I Still Can't Believe Twitter, Inc. Spent $30 Million on Vine

By Daniel B. Kline Markets Fool.com

Twitter (NYSE: TWTR) has been a decidedly mixed bag for investors since going public.

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The company has become arguably the second-most-important social media site behind Facebook (NASDAQ: FB). It's used by the president and has become an important part of the national political debate, albeit not always in a positive way.

Twitter created a new way to communicate with an audience that has grown to 328 monthly active users (MAUs) at the end of its most recent quarter, but its financial performance has struggled to match its audience. The chain has struggled with monetizing its audience, a hurdle that Facebook once faced, then leapt over.

In addition to its money-making problems, Twitter has not had its rival's success in developing spinoff products or buying rivals to integrate into its core service. Facebook built Messenger into a billion-user platform, while it has grown purchases WhatsApp well above that, and Instagram has topped 700 million users.

Twitter has, to put it mildly not been able to do that. Moments, its effort to copy SnapChat, failed miserably, and its $30 million purchase of Vine didn't work out, either.

Twitter and Vine both struggled to make money from their users. Image source: Getty Images.

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What happened with Vine?

When Twitter bought Vine in 2012, the video clip service had not even launched. It was easy to see why the social media network wanted the fledgling company, as its six-second clips seemed like the video version of Twitter's 140-character posts.

Twitter paid $30 million for the company, a deal that seemed rich at the time given that Vine had not launched. Still, early returns were good, and the platform quickly grew its audience after launch, building its own brand of stars.

The problem was that despite growing user numbers, Twitter had always struggled to monetize Vine. Those problems were magnified as SnapChat and Instagram became at first viable rivals, then bigger platforms than Vine.

"After Snapchat and Instagram grew into hundreds of millions of daily users, marketers' interest in Vine dropped significantly," wrote The Verge. Those problems were magnified, according to the technology website, by Twitter's failures to develop paid placement options on the video service.

Vine had an audience, but it never reached its potential because Twitter never seemed to know what to do with it. That was likely not helped by the video app's founders leaving the company and upper management becoming a revolving door.

Why did Twitter close Vine?

At the time Twitter closed Vine, the entire company was having problems. Founder Jack Dorsey had been back in the CEO chair for a full year, and things were not going well. The company shuttered Vine at the same time it laid off 9% of its workforce.

"The restructuring allows us to continue to fully fund our highest priorities, while eliminating investment in non-core areas and driving greater efficiency," the company said in it third-quarter letter to shareholders.

Essentially, at a time when the company was failing, Vine was a "non-core" area. The platform had potential, an audience, and some of its own stars (though many decamped for other social media services). Vine was a drain on resources at a time when Twitter did not have the money to make long-term plans.

Lack of money and investment hurt the video-sharing app for its entire existence, and ultimately, Vine never reached its potential. That was probably inevitable as Twitter clearly made a tactical mistake in buying a hard-to-monetize platform before fixing its own monetization issues.

Vine still exists, or at least its archives do, but Twitter has turned down interest in rivals looking to acquire the problem. That's in some ways understandable, as seeing another company succeed where you were not able to might make this failed $30 million purchase look even worse (even if some of that money was recouped).

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Daniel Kline owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool has a disclosure policy.