Snackable Business Model Breakdowns: Clubhouse

What is Clubhouse?

Clubhouse is a social-audio app that enables users to create and join real-time live conversations. Any user with a data connection from anywhere in the world can use the clubhouse app on their android or IOS app to create a new live room or join an existing live room. The user can actively join the discussion or listen passively.

The How?

Any new advanced technology when used the first time feels like magic.

Clubhouse has this magical effect when users first use it even in an age where video chat & voice chat over the internet is very common. The technology that is behind Clubhouse is referred to as Real-Time Engagement (RTE) technology. Clubhouse used RTE technology provided by Agora (Stock ticker: API) to create the app. The fact that RTE technologies are provided by multiple companies means that the moat is not in the technology per se. Someone in China replicated the clubhouse app in 10 days!

Positives:

• Serendipity: The early clubhouse really shined in terms of creating the Serendipity effect. You join a room of 6-10 people, 30mins later you leave the room meeting 6 new people who would otherwise not be able to talk, listen or connect with in real life.

• The new category of social audio: Clubhouse pioneered social live audio in a way it has not been done before. Joining a live conversation with anyone anywhere is just one click away.

• Growth Hacks: Clubhouse’s growth hacks are a great learning lesson for new product developers. Some of them might have been strategic by them while others are just side effects of them being a resource constraint team.

• Some of them include:
  • Optimizing your product for your core use case. You can join/create a conversation with literally 1 click.
  • Create a fear of missing out effect using invite-only approach while at the same time avoiding early bad actors on the app.
  • How to methodologically scale an app that is creating a new network.

Challenges:

• Leverage of Media: Clubhouse creators have spent a lot of time creating conversations, but the app making them ephemeral means all that content is lost and cannot be leveraged by the creators in the form of distributing them elsewhere. This is an easy fix which I believe they will fix by adding recording features and introducing a way to distribute shows created on Clubhouse to be distributed elsewhere. (new RSS maybe?)

• Curation: On other platforms like Instagram or TikTok it’s easier to curate content for the consumers because the interaction with a particular piece of content is just for seconds making the user easily skip the content he is not interested in. With audio to find the right room to listen or engage with the user has to spend more time figuring out if what the speakers are talking about fits with what the user is looking at. This makes curation on clubhouse a time taking expensive affair for users.

• Post Pandemic: The peak clubhouse phenomenon was also the time of peak pandemic where most of its users were home and working remote. As things are opening up in real life, it is natural that new users will not have as much time as the early users had to explore and create their networks on the app. At the end of the day, the success of Clubhouse as an app and business is tied into their ability to create a new network and audio as a format even though allows users to create high trust connections and friendships, it will need much more effort from users to create a well-formed network that lasts for them.

• Revenue Generation: Audio is one of the hardest mediums to monetize. Spotify with its focus on podcasts has acquired high-profile podcasts like Joe Rogan Show ($100M) & Call Her Daddy ($60M). But it was clear to podcasters like me that the prices paid by Spotify don't make sense in terms of how much revenue these podcasts can generate. The inflation in these deals indicates that Spotify wants to take all of the audio markets and will not back down. These acquisitions were about retention and making Spotify a must-have app for anything audio, just like Netflix is the must-have app for video. Currently, Clubhouse doesn't have a clear path to make money. They have introduced a tipping feature in which they don't generate any revenue. But even if they launch features that will include things like premium events it is hard to make a case that take-rate on Audio events could generate revenue that would match the prodigious valuation of $4B.

What should Clubhouse do?

Record Audio: Any media product derives its value from the fact that its created once and can be consumed infinite times.

The fact that conversations on Clubhouse are ephemeral is a bad strategy for content creators who are creating interesting conversations. Clubhouse should converge social audio with podcasting by giving them the ability to create shows that can be recorded and later distributed in all available audio mediums while keeping the live aspect of Clubhouse house still relevant.

The live aspect will give creators engage with their audience at the time of creation which was not possible before with regular podcasting. Callin, the app created by David Sacks (Co-Founder of Yammer) is going in this direction.