Clubhouse : The newest (audio) unicorn kid on the block
A look at clubhouse's product, moats, challenges, network effects etc
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I have to admit when I first heard about Clubhouse and its exclusivity I was completely confused and when I got a chance to score an invite, at first I didn’t bother and then when a16z invested $100M well I got interested. For all practical purposes I am an audio luddite as far as podcasts go at least (I never listen to them. Maybe the problem is i’m stubborn and just don’t listen?)
Buzzy live voice chat app Clubhouse has confirmed that it has raised new funding – without revealing how much – in a Series B round led by Andreessen Horowitz through the firm’s partner Andrew Chen. The app was reported to be raising at a $1 billion valuation in a report from The Information that landed just before this confirmation. While we try to track down the actual value of this round and the subsequent valuation of the company, what we do know is that Clubhouse has confirmed it will be introducing products to help creators on the platform get paid, including subscriptions, tipping and ticket sales
From the funding announcement blog post, 🎉 Welcoming More Voices
Welcoming more amazing people 🎉 From the earliest days, we’ve wanted to build Clubhouse for everyone. With this in mind, we are thrilled to begin work on our Android app soon, and to add more accessibility and localization features so that people all over the world can experience Clubhouse in a way that feels native to them.
Keeping the servers up 👩🏽💻 We’ve grown faster than expected over the past few months, causing too many people to see red error messages when our servers are struggling. A large portion of the new funding round will go to technology and infrastructure to scale the Clubhouse experience for everyone, so that it’s always fast and performant, regardless of how many people are joining.
Ensuring you get fast support ⚡️ User safety has always been a top priority for us, and as we welcome more people, it will remain one. This means scaling up our Trust & Safety and Support teams as we grow, continuing to invest in advanced tools to detect and prevent abuse, and increasing the features and training resources available to moderators. We’ll also be aggressively growing our support team so that everyone’s clubs can get same-day approval. :)
Improving ranking and discovery 🌍 As we’ve grown, the number of conversations happening on Clubhouse has skyrocketed, and it’s our job to help you find the right ones each time you open the app. With this new round of funding we’ll be investing heavily in discovery so that we can show you people, clubs, and rooms that are perfectly tailored to your interests—and help you discover new rooms you never would have thought to look for.
Investing in creators 👨🏽🎤 Creators are the lifeblood of Clubhouse, and we want to make sure that all of the amazing people who host conversations for others are getting recognized for their contributions. Over the next few months, we plan to launch our first tests to allow creators to get paid directly—through features like tipping, tickets or subscriptions. We will also be using a portion of the new funding round to roll out a Creator Grant Program to support emerging Clubhouse creators.
There are lots of hot bullish takes from smart people about Clubhouse. My take is a bit less uhh well hot or bullish. I’m not the only one bearish on Clubhouse and this is a good (and different take from mine) however there are other brilliant takes from Will Oremus here ,Casey Newton here, and just this morning as I was completing this article, another optimistic take from Ben Thompson just this morning.
After joining a few Clubhouse talks for a few minutes for a few days a lot of the conversations felt like empty calories (really no substance, in some ways like empty social media calories or news. There are nuggets, few and far apart). Podcasts are slightly different because they're more focused, intent based, and they are not that spontaneous (less empty calories)
To me this feels a bit like sitting in a large conference room or classroom where you’re the only one and you just listen. You can’t talk and if you spend 30 minutes there is no guarantee you will get any brain exercise.
Clubhouse is based on interests and you can choose interests during the onboarding or once you onboard under “FIND CONVERSATIONS ABOUT” but they also have a “social” component and as such its well thought out minus the scammy “contact upload”
But given that Clubhouse has 2M people Weekly Active users the areas they have chosen to focus on make a lot of sense. They want to onboard more users and ensure that those users have a safe experience. On the other side they want to ensure that creators can actually make money (and so can the company). In this way by building monetization early on it will be great for both sides of the platform …
There are several things I want to explore today which i’ll intertwine as we go along ...
How do people spend their time?
What are the jobs to be done for something like Clubhouse?
How does Clubhouse work?
What does it compete with in terms of mind/time share?
Let’s start off with the most precious resource of them all; time ..
How do people spend their time? From How do people across the world spend their time and what does this tell us about living conditions?:
In the United States we at least spend ~300 minutes on leisure and per the Spoken Word audio report we spend a lot of time with AM/FM. Of course that has likely changed in 2020 and we spend more time on podcasts or some other form of audio since we’re traveling much less.
There are lots of numbers around this but the key is that there is a maximum ceiling for how much audio one can consume.
