Boom and Bust: Twitch vs. Clubhouse

June 01, 2023

Have you ever fallen in love with an app? Did you text your friends to let them know? Did you re-arrange your home screen to make it easier to get to?

I did, and it didn’t work out. The app was Clubhouse.

Remember that one? It peaked and then crumbled quicker than you can say “viral growth”.

Today, I’m dissecting what went wrong with the live audio app. To help, I’ll compare it to a super popular live video app – Twitch. Before we start breaking it down, let’s get some background on both.

Background

Twitch

Founders Justin Kan and Emmett Shear met in 2nd grade, went to Yale together, and started Justin.tv a few years after college in 2007. The premise of Justin.tv was to follow around Justin all day, live streaming his goings on. In a time before Snapchat and Instagram, when most creator content was in blogs, visually following Justin around all day was pretty damn entertaining.

Over time, they saw certain stream types gaining traction, so they created separate categories for Social, Tech, Sports, Gaming, etc. Gaming streams continued to explode, so they spun-off the unit into a new company, TwitchTV – named for the twitchy reactions needed to be a top tier gamer. Twitch soon went viral, with tens of millions of monthly viewers after a few years. In 2014, they got acquired by Amazon for $970M.

Clubhouse

Clubhouse, founded by Paul Davison and Rohan Seth, came out in March 2020, and it grew as the pandemic grew. Users could join or host “rooms”, which were like conference calls. And the hosts of those rooms could bring listeners “up on stage” to ask questions or join a debate. But instead of the work call you dread because you didn’t do your TPS reports, it was cool. Cool, and sometimes weird. You might be in a room with thousands of people listening to Mark Zuckerberg talk about VR. Or you might be in a room with people moaning like whales. Seriously. From Vice:

“…Participants in the room ceaselessly moan like whales, sometimes making up whale characters with backstories, while the moderators speak in human language and pretend to be whale researchers.”

Clubhouse is also an invite-only app, so it automatically had some exclusive mystique. In a time when people were craving human connections but forced to isolate and mask-up, live audio created a real sense of community. It caught-on like crazy, and at its peak it had ~10M weekly active users, an NFL partnership, and constant celebrity sightings. They were seemingly crushing it. But then they weren’t.

By December 2022, they had only ~2M weekly active users. And just recently In April, they announced they were laying off 50% of their employees. They’re limping towards an uncertain future, and they likely won’t be around in a few years.

What Went Wrong

What the hell happened? It boils down to: community, monetization, and competition.

Community

First, the topics discussed on Clubhouse are too eclectic to form a strong community tie to the platform, and they’re all just one tap away from each other. Clubhouse’s user interface has a “hallway” as a homepage, where you can see the most popular rooms, how many people are listening, and what the topic is. But because “Whale Sounds” can show up right next to “Advice from Oprah”, it’s tough to immerse yourself in a real sense of community. It feels like there are strangers hanging around.

Second, existing creators don’t need Clubhouse to reach their audiences. I loved getting insights from tech founders, and other people love hearing from Oprah. But high-profile names don’t need this platform. They have podcasts, books, Instagram, and TV shows to fall back on – places where they do the actual brand-building. For them, Clubhouse is a nice-to-have way to reach existing audiences. Not a must-have.

Third, as a new creator on Clubhouse, it’s hard to build a following. While the exclusivity of invite-only was interesting, it slows down follower growth. And every time a follower logs on, they can get distracted away from your content in the randomness of the hallway.  

In comparison, gamers really needed Twitch. E-sports were taking-off when Twitch was founded, and tournaments in Korea awarded winners tens of thousands of dollars. Gamers discussed strategies and news in forums, but nothing compares to the community-building power and entertainment value of streaming. I talked to a few hardcore gamers, and they confirmed – streaming is a chance to see someone playing the same games you play, but at an extremely high level. It’s the same logic behind why kids idolize NBA stars and shoot way too many 3’s trying to be Steph Curry.

And as I’ve already mentioned, Twitch’s founders recognized the importance of insulating that core gaming community, spinning-off Twitch to exist on its own. For gaming creators, they knew they finally had a dedicated home base to build an audience.

Monetization

For any creator, audience building is one critical way platforms provide value. Another is monetization. Together these two factors fuel growth by keeping creators engaged. They are motivated to create because they can see the momentum it creates for their fanbase, and their financial incentive to create grows as the fanbase grows.

