Clubhouse is prodigious. At just over a year old, the exclusive, invite-only app still doesn’t have a proper website or even an app on more than a single operating system. What it lacks in usability, though, the app store chart-topper makes up in celebrity cachet, millions of users, and access to a seemingly endless spigot of funds.
The platform offers audio-only chat rooms with hosts who talk and up to thousands of guests who listen—kind of like a live podcast with audience participation in a gated online community. For a lot of folks, the phenomenon of Clubhouse’s meteoric rise and the backdrop of an ongoing global pandemic are somewhat inextricable.
“You have to wonder whether [Clubhouse] would be this appealing in any other year,” mused Ana Milicevic, co-founder of the US-based tech advisory firm Sparrow Advisers. With in-person events canceled and most socializing limited to virtual, the success of the app certainly benefitted from quarantined users with sudden time to try out a new social app.
What isn’t certain—though there are theories—is how Clubhouse plans to survive if those funding spigots are shut off or whether it can sustain the hype.
Before we talk about the millions of users (and counting) that are on the app, we need to talk about why so many of them flocked there to begin with. First, it debuted in Apple’s Testflight program in April 2020: the same month that states across the country began going under lockdown. By the time that the platform appeared in the App Store in October 2020 as something that anyone could download, it had racked up 10,000 users.
As Milicevic pointed out, when Clubhouse began gaining a foothold with its initial user base, it wasn’t because the app was doing anything cutting-edge. Audio-based chatrooms have been the bread and butter of platforms like Discord and Skype for years at this point. Where Clubhouse did have the upper hand was exclusivity. True to its name, the only way to get into the club is knowing someone already inside—or even buying an invite from some kindly entrepreneurial stranger.
Clubhouse certainly isn’t the first app to foster a kind of exclusivity from the get-go. When Google first rolled out Gmail way, way back in 2004, the company lacked the reliable infrastructure needed to, say, offer unlimited storage to millions of people. Instead, Google gave about 1,000 people access to their new mail product and gave those exclusive few the ability to invite their family and friends. As it turns out, rolling out the product in this way accidentally turned into what one Google employee called “one of the best marketing decisions in tech history.” When access to a hot new piece of tech is only afforded to a select few, it leaves a sense of white-hot FOMO among those on the outside looking in. Some techies have even pointed out that being outside the Clubhouse bubble in 2021 feels not unlike being outside the Gmail bubble in the early 2000s.
“There’s a lot to be said about momentum in [the app] space,” Milicevic said. “Your ability to acquire new users—especially without paying through the roof for them—is directly related to your ability to survive.” Instead of pouring money into advertising itself, Clubhouse let others do the job by hosting influencer-driven events with massive, built-in audiences.
The first few people Clubhouse brought on board happened to be sort of people that would draw tons of users: preexisting cults of personality in the tech sector that already have a built-in audience on platforms like Twitter: think Oprah, Lindsay Lohan, and—naturally—Elon Musk, whose Clubhouse debut brought in so much traffic that the app short-circuited.
What drew Musk (and some of the other major names in tech) to Clubhouse in the first place is still an open question, though just about everyone agrees it has something to do with Silicon Valley superfirm Andreesen Horowitz—known as a16z for short. Founders Marc Andreessen and Ben Horowitz don’t only host their own podcasts on the platform and act as the tireless hype men for other people’s content, but they’re also largely responsible for bankrolling the app, leading two multi-million dollar funding rounds that helped push Clubhouse’s valuation to roughly $1 billion by early 2021.
“Clubhouse could not have come at a better time for social media,” wrote a16z partner Andrew Chen about one of the firms funding rounds earlier this year. “It reinvents the category in all the right ways, from the content consumption experience to the way people engage each other while giving power to its creators. It’s a fresh experience that brings humanity and context to online social engagement.”
Key to that “experience” Chen referred to in his post is the platform’s decision to forgo the traditional money-making methods that have turned companies like Facebook, Instagram, and Youtube into multi-billion dollar behemoths: targeted advertising. Rather than attempt to turn a profit right out the gate, the app made it through its first birthday riding entirely on VC capital—a tactic that might sound risky but is actually pretty common among the tech set.
“Because of the relatively accessible—and relatively large—sums of VC money in the U.S. ecosystem, we can afford to develop platforms that amass a large audience and then figure out monetization later,” Milicevic explained. “This isn’t a luxury for companies in Europe—the funding ecosystem is just different, and forces companies into getting to monetization faster.”
In the U.S., Milicevic added, many apps tend to expand outward, putting growth first, and figuring out the path to profitability later. Uber’s net losses totaled $6.77 billion for 2020 with profits still out of reach. Though boasting recent growth, insuretech startup Lemonade lost $33.9 million in Q4 of 2020 alone. At-home fitness hardware and app Peloton only stopped bleeding tens of millions of dollars since gyms across the world closed due to the pandemic.
“That’s just poor design,” Milicevic added, referring broadly to grow-first strategies. “Inevitably, you’re going to end up making trade-offs that aren’t in line with your user-base.”
That is perhaps what’s happening with Telegram after its decision to adopt targeted advertising after going eight years being largely reliant on founder Pavel Durov’s own savings. Durov even had to explain himself, attempting to convince users not to “worry” about the ads.
