Clubhouse - Strategic Management
Tune in to hear us talk about Clubhouse's PV (Positioning View), RBV (Resource-Based View), and ERV (Employed Resource Value) & ACV (Asset and Capability Value).
Positional View
As we’re all aware, Clubhouse is an audio-only social media platform where users can access virtual rooms to listen to others having free-flowing conversations. Their key feature is that virtual rooms can be hosted by anyone, like Francis here, and he can act as a moderator to control the conversation, or do nothing at all.
Clubhouse’s rise in popularity was meteoric. It was founded in April 2020 by Paul Davison and Rohan Seth, as just an idea with no users or functionality. By mid-2020, it had less than 5000 beta users, but it had secured $12 million in funding at a $100 million dollar valuation. They now have 10 million weekly active users, a 110 million in funding, and as of April 19th 2021, they are valued at $4 billion dollars.
But what made Clubhouse so special?
We think it’s because of their strategic positioning in the industry. Its simple yet enticing nature allowed it to stand out from the rest of the social media apps that have grown to have a cluster of content types like videos, messaging, games, voting, not to forget the growing privacy restrictions, and concern for control and moderation. Clubhouse leveraged all of this to become the best alternative to scripted and censored podcasts, and provided a cleaner way to engage in quality content.
And get this, Clubhouse is only a 10 person company that spends a bare minimum on product development. I mean, their logo is an emoji and the only font they use is Nunito. The app also keeps no records of the conversations. You can't listen to any of the conversations later, or even pause the room you're in, or record the conversation on the app. You have to show up live to participate in the experience. It’s extending the concept of live videos, and pre-recorded podcasts -- to an audio-only conversational experience.
We think this is where they are ahead in terms of cost leadership. Now, we all know this is a crowded, rivalrous space. This means Clubhouse needs to be worried about where they can differentiate themselves in the market. We think this is where their need for creating the “exclusivity” and “FOMO” aspects of their user experience comes from. We all saw that in no time, people like Kevin Hart, Drake, Oprah, Jared Leto, and Elon Musk were on clubhouse. And with that, they made the world feel the FOMO. To keep the exclusivity of the exciting content they were trying to bring on the platform, they made the app invite-only. This gave them ample time to moderate the content and make sure this was a safe space for their celebrity ambassadors and early adopters.
It’s important for Clubhouse to find a niche and focus on it so that there’s room to expand without being in direct competition with many, even within the industry. That focus for clubhouse, is AUDIO-ONLY. They will say NO to video, or text messaging. This makes them special because their users come to clubhouse to get away from the presentational social media apps, where users feel pressure to depict a certain image of themselves. On clubhouse, they can participate in the conversation or multitask while listening in, without having to take any additional steps to creating content. No recording studios, or filters to worry about!
But did Clubhouse really pick the best spot in their niche?
Have they truly created resources that can last the test of time?
Resource-Based View
Like all social media platforms Clubhouse has technology and users. Their tech consists of their platform and algorithms, while content creators and participants make up the users. But which of these resources can create sustainable value for Clubhouse? Right now their platform is unique and well organized. The downfall is the technology is not complicated, making it easy to replicate. You can also make the argument that it’s not valuable. Clubhouse’s platform doesn’t generate any revenue today.
Next let’s look at their algorithms as a resource. Right now the company is still adjusting them. Their algorithms are set up to push information based on the people and topics someone shows interest in. So who you follow can make or break your experience. Some members have even left due to lack-luster rooms in their “hallway.”
The resource that IS setting them apart are the people. The ability to wander into rooms and listen to famous and interesting people makes Clubhouse exciting. If Clubhouse loses the interesting people – others will stop coming. This puts Clubhouse in a difficult position, as they don’t have contracts with their content creators. Crafting strategies to keep their talent should be the number one priority. We see Clubhouse started to explore this space by floating the idea of giving tips to content creators.
This is a good move because keeping people in Clubhouse also allows them to build another resource – their user data. The more data they have the more value they create. Ads are a popular revenue model in the social media space, so targeted audio ads could be a natural revenue stream. Some say user data is where Clubhouse’s future lies, just like so many other social media applications.
Now that we have a better understanding of Clubhouse's resources, let’s look at the competitive landscape and how they are making an impact. Clubhouse is part of the very crowded and very mature social media space. If you’re looking to create online communities – users have a variety of options. These Clubhouse substitutes are now looking to get a piece of the audio action. We see several large players working towards new product entries in this space and they are not being subtle about ripping off Clubhouse. "Clone" features and apps are being launched by Facebook, Spotify, Twitter, LinkedIn, and WeChat. Mark Cuban is even making a play by backing a startup called Fireside.
All this movement is interesting because when clubhouse launched they only had one direct competitor – Discord. Discord was publicly released in May 2015 and was connected to the gaming community. In March 2020, due to COVID 19 Discord changed its motto from "Chat for Gamers" to "Chat for Communities and Friends" The company doubled its monthly users in 2020 landing at about 140 million.
Both companies are experiencing rapid growth, so why is more attention being given to Clubhouse?
Is it the celebrity hype?
Is it Discord’s statement that it doesn’t plan to go public?
Value Creation View
We all heard the rumors that Twitter offered $4b dollars to acquire Clubhouse. And that got us thinking, why would someone pay that much? The first reason is out of fear. Twitter may be concerned that Clubhouse is eating into their market share. Acquiring Clubhouse now before they can do more damage could be a sensible business strategy. The second reason is to acquire talent. This seems less likely given the small size of Clubhouse’s staff and the fact that Twitter already has some of the best people out there who overlap with the skill sets on Clubhouse’s team. The third reason is to acquire the Clubhouse platform itself. We know Twitter is working on a competitor platform called Spaces, so it’s a question of build vs buy. I doubt it would cost Twitter $4b to launch their own copycat app, so that’s likely not the only factor driving the price. Buying the platform would put Twitter ahead of the other copycats. It’s the difference between creating a market and buying a market. Twitter may be calculating the customer acquisition costs and the value of what it could do with that lead. Finally, the fourth and most likely reason is because they think there’s an opportunity to leverage their significant assets and capabilities and capitalize on Clubhouses’ momentum. Clubhouse has grown at breakneck speed, but we’re starting to see some limits to that growth. With the power of Twitter behind it the company could continue its trajectory. Similar to the way Instagram has been so successful since it was acquired by Facebook. In Silicon Valley the story of Instagram selling for $1b is either a fairy tale or a cautionary tale depending on who you ask. But the question Clubhouse’s founders will have to ask themselves is whether Instagram could have made it to its current $100B valuation without Facebook. It’s a high stakes gamble. Clubhouse’s founders will want to get as much value out of their wildly successful app as possible, but they have to acknowledge the reality that their competitors are hot on their heels. Their brilliant positioning gave them an edge early on, now the question is how long can they hold onto that position.
Given these circumstances, we would recommend they sell to the highest bidder. Clubhouse should cash in now while they still can.
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Thanks for reading. Sayonara!