Clubhouse didn’t give creators, the lifeblood of their platform, tools to monetize. Some hosts did chaotic ad reads during their live audio sessions, but most didn’t. And Clubhouse belatedly realized they didn’t have good infrastructure in place to have creators negotiate and execute their own sponsorships. To make up for it, they promised a few VIP creators a 12-session package with sponsors… but then they couldn’t deliver.

For platforms, a creator monetization strategy works hand-in-hand with the platform’s monetization. YouTube and TikTok, for example, split ad dollars with creators. So even beyond being good for creators, monetization is a must for the long-term survival of a platform.

Just as they didn’t prioritize creator monetization, Clubhouse didn’t prioritize their own monetization either. They were trying to expand the user base as much as possible before “turning on” revenue. While this worked early on for other platforms like Facebook and Twitter, it meant that Clubhouse and its creators didn’t have aligned incentives. Clubhouse could lean on investor money to keep things running, but creators couldn’t.

In comparison, Twitch put the creator at the center of their app. When early usage volume wasn’t large enough to support ad-based models, they built out subscription tools for creators instead, and they took a cut of those subscriptions. That way, creators could build a loyal, paying following directly inside the app, and Twitch could grow and invest back into the platform, generating revenue the entire time. As one Twitch employee put it:

“One of the reasons I wanted to work at Twitch was because of subscriptions. It’s one of the best business models on the internet… Subs are a huge part of Twitch’s monetization strategy and its DNA as a company.”

Competition

What others (the competition) do is out of your control. You can only control what you do. But you can control the actions you take and how quickly you take them. My final critique of Clubhouse is how slowly they acted to capitalize on their first-mover advantage.

Clubhouse was released in March 2020, with an invite-only app restricted to iOS devices. Despite being extremely popular, it took them until May 2021 to release the app to android devices, and until July 2021 to remove the invite-only restriction and make the app fully open. Let’s keep in mind that it’s trivial to replicate an iOS app for android devices. More importantly… MAYBE being invite-only helps for the first few months, but leaving it restricted for an entire year!? That makes absolutely no sense. Especially if you were seeing declining user growth.

While they played that exclusivity game, competitors were swooping in. Twitter, LinkedIn, Facebook, and Reddit all announced their own live audio apps, commoditizing Clubhouse’s primary use case.

Twitter’s live audio product, “Spaces”, launched 9 months after Clubhouse. While it also started out as iOS-only, it only did that for 3 months, then added android compatibility in March 2021. They literally beat Clubhouse to android. Twitter was even in talks to acquire Clubhouse for $4B in April 2021. Since then, Twitter has released a steady stream of updates to the product, paying close attention to what creators need to build community and monetize through the app. It’s the only live audio product that still has real traction…

Twitch, in comparison, kept the pedal to the metal. They doubled from 20 million viewers in 2013 to 45 million a year later. They did partnership deals with Xbox and Playstation to maximize their reach. When they couldn’t keep up with the growth, they looked for strategic acquirers to help them stabilize – courting Google and Amazon before finally joining forces with the Bezos brand. Even when Microsoft entered the space and got aggressive, they were undeterred. Microsoft’s streaming service “Mixer” came after Twitch in 2019, paying two Twitch streamers to defect to their platform. Tyler “Ninja” Blevins and Michael “Shroud” Grzesiek got paid $30M and $10M respectively. Instead of getting into a price war for talent, they just built more features for their other streamers, continuing to prioritize community and monetization.

Wrapping Up

As part of the cuts Clubhouse recently made, they released a blog post explaining why. Here are a few notable quotes:

“…As the world has opened up post-Covid, it’s become harder for many people to find their friends on Clubhouse and to fit long conversations into their daily lives. To find its role in the world, the product needs to evolve. This requires a period of change.”

And…

“The world needs what Clubhouse is building – a better way for all of us to hear our friends’ voices, have more meaningful conversations and feel connected to the people around us. As remote living, empty scrolling and Zoom meetings become more common, this is truer than ever.”

It’s encouraging to hear them acknowledge that change is necessary, but it will take some real work — especially on community, monetization, and competition — for them to rebound and deliver on their vision.

For now, there aren’t many details on what Clubhouse 2.0 will look like. But I’ll be rooting for an underdog comeback story, and I have a spot saved on my home screen… just-in-case.

Thank you for reading Forests Over Trees. This post is public so feel free to share it.

Bonus Bullets

Quote of the Week:

“But look, at the end of the day, they’re the 800-pound gorilla in this. That is what they are. And I hope that, with our innovation [in AI], they will definitely want to come out and show that they can dance. And I want people to know that we made them dance, and I think that’ll be a great day.”

— Satya Nadella, Microsoft CEO, on Google (and dancing)

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