Jobs that audio does. I think at its best, audio does three jobs:
Inform (pure news)
Entertain (pure music)
Inform and Entertain (podcasts, clubhouse, some music shows)
In this case Clubhouse probably does a bit of inform and entertain without question but the inform and entertain are as mentioned earlier too few and sporadic (at least for me)
How does Clubhouse work?
It’s super easy! You can open up the app, onboard and choose some interests and you will see a list of rooms that you can join. Tap the “room” card and you’ll be into a live talk show just like that! Imagine, if you will a conference with several rooms and a few participants and you can enter any room, listen and bounce if you don’t like what you hear. The key here is you listen. You can’t talk unless you raise your hand to talk and one of the moderators allow you to
There are other features such as creating a public room, a social (follower) room, a closed room. This idea however is not new. Remember that Discord has had audio channels (similar to rooms) for a while now. This in some ways is an unbundling of the audio channels on Discord and for grown ups (see VOICE CHANNELS in below screen) Forget Slack. Discord is the best messaging app I've ever used.
Using a framework from Ravi Mehta’s article The Entertainment Value Curve: Why TikTok is On Fire 🔥 and Quibi Isn't — Reforge which talks about TikTok and Quibi the key thing to observe is that the Social Value for Clubhouse (same as discord) is HIGH whereas the production value is nothing (just click “start a room” and talk) which is what makes the product slick, and make it work both for creators as well as listeners. No concerns with creation; the friction is low to create; you join and you talk. Boom! That's a problem too, everyone is a creator and only a few will win!
Compared to other forms of media such as podcasts, talk shows on TV/radio, picking up the phone and calling your friend it is obvious that this is closest to one picking up their phone and calling a friend. In fact they have a feature where you can “start a room” with a friend ...
A few people I know are using Clubhouse for a few hours a day. The day has not grown to 27 hours though so this attention is being taken away from other products/activities → NFLX, TikTok, Trading GME and making a killing etc. The beauty though about this medium is, it's for background listening and maybe not active listening. I wonder how much of this will last after the pandemic is done.
Clubhouse has also faced questions about whether it is equipped to handle moderating harmful speech and abuse on its platform, especially as it scales. Some members and critics have publicly shared examples of antisemitism, misinformation and harassment on the platform.
The audio-only format brings fresh challenges when it comes to content moderation, something that its much larger social media peers continue to struggle with when it comes to text, videos and images. CNN Business has previously reported on the issues facing podcast moderation, given that voice is not cataloged by the internet the same way as text; the live element of Clubhouse makes this all the more challenging.
Luddite Luddite not bullish on Clubhouse right?
The luddite in me is not bullish for several reasons (and some are just unknown at the current time)
What is the addressable space?
I think the even more important question is which part of your addressable space does this take? Are people who are spending 2-3 hours on Clubhouse not listening to podcasts? The even more important question is discovery. If the long tail of Clubhouse rooms can’t be discovered then Clubhouse might face a problem. I am of the opinion that both podcasts and clubhouse rooms have a place in the users life, however there is a little bit of cannibalization (TikTok v/s Netflix)
Monetization is absolutely key especially for the product to succeed (primarily for the company but also for the creator). Substack has this model uhh well kinda nailed down (for paid subs only) but how does that look for Clubhouse? Are they ad breaks? Tipping? Subs? I am particularly concerned about the rev shares as well.
Use Cases ..
Professional content creators (Paid)
Job to be done : Educate/Entertain & Make $$
Homesteading (Twitter, Substack)
Job to be done : Build personal brand
Startup Founders going D2C (Similar to how a16z is going direct with their blog)
Job to be done : Build company brand
Friends catching up?
Job to be done : Relax
Job to be done : Entertain and make $$
The “sell” side of the market almost certain will consist of content creators. So the key to make this work before “copycat” competitors come up with Clubhouse2 is capture the creators (payment options) and capture loyalties (listeners) soon!
I am personally bearish on the current iteration of the product in the long run. Time will tell how this works out but to end on the D2C note .. Elon Musk joining the “Good Time” room recently and inviting to Vlad Tenev about talk about the GME saga is a great example of bypassing media in favor of going direct and talking to people
There are several types of moats that can be built as I wrote in Building Moats
I want to dig a little bit more into network effects and the reason for this is their funding announcement speaks about building the Andriod app and localizing which makes sense to invest in now. There are two more interesting points that make this mostly a network effects play 1) Discovery and 2) Investing in creators. So now lets tease out the network effects but first a primer …
(Insert devilish smile) From my previous article which is brilliant, if I do say so myself:
Network effects are often conflated with virality but they are not the same, Virality is primarily about “rate of adoption”. It primarily deals with how fast a product/app grows. You talk to your friends about it and they use the product. Take for example Dollar Shave Club and their viral video. People shared the video, invited more people to try it (referrals) and this led to their growth, but the product’s value did not improve just because more people used it (I didn't consider shaving more because more of my friends bought the product. Counter that with an email address, telephone, or just blue bubbles (iMessages). I did send more iMessages as more of my friends joined). To be clear, the distinction that I’d like to draw out here is that virality helped the company improve their business. The point I’d like to make here is that Dollar Shave Club (to use that example) probably was able to negotiate better prices, or make better blades because they had the customer base. However these are still not network effects. The last point is a product can have virality and network effects at the same time.
