Jan. 6 (Bloomberg BusinessWeek) -- In the 1980s she was Punky Brewster, the star of an NBC (GE) comedy about an orphan. Today, Soleil Moon Frye is a 34-year-old mother of two and a power marketer for Ad.ly, an advertising agency that pays actors, athletes, and musicians to promote products through micromessaging service Twitter. Two days before Christmas, Moon Frye's 1.4 million followers learned that THQ's uDraw tablet, which lets kids draw using a Wii video game console, is "a must for any family night!"
Celebrities have been endorsing products since before talkies. Ad.ly, a 22-person operation run out of a small suite of offices in Los Angeles, is pioneering what it calls the "micro-endorsement." Since its launch in September 2009, it has crafted more than 20,000 endorsements for more than 150 brands, including Sony (SNE), Best Buy (BBY), and Old Navy. The plugs, which adhere to the service's 140-character limit, are delivered through the Twitter streams of the Kardashian sisters, rapper Snoop Dogg, and more than 5,000 other personalities ranging from A-list to D-list.
The ad campaigns are a little on the micro side themselves. On a recent day in late December, Ad.ly staffers were at work putting together proposals for a $100,000 package for a handheld, digital projector from 3M (MMM) and a $50,000 campaign for CBS (CBS) talk show Dr. Phil. For each campaign, Ad.ly tries to match the product with the best fit from its stable of celebrities, though advertisers have the final say as to who promotes their products. Pitches contain small labels indicating they're ads, as required by the Federal Trade Commission.
"Celebrities can be great influencers, whether they're on TV or tweeting," says Arnie Gullov-Singh, 38, Ad.ly's chief executive officer. A pair of twentysomething staffers craft most of the promotional tweets in the voice of the celebrity pitchmen. In hawking the Toyota (TM) Sienna, rapper Snoop Dogg tweeted that "these homies know the deal" and wondered if oversized rims would fit on the minivan's wheels. Businessman Mark Cuban, another celebrity on the roster, tweeted that it "looks like I need to invest in a fleet of Sienna minivans."
The celebs earn a flat fee per tweet that ranges "from $1,000 to mid-five figures," says Gullov-Singh. With more than 5.6 million followers, reality TV superstar Kim Kardashian collects "in the ball park" of $10,000 per tweet, he adds, "but her price keeps going up. The most effective ones can get six figures a year, and in some cases six figures a quarter."
For Cuban, who's already a billionaire, joining Ad.ly's network wasn't a way to make cash but rather "something that I wanted to learn more about," says the Internet entrepreneur. Allowing Ad.ly to ghostwrite his tweets "was painful at first, but easier and easier because the products and services are respectable." Celebrities can veto tweets for products they don't want to promote or tinker with the language from Ad.ly's copywriters. Says Lauren Conrad, former star of MTV reality show The Hills and another celebrity in Ad.ly's roster: "I am very selective about what I endorse."
Twitter is testing its own advertising service, which could compete with Ad.ly for the attention of sponsors. A more direct competitor is four-year-old Izea. The Orlando company began by promoting brands on blogs and last year expanded to Twitter. It now has a network of more than 100,000 tweeters who promote products for anywhere from 10 cents to more than $2,500 per tweet, according to CEO Ted Murphy. Some celebrities or their managers negotiate directly with the sponsors and avoid using intermediaries such as Ad.ly.
Ad.ly is backed by $6 million in venture capital and was founded by 24-year-old Sean Rad, a serial entrepreneur. The company is diversifying into other social media sites. It recently began offering what it calls a celebrity bundle, in which brand promotions appear not just in celebrities' Twitter streams but also on their fan pages and in display ads on Facebook.
"I can see great upside and great risks for a brand putting their message on Twitter," says Debbie DeGabrielle, chief marketing officer of Visible Technologies, which assesses social network traffic for clients such as FedEx (FDX). "If the celebrity is aligned with your brand, that's great," she says. "But if you're Toyota, will Snoop Dogg talking about 22-inch wheels drive away your women buyers?" Toyota spokeswoman Zoe Zeigler says the company "did not have any issues with the copy."
Dave Rosner, a senior vice-president at ad agency Initiative, has used Ad.ly to promote his clients' products, including a film from Lionsgate Entertainment (LGF) and a car from Kia. "They give us a streamlined way of signing celebrities, where an agreement can sometimes take a long time," he says. Rosner is not yet totally convinced the campaigns are effective, but he thinks the experiment is promising. "We're still here," he says.
The bottom line: Ad.ly operates a network of more than 5,000 celebrities willing to shill for brands through their Twitter accounts.