Twitter starts scaling up its own link shortener. Watch out, Bit.ly!

Twitter will roll out its own link shortener, “‘t.co,” for all web content shared through the network in yet another move that could threaten certain startups in its ecosystem.

Link shorteners compress very long web addresses into ones that can fit in 140-character tweets. They grew in popularity along with the microblogging service, but have long been dominated by third parties. Since sharing content is such a core part of the experience on Twitter, it’s not surprising that the microblogging network is taking them in house.

In fact, the only thing that’s surprising is that it took this long.

Chief executive Ev Williams hinted at the move at the company’s developer conference in April, and Twitter has been using shortened links for private direct messages since March to counter spam and phishing attacks.

Later this summer, all links shared on Twitter.com or through third-party apps will be wrapped with a t.co URL. But users will also be able to expand them on the website to make sure they know where the link is taking them.

[Update: Twitter says third-party link shorteners and analytics will still work and will look like whichever service or publisher they came from like The New York Times’ http://nyti.ms/ links. They’ll just have to compete with Twitter’s shortener, and Twitter will have its own copy in http://t.co format.]

For Twitter, at least, there will be a number of benefits to its bottom line. The data on how these links are shared will feed into Twitter’s new advertising system, Promoted Tweets. It will form a core part of the service’s Resonance metric, which shows how well a sponsored tweet is performing with users. In addition, the company says it envisions using metrics from the shortened links for its forthcoming paid commercial accounts.

Other developers, who aren’t nearly so dependent on link shortening as their primary business, say they will probably benefit too. HootSuite, which makes a popular social media client for reading status updates and has its own competing link shortener Ow.ly, said it expects Twitter to open some kind of analytics application programming interface for third-party developers.

“As long as they expose the analytics information, it will be good for us,” said chief executive Ryan Holmes. But Holmes was less sanguine about companies that rely on link shortening as their main source of revenue. “It’s a total game changer for them.”

When Twitter first started, TinyURL was the early leader in link shortening. But it soon fell by the wayside as it couldn’t compete with New York-based Bit.ly’s analytics, which could track click-through rates and virality. Bit.ly took over TinyURL’s plum spot as Twitter’s default link shortener for a time.

Bit.ly, in anticipation of such a move — which, to be honest, has been very obvious for awhile, started moving into paid link shortening and analytics for bigger brands like The New York Times.

Now that Twitter has made its move, it’s likely that Bit.ly’s overall share of link handling will fall dramatically. External link shorteners are no longer a must-have, since lengthy links will no longer eat into a tweet’s very limited space.

Secondarily, Bit.ly’s other unique value proposition with analytics may no longer be all that special, since Twitter will have its own competitive alternative. The question is, how much will each service charge?

One other point to consider: It’s possible that large media publishers will still want vanity URLs even if they can get analytics from multiple sources. So Bit.ly may have somewhat of a lifeline, although it may not have as much upside.