Magpie, the AdSense-like service that sells product placement in Twitter users’ tweets, put itself up for sale today.

The service brags that its advertising network now encompasses 20 million Twitter users and about 4,700 advertisers, including Sony Playstation, Microsoft Xbox, Burger King, Snickers, Honda, Audi, Mazda, Heineken, Bacardi and Hersheys. Magpie is a raging success, the founders say, but they have decided to move on.

Avid Twitter users who signed up for Magpie could make a couple hundred bucks a month in exchange for letting advertisers place secretly-sponsored tweets like, “An online number lets family and friends call you at local rates wherever you are in the world. Loving Skype” and a link to the advertiser’s site. Later, Magpie started including a short disclosure such as “ad:” before the sponsored tweet.

Magpie – Join the Conversation from Magpie & Friends Ltd. on Vimeo.

Video about how Magpie works.

The service has been criticized for contributing to noise and spam on Twitter, and several companies withdrew their participation after a previous ReadWriteWeb post exposed the practice. The tactic was mostly being used by affiliate marketers, and not by in-house ad buyers at Skype and other companies.

Is product placement against the spirit of Twitter?

What Magpie does – placing paid tweets in users’ Twitter streams in real time – may not explicitly contradict Twitter’s Terms of Service because it requires permission from the user to place ads in their tweets. The Terms of User for Twitter’s Application Programming Interface, or API, states: “Your advertisements cannot resemble or reasonably be confused by users as a Tweet.” Magpie tweets meet this requirement by including a short disclosure such as #spon, #paid, or “ad.”

An ad placed in the Twitter stream of one of the users in Magpie’s advertising network.

But Magpie’s method appears to contradict the spirit of Twitter’s Terms of Service:

“Third party ad networks are not necessarily looking to preserve the unique user experience Twitter has created. They may optimize for either market share or short-term revenue at the expense of the long-term health of the Twitter platform. For example, a third party ad network may seek to maximize ad impressions and click through rates even if it leads to a net decrease in Twitter use due to user dissatisfaction,” Twitter said in a blog post in May in which it announced its own Promoted Tweets service, which places ads at the top of Twitter’s search results.

Magpie’s creators say they will only sell to a buyer who plans to keep the ad network going and continue to “provide value to the Twitter ecosystem as a whole.”

Meanwhile, Magpie’s founders allude to big plans.

“We have a new idea in our heads and there will be great things to come,” they wrote.

UPDATE: The original headline on this post erroneously implied that users do not have to disclose that tweets are paid. In accordance with Federal Trade Commission guidelines, Magpie tweets now contain a short disclosure such as “ad.”