The Next Big Thing in Social Media?

By Berna Barshay

Wednesday, January 27, 2021

► Suddenly, everyone seems to be talking about Clubhouse…

In the past week, I’ve seen a flurry of articles and social media mentions about the audio chat app.

My curiosity was piqued when I saw a Bloomberg Opinion piece earlier this week by Tae Kim, a former investor at tech hedge funds who goes by the apt Twitter handle @firstadopter. So, when I saw someone who I think of as an early tech adopter title a piece “Forget TikTok. Clubhouse is Social Media’s Next Star,” of course I took notice.

I downloaded the app late last night and was told that it was invite-only, but I would be put in a queue to join when a space opens up. About an hour later, I got a notification on my phone that I could now access Clubhouse, as a friend on the West Coast had used one of their invitations to let me in.

All I knew about Clubhouse going in was that it’s an audio chat app featuring virtual rooms where people discuss a wide range of topics: technology, business, music, sports, dating, politics, relationships, art, health, and wellness… really anything you can think of.

I didn’t expect to see much happening when I logged on, as it was already after midnight on the East Coast at that point. But to my surprise, there was a discussion being held on the future of films in a tech-driven world, featuring the former president of production at Warner Bros. in conversation with billionaire tech founder and venture capitalist Marc Andreessen, with hundreds of people in the “room.”

Also popular at that late hour was a tribute to Lakers legend Kobe Bryant on the first anniversary of his passing, moderated by two-time NBA All-Star Baron Davis. It included various people sharing stories about how Bryant influenced them, memories of times spent at the Staples Center, and even some high-quality original poetry about the basketball legend.

In another room, dozens of people, most in their 20s, commiserated about the ups and downs of dating.

There was also a room featuring an entrepreneurial guru, which was apparently in its 12th hour of continuous discussion when I checked in.

You can drop in and out of these rooms at your leisure. Unless you start the room, are designated as its moderator, or are one of the people designated to “sit on the stage,” effectively as part of the panel, you’re a “listener” who is muted. But listeners can virtually raise their hands to get called on and submit questions for the moderator to ask.

You can subscribe to recurring rooms, join clubs that host rooms on a given topic, and follow real-life friends or celebrities or business leaders to see what rooms they’re hanging out in.

My first impression of Clubhouse was that it’s like if Facebook (FB) and TED Talks had a baby…

And their kid grew up and married Twitter (TWTR), that baby would be Clubhouse.

I say this because Clubhouse offers the chance to connect with friends and follow friends-of-friends, brands, companies, and entertainers like Facebook does… It’s a social network. But it also offers the potential for depth of content like a TED Talk delivers. However, unlike watching a TED Talk video, Clubhouse gives users a chance for two-way communication with experts… which is where the Twitter analogy comes in.

Given the great success of social media apps that are inherently visual in nature – think Pinterest (PINS) or Facebook’s Instagram – it’s intriguing that Clubhouse is an entirely aural medium… There’s literally nothing to look at when you’re in there except a bunch of tiny circles with profile pictures in them.

Clubhouse is kind of the anti-TikTok. Not only is TikTok all about seeing the dance moves or the cute puppy, it’s also virtually impossible to communicate more than one thought or idea in 15 or 30 seconds. Chats on Clubhouse can literally go on for hours, and the premise of the whole app is to offer deep takes.

It’s still early days for Clubhouse, which was only founded in March 2020. But it seems to be really taking off… The company recently disclosed that its weekly active users had topped 2 million, up 100% from just a few weeks prior. If it’s growing this fast, imagine how much faster it would grow if you didn’t need an invite to get in.

All this hot buzz has led to the company becoming Silicon Valley’s latest ‘unicorn’…

Clubhouse isn’t just adding users… it’s adding investors too. It supposedly has 180 of them now, and some prominent ones at that.

Reports have surfaced in the past week that the company closed a series B venture round at a $1 billion valuation, securing its unicorn status. Like its first round, the investment was led by prominent venture-capital firm Andreessen Horowitz. The firm’s investment goes a long way in explaining why its billionaire founder was willing to be hosting a panel that ran past 11 p.m. on the West Coast.

The $1 billion valuation marks a 10-times jump from that of Clubhouse’s series A round… The company was valued at just $100 million last May. At the time, many raised eyebrows at the deal… since the months-old company had less than 5,000 beta test users at the time, no revenue, and hadn’t even made the app available yet on Apple’s (AAPL) App Store. And yet, it was worth $100 million.

What Clubhouse lacked in proven execution, it made up for in imagination, promise, and founder pedigree.

Venture capitalists love to invest in serial entrepreneurs with a history of proven business exits. And co-founder Paul Davison was just that… a former Google engineer who had founded Highlight, a venture-backed startup which was later acquired by Pinterest.

According to rumors, the competition was fierce to lead the series A, but Andreessen won out with a combination of an aggressive bid (high valuation for the company), as well as the recruitment of film actor Kevin Hart onto the app – celebrities have unsurprisingly proven a big tool for user engagement.

While Clubhouse hasn’t generated revenue yet, a monetization plan has been articulated. The company plans to enable creators to charge one-time admission fees for premier events and subscription fees for recurring rooms or clubs. Creators will make money, and Clubhouse will presumably take a cut.

In one of the rooms I checked out, I was encouraged to subscribe so that I could be grandfathered in for free and not get charged for it later. I’m guessing that creators with bigger audiences will pay lower revenue share, because that would explain the trade the creator was making by offering me free access forever if I became a “subscriber” and not just a one-off visitor.

