First the short answer. Twitter is a simple social media website that can be harnessed as a crowd sourcing tool to filter in news that are relevant to you personally. In other words it increases the signal / noise ratio.
That is done eg. in four different ways. First by following the updates of people you care to listen to, second by following trends ie. generally hot topics, third by utilizing simple string-based search, and fourth by tagging.
In the first case you are not forced to follow anyone so you don't have the problem of spamming as in with email (unless a person's account is hijacked). You get updates from the people you follow as requested be they interesting to you or not. On episode 10 of the TWiST podcast Chris Tolles, the CEO of Topix.com a local news congregator, commented that Twitter is now replacing rss because of this social news filtering feature. On the same episode Jason Callacanis commented: "On Twitter I get the level of curation I want", by which he implies that he can rely on other people to give him the most important bits of news.
The filtering that happens here is only that of selecting the people you want to follow with no further granularity such as 'follow this person on topic x'. This can lead to problems where a person that initially seemed like a good source of news turns sour and instead starts eg. spewing unnecessary details about their private / social life ad infinitum, and thus plummeting the signal / noise ratio. I've definitely seen this happen and am in the process of narrowing down the people I follow.
Some might say that detailed social life updates are exactly what Twitter is about as is kind of expressed on the service's front page, but as I see the trend here is that people are looking for value in the form of news in the updates on Twitter. Social / private life updates are better left on sites like Facebook.
Twitter is different from Facebook because it focuses on doing one simple thing really well: short status updates ie. micro-blogging. Facebook on the other hand is a more complete platform in the sense that it allows for people to add various applications to their profile. Thus users are telling or sharing more about themselves to other people or interacting with other people in numerous ways, such as playing chess or doing comparison tests. To put it simply Facebook is the social gathering site, as pretty much everyone by now can tell.
In the second case with following trends one can quickly get the latest news on wide variety of topics. Whilst it will take bloggers and newscasters in the order hours to produce their material, on twitter people can post news in a matter of seconds or minutes.
What this results in is that we're speeding up the rate of which we're consuming news. The reaction, analysis, and aftermath cycle is now done in 5 days as Leo Laporte commented on the TWiT podcast episode 206, which makes a person fall back in news much more quickly as before. The events of Monday are already ancient history by the time Friday arrives.
Third we have the search capability of Twitter. What this essentially allows the users to do is real time social searching. If for example you see or hear people shooting fireworks in your neighbourhood the most obvious place to check what all the fuss is about is naturally on Twitter. You can search for live updates on the events at your current location simply by using the event and your location as the search strings.
This is at least how it is in the US at the moment. In Finland Twitter hasn't yet come to mainstream such as Facebook, but I guess that's only a matter of time. It took Facebook two years to become mainstream in Finland after it was mainstream in the US.
Fourth way to increase the signal / noise ratio is by utilizing different types of tags. By tags here I mean simple textual markings such as @vesanieminen or #twist that signify something special in Twitter, but only by convention. There's actually nothing special about the tags and they can be thought of as complex emergent behaviour in a very simple system. Personally I find these kinds of things highly facinating.
With these tags people communicate publicly to each other or signify that a particular tweet is about this topic. I think of this as analogous to IRC. People send messages to channels and the channels are tagged with a name such as #gunslingers on the IRCNet. Imagine having that channel publicly available world wide to people with very little computer skills. That can be used to create huge communities way larger than anything on IRC.
There also exists a huge list of third party tools that have been built on top of Twitter by using its public API. There are too many ways to take advantage of Twitter to mention here but via these third party tools we're likely to be able to experience new types of emergent behaviour in this neat little system.
So to wrap up, what are the basic benefits of Twitter?
Twitter is concise, so it takes less time to get to the important stuff.
Twitter provides us multiple streams on the happenings of the world while the blogs and news sites are mainly concerned about giving holistic views.
Twitter is a many to many conversation tool that has various possibilities and business opportunities that people and companies are only beginning to tap in. The benefit here, naturally, is the ability to make money ;)
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