facebook’s, can be easily replicated by rivals, and as long as that’s the case, the sites are vulnerable to competition, Hill adds.

“It’s no longer sufficient to focus solely on user growth,” says Kendall Whitehouse, director of new media at Wharton. “In the wake of the Facebook IPO, the pressure is on social sites to demonstrate a sustainable revenue model.” In May, Facebook launched a highly touted initial public offering only to watch shares sink amid questions about mobile advertising and future expansion.

Wharton management professor Saikat Chaudhuri says Twitter may ultimately face the same questions about its business model that Facebook has had to answer. “The onus will be on the management team to lay out a vision for what the entity will become,” Chaudhuri notes. “It’s not enough to say that Twitter has data and users…. Today, we’re not getting much of a roadmap or details about Twitter’s role and what markets it will go after. The lack of information inspires doubt. Twitter has become too big to say, ‘We’ll figure it out [later].'”

By the numbers, Facebook’s user base dwarfs that of Twitter. According to comScore, Twitter was the 28th most visited website in the U.S. with 38.2 million unique visitors in August. Among all U.S. websites, Facebook was No. 4 in traffic with 152.4 million unique users in August. Business-focused social site LinkedIn is ranked 26th with 40.9 million unique visitors.

“A lot of people think Twitter is just about tweeting. In fact, a lot of people are using it as an information appliance,” notes Wharton marketing professor Peter Fader. “Twitter has valuable information and perspective.” In contrast, Fader suggests that Facebook has become a “wasteland of meaningless crap” due to its users oversharing every minor detail of their lives.

Despite the recent increase in Facebook-like features, Twitter has historically been positioned as the “anti-Facebook,” with a simpler design, fewer features, a clear privacy statement and a mobile-friendly interface. “Twitter was always the elegant, Zen-like Facebook alternative. Where Facebook kept adding features, often to the dismay of its user base, Twitter remained simple,” says Whitehouse. “Facebook’s philosophy has been to do more and more. Twitter has avoided much of that fray.” Whitehouse worries, however, that Twitter’s recent addition of banner images, embedded media and other features reminiscent of Facebook profile pages may slowly undermine the service’s unique position in the social media landscape.

An Evolving Business Model

In many respects, Twitter’s current business model, which revolves around minimal, relatively unobtrusive advertising via promoted tweets, remains a bit of a mystery. But experts say the site could take one of several approaches in pursuing a long-term revenue stream.

For example, Fader considers Twitter to be an important resource for people who are passively watching trends and comments about breaking news. “Microblogging is a valuable tool, and Twitter is a really valuable channel.”

He doubts that much of that value can be unlocked through the current model of sponsored tweets. Instead, Fader suggests that Twitter could deploy a tiered subscription model, similar to that currently used by LinkedIn, which gives users with paid accounts access to a greater number of messaging and search tools. “Twitter needs a ‘freemium’ twist so there is broader access to information and analytics” for those willing to pay for it, Fader notes. “If Twitter can come up with just enough stuff to justify a premium service, I’d pay for it. I’ll never pay for anything on Facebook.”

Chaudhuri agrees that Twitter’s advertising potential has limitations. “Twitter has enough data to be useful for advertising, but not direct marketing,” he says. “The future for Twitter probably resides in charging for interesting ways [of using the site to better] distinguish corporations and products.”

Hill, who also uses Twitter as a research tool, notes that she, too, would also pay for a Twitter premium service, but adds that the company has to be careful about limiting the free flow of comments. Should Twitter offer too many tiers of premium services, and severely limit what people using the free service can see, it could turn off users, who generally now share equal access to the platform.

Twitter’s trove of data may be the best road to revenue: The firm could structure a subscription system around historical data, or analytics packages based on what users are talking about and who they are following. “I think that data is the secret sauce,” says Whitehouse. “While a number of companies, such as TweetReach, provide services that track the impact of tweets, Twitter is the primary holder of the entire history of its data. And that gives it a huge competitive advantage.”

In addition, Whitehouse says, Twitter has been clever in adding features that both enhance the user experience and allow it to collect more meaningful data. For instance, Twitter now links together the individual tweets that make up a conversation between users. This helps users follow the thread of the conversation, but also allows Twitter to see connections between people and gauge the impact of tweets. “Twitter’s changes have been conservative, but many of them have been geared so data on trends would be easier to follow,” Whitehouse states. “There’s an immediate user benefit, but there’s also a data element.”