When Clubhouse confirmed that it netted a $100 million funding round from a16z back in January, it noted that an unspecified chunk of that change went into creating an internal “Creator Grant Program” meant to fund a select group Clubhouse creators and ideally keep them from flocking to the copycat apps that are quickly cropping up on the horizon. Earlier this month, the company’s Creator First accelerator program rolled out in full, promising that 20 of the app’s creators could qualify for funding to help them, as the company put it, “host amazing conversations [and] build their audience” on the app.
Meanwhile, Clubhouse CEO Paul Davison’s previously hinted that the app’s creators might actually be funded by their own fanbase in the future, through features like subscriptions, ticketed events, and even direct tips.
If you’re wondering why Clubhouse is pouring this many resources into its creator economy when there’s always the very real risk that the economy won’t pan out as planned, look no further than Vine. Previous reports have pointed out that the largely creator-driven app snubbed a 2015 request from its top stars for a $1.2 million payout. Pretty soon after, a third of Vine’s creators left the app, which likely contributed to the app’s unceremonious collapse one year later.
A year later, we got another cautionary tale when report after report bubbled up describing Snapchat’s relatively chilly relationship with its influencer base. Naturally, a glut of influencers jumped ship for competitors like Instagram Stories, leading to a stock slump that translated to Snapchat bleeding hundreds of millions of dollars over the course of the following year.
“If you’re not going to start off with monetization, then you have to gear your company towards aggressive growth,” Milicevic said. “And if that aggressive growth slows down for whatever reason, well... you’re in a really really tough spot.”
Considering how people are quite literally falling over each other to get access to this app, it might be hard to imagine its growth sputtering anytime soon. That said, it’s worth remembering that this app is still (technically) in beta. Until now, the company was without a proper website or even a proper app in anything but the iOS operating system—though this week the company announced we should be getting a Clubhouse app on Android before the year’s end.
Meanwhile, the app’s veneer of exclusivity is starting to wane, disenchanting some of its formerly die-hard users. On the unofficial Clubhouse subreddit, some whispered disappointment about what they see as the platform’s slow evolution from professional network to something akin to a bizarre, audio-only Omegle where you end up in a room with a bunch of strangers and, potentially, weirdos. Without high-profile influencers to keep its core audience coming back, then, well. It could be RIP Clubhouse.
At the same time, Clubhouse is becoming known for its mounting pile of privacy scandals, its inaccessibility, scams (so, so many scams), enabling harassment, grifters, and unchecked conspiracy theories about, well, virtually everything.
Even without a potential user exodus, Clubhouse’s ballooning user base comes with headaches of its own. Back in February, a report from the Stanford Internet Observatory revealed that the glut of the actual “tech” underlying the Clubhouse app was actually licensed from a third-party company—the Shanghai-based startup Agora. From that relationship, one user did some back of the napkin math to estimate what Clubhouse might be paying Agora to keep its app up and running. The costs? $1.4 million per month, assuming that there are two million users spending an average of three hours per week plugged into the platform. And if Clubhouse stays on this trajectory, those costs are only going to keep climbing—meaning that the company will need to figure out how to cash out on its users, and fast.
The good news is there are plenty of options.
The first possibility is also arguably the most straightforward: just start charging people to access particular panels, or charging people for the Clubhouse equivalent of a backstage pass to talk with a speaker one-on-one before they hit the main stage in front of hundreds—if not thousands—of fellow Clubhousers.
“Here’s one way to think about it: Say Elon Musk is speaking, and you really want a smaller, more intimate chat—like say, with 100 other people—before he takes the main stage in front of 5,000,” said Debra Aho Williamson, a principal analyst with eMarketer. “I think people would pay to make that happen.”
Say what you will about Musk’s cavalcade of fans, they’re nothing if not extremely devoted to Tesla’s self-appointed Technoking. We’ve seen countless members from the fold pour upwards of $10,000 into Tesla stocks, even when some don’t even own one of the electric vehicles themselves. Earlier this week, one scammer masquerading as Musk managed to con a fanboy out of $560,000. While Williamson hasn’t calculated what the price point of a service like this would be, it’s safe to say that it would be pretty high up there.
Then there are the brands. In spite of the overt lack of advertising, we’ve seen a slew of major brands start shuffling themselves onto the platform and striking up deals with influencers that are already there. Earlier this month, a handful of these creators that had previously worked with major names like Netflix, Cashapp, and Showtime actually rolled out their own marketing agency specifically catered towards what can only be called “branded audio events.” Not long after, another Clubhouse user-created “Clubmarket”: a self-described “sponsorship marketplace” that—as the name implies—lets creators shop around for Clubhouse sponsorships that can potentially net them thousands of dollars depending on the room. Others have pointed out that in these sorts of branded deals, all Clubhouse needs to do is nab itself a commission.
What Williamson doesn’t see working is the typical banner ads that we’ve come to associate with other major platforms—both because targeted ads are kind of the worst, and because Clubhouse has kind of cemented its reputation as being a staunchly anti-ad platform.
That said, a middle-ground she could see working are the kind of ads you’d typically associate with podcast feeds: mid-roll spots that the announcer reads out (and potentially riffs over), perhaps bundled with a special promo for the people listening. These sorts of ads are gaining steam among advertisers, and fast, meaning that Clubhouse could snag some of that ad spend for itself.
Whatever approach Clubhouse lands on, it might want to act quickly. As its exclusivity steadily drains, another finite resource may soon become limited, post-pandemic—our time.