photo from CNN

3 Days impression of Clubhouse

I am on Clubhouse for 3 days and spent a lot of time listening in. Therefore, I would like to share my early observation of this app. For those who don’t know Clubhouse. It is an audio-only chat app that allows users to create rooms and host a conversation. search for “clubhouse app” on Google to read more.

TL;DR

Clubhouse is a rising star app. It is here with the right product, the right technology, and the right timing. I am going to analyze these aspects to give a clear view of why Clubhouse is so hot.

• 🚀 ⛽ Growth fueled by celebrities.
• 💸💸Operating cost is a short term challenge
• 🎯Simple, Focused and quality are the foundation

Product

I have concluded some common characteristics of successful products working on several consumer products (Microsoft Messenger, Windows/Phone App recommendation, Instagram, WhatsApp).

• Simplicity.
• Focus on solving a problem well.
• Quality.

Simplicity

The Clubhouse app is simple. My friends and I all think it is super easy to use and intuitive. The functionalities are simple. The room creates a feeling that people talk in a physical room by allowing people to talk over each other.

Focus🎯

My understanding is that Clubhouse intends to solve audio conversing with anyone (your friends or strangers). The format of the chat range from small private chat to public chat room.

The focus on audio-only seems to be a hard choice, but I think it is an important reason it gets a lot of traction. The no text nature makes people focus on being more authentic. The no video nature lowers the bar for people to participate — you don’t have to look great when speaking.

Quality

Using it for several hours per day, I have not experienced a crash, nor any weird behavior. The audio quality is outstanding.

• Even when a speaker has a network issue, the transition does not feel abrupt compare with the case where you hear the gibberish voice in a VC.
• The latency of the audio is low, even when the speaker is from across the pacific ocean.

Timing🕒

The pandemic puts a lot of people at home and can listen in while doing their chores. Other factors like the QE makes funding abundant also contributes to how much they can get. You will see why funding is vital in the next section.

Growth📈

Clubhouse attracts a lot of people from the VC circle to join in the early days. Later it has more people joining to bring arts and music into the platform. Now with more celebrities (like Elon Musk), it attracts more and more people. I can see what is important to me is that great people are talking in rooms. I can learn something from them and share my own opinion.

(Update, 2/4) Mark Zuckerberg was on the platform!

Operating Cost💸💸

The growth of Clubhouse comes with a cost. A report says they use Agora’s API. From my read of Agora’s product specs, I assume Clubhouse uses the “Live Interactive Audio Streaming” interface. The cost of this interface is $0.99/1000minutes. If Clubhouse has 2 million WAU (source), each WAU spent 3 hours per day on it (my modest estimate based on the above report), the weekly operating cost is ~356k, and ~$1.4m per month. With the recent boom (I observed many people joined after Feb), I estimate this # has at least doubled.

The above explains why Clubhouse needs the $100m. Now Clubhouse needs to balance the following

1. Reduce cost per minute of usage
2. Raise more money
3. Limit the growth.

3 is the most unfavorable option, and I am sure they will not take it.

(Update 2/4) I just got another 3 invitation. According to this calculation, they are growing the usage by 1x-2x every week. That is crazily fast. I will see if there are enough interest to claim my invitations as a sign of whether they can get that growth rate.

They will most likely negotiate the price with Agora and introduce another provider to pressure Agora to give a cut. And with A16Z and the other investor behind, I am sure they can raise more money if needed. But 1B valuation is already high, and my expectation is that they can grow at most another 10x in valuation without providing a feasible revenue story.

Technical⚙️

Talking about the technical achievement of Clubhouse, the interactive live audio solution Clubhouse choose is very robust. I noticed that people could talk over each other, and I can still distinguish the voice. The number of concurrent mics is much larger than the other VC solution I have experienced. For example, Zoom is pretty much a meeting where only one can speak at a time. I have not tested the limit on how many people can speak at the same time. Reading Agora’s technical spec, it writes, “Up to 1 million audience and 17 hosts”. I guess the max # of speakers in Clubhouse is 17.

Monetization💰

There is no clear plan about how Clubhouse will monetize yet. The speculation is “plans to allow users to make money directly from the site through subscriptions, ticketed events, and tipping.” (source).

All these seem to be valid options for making money. Advertising seems to be out of the picture.

I would pay to listen to good talks and shows.

Challenges

The company has many challenges ahead of them.

Short term

I mentioned the dependency on Agora’s API, and the cost of running the service is the most pressing challenge. The operating cost seems to be too high in the current model.

Medium term

In the medium term, as more and more normal users (like me 😃 ) join, the quality of the discussion in the rooms will decrease. Keeping the high-quality rooms in the float will be critical to keeping engagement.

Long term

Content moderation and privacy will be problems. There will be terrible people on the platform that does harm to others. With Clubhouse’s audio-only approach, it is hard to retain evidence and judge whether one shall be kicked off the platform. Privacy becomes another issue if there is content moderation. Content moderation means keeping some audio recording for evidence. Whatever is stored on the server will raise the question about privacy.

Opportunities

First and foremost, build an Android App! Having been building the Android app for Instagram and WhatsApp, I cannot stress more about what a solid Android app will bring to the growth.

There are a lot of scenarios that they can enable. Most promising are

• Talk show (like standup comedy, fireside chat, etc)
• Solo music show (multi-host music performance does not work well due to technical limitation)
• Shopping show.
• Elon Musk show. Just because he is Elon Musk 😃 , fans will pay $$ to join.
• Interview platform for reporters.

They can sell extra services like speech-to-text for the hosts. Companies like Otter.ai provides the solution to translate English to text.

Finally

The service is evolving, and my understanding of the app keeps changing every day. I am looking forward to hearing from readers on your perspective on Clubhouse.

Ps: my handle in Clubhouse is @williamliu1.