Ok so then how do you define a network effect?
A network effect(and there are several different subtypes such as same side, cross side, direct, indirect). NFX has a bible on this. A must read!) is one in which more or less usage of the product by a user changes all other users behaviors. Let’s take the example of a product with positive cross side network effects : Uber
The cross side comes from the fact that if there are more drivers, there are more riders and they affect each other positively. More $ for the driver and reduced wait times for the rider. I don’t want to dig too deep into this but really you should read the above article.
Other examples of Network effects
Popular open source software such as Linux (and more specifically Redhat Linux). The reason RedHat and more broadly Unix and even more broadly open source is popular is switching costs and network effects. Linux has strong network effects, built over time and they started with a counter position (free v/s big $$ from, HP, Sun, IBM for Unix software)
Does clubhouse have network effects or virality or both? They definitely have virality since their rate of adoption is quite high and the exclusivity makes people want to join. In fact people are selling invites on ebay for a tidy sum. Now that's virality!
On network effects I can definitely see positive cross side network effects. The more users there are, the more creators (of all types) will come to the platform to create content/have a talk show. Whether this is monetized or not does not really matter.
Same side network effects?
I’m not quite so sure about if my experience really gets better as more people use the product. Sure more of my friends might be on it but the novelty of that has faded (at least for me) since there are so many other ways to be in touch with my friends.
Network effects once set are very hard to unseat and for obvious reasons Facebook wants in. In fact so does Mark Cuban who’s launching a product called Fireside (which is the same as Facebook’s internal name ..)
The social media giant's employees have been ordered to develop a product, known internally as Fireside, that's similar to Clubhouse, The New York Times reported on Wednesday, citing two people with knowledge of the matter.
Twitter Spaces is better positioned to deliver that precious commodity though. On Spaces, people participate in rooms and add followers in the same way they do on Clubhouse (sounding smart, funny, engaging). And while they get that same ability to reengage their followers in a Spaces room sometime down the line, there’s an added benefit: The opportunity to drop tweets into new followers’ timelines.
A Twitter follower is therefore more valuable than a Clubhouse follower when it comes to building social capital. And for people looking for the most efficient path to maximize their social capital, a minute spent on Twitter Spaces is more useful than a minute on Clubhouse. So they’ll allocate their time accordingly. It’s a bit crude. But this is how these platforms work.
Twitter Spaces’ toughest challenge will be matching Clubhouse’s ability to highlight interesting rooms. “The magic of Clubhouse is the hallway,” Josh Constine, a Clubhouse power user and an investor whose firm invests in the app, told me. What Constine means is that when you open Clubhouse you can peruse a feed of rooms — that is, the hallway — and drop in and out as you scroll through. On Twitter today, you can only find Spaces when someone you follow is participating in one (it shows up in the Fleets bar), or when you see a tweet with a link to one. But Twitter has a valuable shortcut.
Unlike Facebook, where you connect with friends and family, on Twitter, you follow people based on your interests: reporters, athletes, politicians, entertainers, and so forth. Your Twitter follow list is therefore a loud signal pointing to the topics you’d be interested in hearing about, and the people you’d want to hear talk about them. Even without a “hallway” (a form of which the company seems intent to build), Twitter will show you relevant conversations right off the bat. “This experience fundamentally is the same thing,” Twitter product head Kayvon Beykpour told me in a conversation on Spaces last night. “The same use case, with slightly different mechanics.”
Twitter has another advantage when it comes to recruiting participants for Spaces: An engaged userbase filled with some of the world’s most prominent people. When Elon Musk goes on Clubhouse, it’s a news story. When he logs onto Twitter, it’s Wednesday. These power users will generate buzz for Spaces when they gain access to it, and they’ll get their millions of followers accustomed to using the format on Twitter. They’ll gravitate toward Twitter for a simple reason: Reach. They’ll be able to speak with more people on Twitter, which 192 million people use each day, than Clubhouse, which 2 million use each week.
In closing, the product is cool but in the long run I am skeptical that it can capture or maintain attention. The beauty of the product is that conversations are supposed to be ephemeral (some are recorded though such as the a16z ones) which is a listen or lose out proposition. I believe that making these recordable would reduce their value as the idea of these are in-the-moment. Irrespective of outcome I am excited to see how their product, moderation efforts and moats continue to build ...
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