Since Twitter is finding it difficult to create a bona fide business model based on its platform alone, they should look into developing broad new applications based on Twitter.
First, look at what Twitter does best: breaking news. The Twitter platform is natural for disseminating local news right down to the neighborhood level. Ev Williams has discussed this before: "Twitter to start serving local news to users - March 7, 2009", but the lack of a viable revenue model has crimped the execution.
Twitter has had the opportunity to own social local market for a couple of years, but now Google "Google Exec: Local is our Top Focus - Dec 8, 2010" and Facebook "Facebook's Emily White details Local Efforts - Dec 10, 2010" are hard charging into local; not to mention Groupon's potential $950 million war chest. So it's crunchtime.
So here's a recipe for building a local business model based on Twitter:
1) Twitter first creates a series of geographical Twitter accounts with a new Twitter name coding system that uses, say *, instead of @. For example, *Berkeley_CA or *Boston_MA. Start with metro areas and expand into smaller cities: *Waltham_MA and neighborhoods: *BackBay_Boston.
2) Each *Twitter account curates the best Twitter feeds within the geography, and is automatically set to retweet local feeds with the type of local information that communities want to see: News, Things to Do, and Deals. Curation is best done manually on-the-ground by a local; this person could be recruited as a volunteer who wants to serve their community in the same way About.com populated their experts. The *Twitter feed would look something like this:
3) The third step is the key departure to Twitter's general strategy - building a Twitter based application (note Evan Williams doesn't mention anything like this in his October "What's next for Twitter" interview). Twitter should build hyperlocal websites similar to Patch.com for each *Geography, and create an automated overlay similar to http://paper.li/breakingsfnews/community-news or FlipBoard:
4) The final ingredient is monetization. Just like Patch, Twitter can now build a national network of hyperlocal websites without the HR expense of hiring editors. They can now leverage their local media presence to deliver Deals and coupon based advertising. By using deal syndication networks, Twitter won't even need to hire a massive local sales force.