Facebook Event: If Vine-Like Vids Hit, Cash Will Follow
Facebook may be about to make a push into short-video-sharing, which could mean big money.
(Read More: Facebook's Instagram May Be Getting Videos Soon )
The social network is hosting a press event at its headquarters Thursday. While Facebook hasn't confirmed what product it will be previewing, it's widely thought that the company will announce a video function for its photo-sharing app Instagram .The video addition is suspected to be similar to Twitter's Vine, a video-sharing app that lets users post six-second videos.
Such a move could help Facebook finally start to make money from Instagram, said Rob Jewell, CEO of Spruce Media, a marketing developer that builds on the Facebook platform.
"Facebook is sitting on a sleeping giant in video advertising," he said. "We believe that in 2014 Facebook will make a big play in video advertising, and while they are already sitting on a tremendous amount of video, adding video in Instagram would surely increase that inventory significantly."
Facebook—which on Tuesday announced that 1 million companies and brands now advertise on its platform—has enormous scale, and video advertisers want to get their hands on it, Jewell said.
But Facebook may also be threatened by growth in Vine's platform.
(Read More: Facebook Changes Ad Strategy to Woo Madison Avenue )
Earlier this month, Twitter announced that Vine had reached 13 million users. The company didn't reveal how many were active, but the social analytics company Topsy estimates that users post 12 million Vine videos on Twitter every day.
Vine's growth shows a clear demand for lightweight video-sharing, according to Jewell, and Facebook is well-positioned to enter the activity.
"It's starting to hit a tipping point," he said. "From a timing standpoint, it's the right time for Instagram to make a play in lightweight video-sharing. It took Instagram over a year to get to 13 million users (where Vine is today). The year following this Instagram grew to over 100 million users. If Vine were to follow that growth rate over the next year with no competition—Instagram would miss the boat."
Facebook, which bought Instagram last year for $1 billion, has yet to make money from advertising on the platform. In December, users reacted vehemently when Instagram hinted at implementing advertising products on its app.
(Read More: What Instagram's Blunder May Mean for Ad Future )
It's possible to generate cash from video ads but keep the ads off users' Instagram feed, according to Jewell. "If Facebook wants Instagram to stay 'advertising-free,' they could simply insert video ads into any Instagram videos that were posted to Facebook," he said.
It's unlikely that Facebook would pre-roll an ad that runs longer than the user's footage, however, Jewell said. In the case of a very short video, the company could place a banner ad on it, he said. Any rollout of video-related ad products on the platform would have to be subtle, he added, because the company is concerned about user retention and growth.
Facebook will continually offer features that keep users connected to their network, said Brian Blau, a technology analyst at Gartner. But something similar to Vine will inevitably become a revenue-generator, he added, though he stressed he doesn't know what Facebook will unveil Thursday.
"It will be monetized in the future, whether Facebook says so or not—it will be something that they can target ads against," Blau said. "It's going to be about revenue later, but a public company like Facebook can't forgo revenue forever."
But Forrester Research analyst Nate Elliot said that adding a short-video function is simply a way for Facebook to keep users on the platform so that it can collect their data.
"I don't think this has anything to do with advertising," he said. "It's about getting more users on board and keeping existing users on the platform. The data generated is more important for Facebook to make money from Instagram."
That data can be used in future business models, he said.
The rumor is that if Facebook introduces a video-sharing function, it will have features that Vine lacks, such as video filters and a longer recording time, that would give it an edge.
In reality, though, Instagram already has a major advantage over Vine, according to Elliot.
"The fact that Facebook is constantly evolving—this is how you keep from being overthrown," he said. "This dual strategy of innovating on their own but constantly looking for good ideas, it's a strategy that has worked very well for them."
For example, Elliott said, Facebook has adopted ideas from other social networks—like Twitter and Foursquare—to make its platform a one-stop shop for social networking.
The company added a check-in feature after it saw the function's value on Foursquare. While it scrapped "check-ins" awhile back, it added a similar function that lets users share their location on each post. Facebook also recently added the ability to search topics via hashtag, which is the primary way Twitter users follow trending topics.
"Vine has some users, and all data show it's gaining some traction, but hundreds of millions of people have Instagram," Elliot said. "Facebook is adding utility, adding capability. I don't think users want to have a 100 different networks for things like that."
—By CNBC's Cadie Thompson. Follow her on Twitter @CadieThompson.