Market Making and Time Horizons, Clubhouse Struggling, What Did I Get Wrong?

Good morning,

Former President Donald Trump, who is not yet allowed back on Facebook, has a new blog! I actually think the format — it’s kind of like a, with Twitter and Facebook share links (but unfortunately no RSS) — is a good match for Trump’s style; more importantly, it’s a good reminder that the openness of the web remains the best possible answer to concerns about moderation at the user layer, and reinforces the importance of neutrality in infrastructure.

On to the update:

Market Making and Time Horizons

There are grumblings in the tweets that I am being insufficiently future-looking:

Tweet about Stratechery ignoring Web3

First off, great tweet; I hope Mr. Avedissian takes my using it as a launching point as a sign of appreciation (and if you click through, be kind; I really dislike it when people are rude on my behalf — more on this below, if a bit indirectly).

At the risk of dramatically over-simplifying Web3, it is the decentralized Internet, built on blockchains. Jarrod Dicker, Jonathan Glick, and Tal Shachar wrote about Web3 in the context of creators specifically on Trends, Analysis, Lies and Statistics (forgive the long excerpt, but it’s a long essay, and worth the read):

We have in the past discussed how the blockchain concept of a ‘decentralized autonomous organization’ (DAO) might apply to groups of people who want to make stuff. We called this theoretical format a ‘Creator DAO.’ In this paradigm, a team or community interested in making something would implement a smart contract according to which tokens in the project would be granted to contributors, customers or investors, in return for their labor or money.

For example, a group of people who wanted to design a line of shoes might sell tokens in their project to people who believed in their vision. These tokens would bestow several privileges on their holders. They might provide token-holders with discounted pricing and/or priority access to the project’s product. They could give token-holders the ability to vote on shoe designs or other project decisions. They might even provide token-holders with a share of profits when such exist. And of course, the tokens could be sold to other people for profit, if as a result of the success of the project the value of the token increased. In addition to cash, tokens might be earned through work on the project…

So how is this different from crowdfunding like Kickstarter or membership platforms like Patreon? These three frameworks have plenty in common, most importantly, the goal of making it possible for more people to make stuff. But the main difference that a Creator DAO provides is the notion of ownership…

So then how is it different from traditional investing?…The difference is the more fluid and flexible nature of a token. Most companies don’t sell shares to the public until fairly late in their evolution given the transaction, regulatory and coordination costs associated with going public. Meanwhile, private company shares are difficult to sell, generally locked up, either by contract or practical reality, for years. Tokens are typically issued early if not at the beginning of a project. They can and do sell whenever the owner desires. And the potential use-cases are as broad as the creators can imagine. It’s slow and expensive, for instance, to reward a small contribution to a traditional company with an equity grant. But tokens make it easy and inexpensive.

The reason why I think this is wrong is…actually I don’t think it’s wrong at all! I am extremely excited about Web3. I also, though, don’t think it does anything to reduce the validity of analyzing Internet market-makers like I did yesterday. Consider the timeline of companies and capabilities relevant to Stratechery, specifically:

  • 2010: Stripe founded
  • 2013: Stratechery founded
  • 2014: Stratechery launches subscriptions, powered by Stripe and a heavily-modified WordPress plugin
  • 2015: Stratechery switches to Memberful (built on Stripe) for subscriptions-as-a-service management
  • 2017: Substack launches
  • 2018: Stripe launches Stripe billing for easy subscription management
  • 2020: Stratechery launches a bundle with Dithering
  • 2021: Spotify launches the Open Access Platform
  • 2021: Twitter buys Scroll to (potentially) make a market for subscriptions

This stuff takes a long time! Simply making subscriptions work at scale was a multi-year affair, and only now are folks starting to push on making subscription markets or thinking about a world where memberships work across sites instead of being completely isolated. I am also extremely excited about this development.

Here’s the kicker: you could see all of this stuff coming a decade ago. That, though, is par for the course in tech. Think of all of the dot-com ideas that failed twenty years ago and then became huge companies 15~20 years later; it was the same story for subscriptions, and it will be the same story for Web3. The idea makes sense, it just takes time.

Oh, and by the way, I have written about decentralization: I’m confused what other takeaway these folks might have from Internet 3.0 and the Beginning of (Tech) History, where I concluded:

Here technology itself will return to the forefront: if the priority for an increasing number of citizens, companies, and countries is to escape centralization, then the answer will not be competing centralized entities, but rather a return to open protocols (crypto is one manifestation of this, but not the only one). This is the only way to match and perhaps surpass the R&D advantages enjoyed by centralized tech companies; open technologies can be worked on collectively, and forked individually, gaining both the benefits of scale and inevitability of sovereignty and self-determination.

A drawing of Internet 3.0 and Open Protocols

This process will take years; I would expect governments in Europe in particular to initially try and build their own centralized alternatives. Those efforts, though, will founder for a lack of R&D capabilities, and be outstripped by open alternatives that are perhaps not as full-featured and easy-to-use as big tech offerings, at least in the short to medium-term, but possess the killer feature of not having a San Francisco kill-switch.

I didn’t title this Web3, because, as I noted in the parenthetical, I think Internet 3.0 is broader than crypto, but the entire point of that piece was to figure out what forces would push us out of the current paradigm I laid out in The End of the Beginning (Packy McCormick, who specifically framed Web3 in opposition to The End of the Beginning, seems to have missed what I explicitly framed as a follow-up). To put it another way, it’s important to not just see where we are going, but also to figure out how we will get from here to there. In the meantime, ‘here’ remains pretty interesting!

