Twitter takes first step to make money from Vine

February 11, 2015, 10:59 PM UTC
Electronic cables are silhouetted next to the logo of Twitter in this illustration photo in Sarajevo
Electronic cables are silhouetted next to the logo of Twitter in this September 23, 2014 illustration photo in Sarajevo. REUTERS/Dado Ruvic (BOSNIA AND HERZEGOVINA - Tags: BUSINESS TELECOMS) - RTR47HW0
Photograph by Dado Ruvic — Reuters

Twitter now has a plan to make money on Vine, the video app it acquired three years ago.

The social media company has acquired Niche, a start-up that helps land endorsement deals for the emerging celebrities on the service. According to a person familiar with the situation, the deal was worth $45 to $50 million, including earn-outs.

In case you’ve never heard of Vine, here’s one way to think of it: Vine is to Twitter as Instagram is to Facebook – it’s a hip social network that skews young and has created its own set of celebrities. Like with Twitter, brevity is the theme: Clips are limited to 6 seconds.

Marketers are increasingly enlisting prominent Vine users to showcase their products. A number of ad platforms and talent agencies, including Niche, connect the two worlds.

By acquiring Niche, Twitter (TWTR) will be able to rustle up revenue on Vine, which had no way of monetizing its users before now. (More than 100 million people view Vine videos across the Web each month.) The deal also creates interesting implications for the way social media networks interact with the stars they’ve created.

On one hand, YouTube, Tumblr or Instagram would be nothing without their users creating the content for them and drawing millions of eyeballs to see their work. That’s why many of the services pay emerging stars to be exclusive to their services, and prohibit them from taking their followings to a rival.

On the other hand, those stars aren’t necessarily adding to their benefactor’s revenue. For example, if a Vine star endorses a particular brand of clothing to all her Vine followers, Vine doesn’t collect any of the money.

Historically, social media companies haven’t tried to serve as middlemen for these sorts of deals because they’re too small to be worth it. There are also contracts and agents involved, which is very time-consuming and messy. The services would rather sell self-service ads through an algorithm than do handshake-driven deals between talent and brands.

That’s why Facebook has a platform and an ecosystem of third-party advertising agencies that help companies advertise on Facebook. Twitter, YouTube, Pinterest and others have followed this model.

By acquiring one of its ad partners, Vine is bringing that dealmaking in-house. It’s a message to any other company or agency that works with Vine stars – Vine owns the transaction. Furthermore, it says Twitter is not afraid to get into the nitty-gritty act of striking deals with talent if it means making money. Further, once those sponsorship deals are done, brands can use Twitter’s ad products to promote them across the social network.

Twitter has taken criticism lately for slow growth in its active users. But the company has doubled year-over-year revenue almost every quarter since it’s been public. This is another sign that Twitter is serious about proving to Wall Street that it can make a lot of money.

Niche, named one of Time’s 10 NYC Startups to Watch in 2014, had raised $3.1 million in venture funding from SoftTech, Lerer Ventures, SV Angel, Advancit Capital, William Morris Endeavor, Kevin Colleran, Gary Vaynerchuk and seed investor Box Group.

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