A company blog post has announced that “tipping, tickets, and subscriptions are on the way.” I could also see Clubhouse rolling out in-app purchase options, such as a fee to jump to the head of the line to ask a question. Also, such targeted virtual rooms organized around interests would be very valuable to advertisers… but it will be tricky to figure out how to layer in advertising without degrading the user experience.

The monetization plans seem solid. If you give popular creators an opportunity to make money, they will be more likely to stay.

And Clubhouse isn’t just counting on early adopter users to pay… It’s setting up its own “Creator Grant Program,” which will “support emerging Clubhouse creators.”

Clubhouse seems to hit on a lot of trends…

Its offering combines a lot of the “stuff that’s hot right now”: niche content creation, influencer culture, entrepreneurship, peer-to-peer commerce, etc.

It also seems to fulfill a similar need to podcasts – the acquisition of deep knowledge without having to read.

But Clubhouse is very much a social network experience. As Kim wrote in his Bloomberg piece…

A short back-and-forth live conversation, with its nuance and tone, can build closer relationships more quickly than dozens of written posts and text messages sent through more established social networks such as Facebook and Twitter. Since I joined Clubhouse last summer, I met and became friends with professors, filmmakers, artists, engineers and more from places all over the world.

It has been intoxicating listening to people’s life stories and absorbing their knowledge and experience, from learning how a streaming video executive greenlights projects to getting expert political analysis on the latest breaking news. It has easily become one of my favorite pastimes.

Two of the strongest communities on Clubhouse right now are Silicon Valley tech types and Black thought leaders. This is interesting because I could say the same about Twitter.

It’s not surprising that Silicon Valley types are early adopters of the next hot app, but it is notable that Clubhouse is finding appeal beyond that niche.

As the membership has diversified, so has the content. As CNBC commented…

A few months ago you might’ve opened the app to a panel discussion on the future of artificial intelligence or the potential of Bitcoin. Now, you’ll still see the tech talk, but it’ll be alongside debates over the music of rappers DMX and 50 Cent or the latest happening in the NBA. Nowadays, you can find folks shooting their shots in dating rooms, cracking jokes in virtual comedy clubs, talking about the latest celebrity gossip or having musical jam sessions with their friends.

Like any social network, Clubhouse will surely have to contend with the pitfalls of content moderation that have plagued all the big social media players. It already got in hot water over content many found anti-Semitic shared in a virtual room discussing “Anti-Semitism and Black Culture” last fall, taking place on Yom Kippur, of all days – the most holy day on the Jewish calendar.

Building up the content moderation team will be one place Clubhouse spends its new venture money. Beyond that and paying up-and-coming creators, other uses of cash will include developing an Android app, algorithms to help users navigate the reams of content available, and infrastructure… Growing this fast requires a lot of servers.

If Clubhouse continues to grow like this, it could really shake up the worlds of social media and podcasts…

In my 15 hours as a user, Clubhouse seems like a substitute for podcasts more than anything else. In a virtual room, you can get all the insider knowledge you would from a podcast… but it’s better, because you can ask questions.

Even if podcast players like Spotify (SPOT) really have the most to worry about with this, social media players are taking notice. Twitter is already responding by testing Spaces, its own version of an audio chat room.

The COVID-19 pandemic was the perfect circumstance for a new way to fill time to take off. So, it’s always possible that the audio boom will bust when the pandemic ends.

But it’s definitely a space to watch, especially for those invested in other social media companies. There are only so many hours in the day for all these apps…

In the mailbag, more reactions to the extraordinary market moves that I wrote about on Monday and that we’re seeing more of today…

As I type this in the mid-afternoon, GameStop (GME) is up another 100%-plus… The jet fuel in the rocket ship today is a tweet from Tesla’s (TSLA) Elon Musk. Elsewhere on my screen, heavily shorted small-cap stocks like AMC Entertainment (AMC), retailer Express (EXPR), and consumer-electronics manufacturer Koss (KOSS) are up 258%, 203%, and 245%, respectively, just today. Bloomberg has an article up that says GameStop is “Rage Against the Financial Machine.” That outlook is surely reflected in today’s letters.

As for Clubhouse… is anyone using it already and care to comment on the experience? Does anyone else agree with me that this could end up a meaningful competitor for Spotify and others pouring money into securing exclusive podcast content? Share your thoughts in an e-mail to [email protected].

“I can’t help but enjoy seeing the ‘big’ boys – who’ve been reaping billions (at least) through their naked short-selling scandals, fancy high-speed computers and insider trading, all abetted by the crooked SEC, financial journalist pawns like Jim Cramer, and the Main St.-killing Fed and politicians – taken for a ride by retailers, and then, as a cherry on top, getting to see the likes of Andrew Left whining like a ‘5 yr. old’ about it – referring to the ‘gang mentality’ and ‘lunatics running the asylum’ – and mostly executed from a brokerage named Robinhood!

“I’m sure the SEC will pounce on this ‘outsider’ activity and protect the prison wardens who just had their marbles taken. Sounds like an ‘insurrection’, right boys!!” – Gary S.

“Berna, History going to repeat itself?” – Michael C.

[Editor’s note: The link discusses the Volkswagen short squeeze of 2008, which I remember very well. It’s a good historical event to read up on.]


Berna Barshay
January 27, 2021

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

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