Clubhouse Struggling

After defending my honor, I think I have to fall on my sword. From Insider:

Clubhouse saw about 922,000 downloads globally in April, a 66% dip from 2.7 million installs in March and a surge of 9.6 million in February, a Sensor Tower spokesperson shared with Insider. The decrease in user downloads signals a slowdown for the social media platform, which had taken off like wildfire since it stood up about a year ago, cementing itself as a Silicon Valley favorite.

There are reasons to remain bullish on Clubhouse:

  • An Android version is in private beta, which will dramatically expand the market, particularly internationally.
  • Clubhouse has consistently shown an ability to break through internationally, across multiple cultures and continents.
  • Clubhouse reportedly has extremely high engagement amongst its core userbase, with people spending hours in the app.
  • Clubhouse has raised multiple rounds with experienced investors, not just Andreessen Horowitz but also legends like Elad Gil, who know a hit when they see one.
  • Clubhouse conversations absolutely have the potential to be magical, delivering an experience that is unparalleled in any other medium.

It is that last one that, paradoxically, concerns me. Clubhouse got so much hype in large part because people who encountered these magical experiences raved about them — after the fact of course, because they were live — but when everyone who heard about said experiences downloaded the app, they mostly got a terrible experience, because Clubhouse’s Discovery function really wasn’t built out yet. That’s understandable — I actually think that Clubhouse has evolved quite quickly over the last year, the hype just came too soon — but the danger facing the company is that you don’t get a second chance to make a first impression.

This mismatch in hype versus product was compounded by the lack of Android: whenever Android launches many iPhone users will have moved on; I’m not sure it’s going to be as much of a kick starter as it seemed it might have been a month ago. This carries a broader lesson for other startups: while it still makes sense to iterate on iOS, Android development should have probably started much earlier to ensure it was ready when the hype wave hit. It’s the same problem with Clubhouse’s rapid international penetration: how many markets are left to drive a reboot? It seems that services can’t afford to focus on just their home market for too long.

What Did I Get Wrong?

Needless to say, my Article about Clubhouse’s Inevitability is looking pretty shaky! Again, my belief in the space might be borne out, but at this point it is worth doing a deep dive on how I might have gotten it wrong.

First is the possibility that I broached in this Daily Update, where I cited Sam Lessin’s article in The Information disagreeing with Clubhouse’s Inevitability:

People are right to be focusing attention on Clubhouse’s meteoric rise. But almost everyone seems to misunderstand what is making the app so successful. It isn’t, as people like Ben Thompson suggest, simply another iteration of the old story of lowering the barriers for production and consumption, shortening feedback loops and creating new “white space” for aspiring stars. If you think of it as being like Twitter, Stories or TikTok, you are missing the point.

The key to Clubhouse’s rapid accession is that its social design makes it an ideal platform for cults at a time when the social Internet is rapidly evolving away from organizing around communities and toward cults…

If Lessin is right, there are two important implications for me specifically, and my potential blindspots:

  • First, one of the reasons I was bullish on Clubhouse is that I really did have several enjoyable social experiences on the app in so-called ‘Social’ rooms. These are rooms where the only people who can join are those whom the moderator follows; the rooms are invisible to everyone else. Well, as of this writing I have 21.5k followers on Clubhouse, which means my chances of encountering a ‘Social’ room of interest are dramatically higher than most people. This may have led to me over-estimating the social aspects of the app.
  • Second, while I find the phenomenon very weird and uncomfortable, I have to admit that my experience of Clubhouse does at times sound like what Lessin describes; at the height of its hype I would join a stage and hundreds if not thousands of people would join the room. For me it was a real turn-off — I started declining almost every invitation — which is a double-whammy: I didn’t have the normal Clubhouse experience (see above), plus I stopped speaking on Clubhouse, which meant all of those people who wanted to hear me weren’t getting notifications to join the app. Are there others like me?

The other implication of Lessin’s take is that Twitter Spaces really is going to be a better alternative. As I have explained, the big reason I was skeptical of Spaces is that Twitter was about text, not audio; that is why I thought Spotify was Clubhouse’s real challenger. The second reason is that the fact that Clubhouse was devoted to conversations, instead of simply being a bubble at the top, left more room for discovery and user-generated entrepreneurship, which you could already see evidence of (consider things like breakout rooms or after-shows).

However, if Clubhouse is about a “thought-leader” (🤮) — listener-follower dynamic, well, so is Twitter: sure, it manifests itself via text now, but it could just as easily manifest itself as audio. Note, by the way, that this is not about a social graph as we commonly imagine it; it’s more of a hierarchy (and, for what it’s worth, the same reasons I felt uncomfortable in Clubhouse are the same reasons I don’t like tweeting much these days). Moreover, Twitter still remains very much about “live” — it’s the best place to be during a game or event or breaking news. That translates to live audio more naturally than something like Spotify. I will add that Twitter has done a pretty good job with the Spaces UI, making it easy to listen while browsing the app; it definitely accentuates the service’s live advantage.

To the extent this analysis is (now) correct is also the extent to which live audio is, in fact, a feature; it’s not going to transform Twitter’s trajectory, but the company does deserve kudos for moving quickly and executing well. Clubhouse, meanwhile, may have to go on a Twitter-like journey of their own: figure out what exactly they had, and slowly build up from there, winning people back one-by-one.

I am making this Daily Update free-to-access and posting a link at the end of Clubhouse’s Inevitability.

This Daily Update will be available as a podcast later today. To receive it in your podcast player, visit Stratechery.

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