While Twitter lacks Facebook’s depth of individual user data, Wharton legal studies and business ethics professor Andrea Matwyshyn suggests that the company may not need that level of specificity to succeed. “Twitter has set itself up as a contrast to Facebook in terms of monetization, data and privacy,” she points out. “Twitter’s privacy policy is clear: Tweets are public or private. Facebook has repeatedly changed its privacy policy.” As a result, Matwyshyn argues that Twitter has more built-up goodwill with users than Facebook. Now, however, the company must figure out how to monetize without damaging that relationship.

Open and Shut (a Bit)

When Twitter first launched in July 2006, it gained a cult following because the company provided an open interface that attracted third party developers. These developers created software, such as HootSuite and Seesmic, which allowed users to access and update their Twitter accounts and aggregate tweets based on certain topics or trending hashtags. Using that model, Twitter became a big data feed — and a valuable utility to many web developers.

However, Twitter recently changed its developer policies to limit applications that rely on data from Twitter. Previously, third parties could write software that replaced Twitter’s own products for reading and sending tweets. Any new application that plans to serve more than 100,000 users must now seek the company’s permission. Applications that already serve that many users will only be allowed to expand to a certain point before needing Twitter’s sign-off to grow further. Developers creating products that complement Twitter will have greater access to the company’s application programming interface (API), which allows different parts of a program to communicate, as well as facilitating one application sharing content with another.

Twitter’s move to reign in developer activity — which has already resulted in some negative backlash from those who feel the rules are too inhibiting — indicates that the company is hoping to monetize data around trends and usage. “Twitter appears to be locking down its platform a bit so it can control its evolution … and more of its data,” says Chaudhuri. According to Kartik Hosanagar, a Wharton operations and information management professor, the company’s efforts to curb access to its data could be a mistake. “While I agree that Twitter needs to own those features that are important for the core consumer experience and monetization, Twitter needs to handle this carefully so that it does not lose the trust of developers who have invested lots of resources … based on the original policies,” Hosanagar notes. Twitter “needs to be transparent and consistent about these policies.” Hosanagar suggests that the company consider ways of sharing revenue with developers of applications that augment the company’s value. “Apple has been doing this successfully with its developer ecosystem,” he adds.

Should Twitter stumble with its developer relations, the company could have business model issues going forward, says Whitehouse. “What made Twitter attractive is that it was open, and that allowed an ecosystem to quickly organize the company’s data and present it,” says Whitehouse. “Will the drive to monetization undermine everything that made Twitter so wonderful in the first place?”

Mobile Friendly

One area where Twitter excels is in supporting mobile access. Facebook, by contrast, has struggled to provide the full spectrum of its services to users on smartphones and tablets. According to research firm eMarketer, Twitter will earn $129.7 million in mobile advertising revenue in the U.S. in 2012. Facebook is expected to bring in just $72.7 million in U.S. mobile ad revenue this year, although the company is expected to surpass Twitter in 2013, eMarketer reports.

Twitter’s simplicity — with 140-character tweets that look good on any screen — gives it an edge on mobile devices. In addition, the company can just as easily promote tweets and sponsored comments on mobile as it can on a website. According to Matwyshyn, Twitter is a threat to Facebook because it is cohesive across all screens. “There’s the same comforting feeling with Twitter on a desktop or phone. Twitter is with you in the office, on the go or at home. Mobile first may be its strongest feature.”

Whitehouse agrees. “People can tweet from anywhere — from a mobile app, a mobile browser or SMS messages — with little loss of experience. Facebook started on the desktop and then moved to mobile. For Twitter, mobile isn’t a compromise.”

At the TechCrunch Disrupt conference this month, Facebook CEO Mark Zuckerberg admitted that the company has made mistakes in its efforts to move to mobile devices. The company has also acknowledged that mobile usage is spiking, but that it lacks an ad strategy for the small screen. However, Facebook has been experimenting with targeted mobile ads, according to The Wall Street Journal.

Fader isn’t convinced that Twitter is only a mobile juggernaut. “Yes, Twitter is more mobile-friendly than Facebook, but about 92% of my Twitter usage is on the desktop,” he says. “Twitter lends itself to mobile, but by no means will it be completely that way.”

If Twitter were to file for an IPO, the company would have to go public with detailed information about the business, its sources of revenue and its chief competitors. While Facebook may have suffered from overinflated expectations, a Twitter IPO may experience the opposite problem, Fader notes. “A number of people are really into Twitter relative to Facebook,” says Fader. “But Twitter is still in a niche. Many people don’t understand it’s a truly valuable tool.” The company, he adds, “could be undervalued.”