Phase 1 was MySpace. Phase 2 was Facebook. Now we are entering Phase 3, where a sense of authenticity and connection reigns supreme over click-bait, likes, and followers.
A set of new Social Apps are leading Phase 3, but the question is what will the emergent Business Model Trend be?
- A new crop of Social Apps that incentivize more authentic ways of engaging socially online – including Be Real (Instagram style, France-based), Gas (new-look Facebook for youth, US-based) – are popping up
The app has grown from 10,000 daily active users just over a year ago to more than 15mn today, surpassing internal targets. Insiders expect it to reach tens of millions of people by the end of the year.
FT – Be Real
- The Ad-based business models of the major Phase 2-era Meta (Facebook parent), Snap (Snapchat) and others are imploding as of the most recent quarter (META Q2) (SNAP Q2)
- The 3rd Phase will revolve around testing new models in the market that don’t revolve around Advertisements – payments-based models driven by creators/influencers
- Clubhouse serves as an instructive reference business model to analyze; their rapid growth collapsed due to lack of a solid business model away from corporate ads/sponsorships
- Future Trends point towards a shift back towards IRL Benefits derived from being a power user on social networks, not just clicks, likes, and views
There are Power Laws on social networks that mean the top ~5-10% of accounts drive 80-90% of engagement.
Social Apps Business Model: Bullet Points
Social Apps 3.0 Value Proposition
The app sends a notification to every user at a given time of the day, with a two-minute window to take a snapshot using both the front and back cameras on the phone.
FT – Be Real
- Value Proposition is features that encourage social sharing without the addictive, vanity-building features that impact people’s mental health in a negative way over time
- Revenue Streams are TBD, but can include creator-driven incentives, which principally revolves around both Payments + Web3-inspired models, or more Subscription-like models such as Discord
- Customers Segments is the younger generation, typically University/College age
- Customer Relationships are built on transparency, creating a greater level of trust and a much higher rate of retention relative to peers; Ambassadors in U.S. help w/ acquisition
- Key Activities are balancing the need to keep growing and stay ‘hot’ while simultaneously scaling technological infrastructure and testing a business model
- Cost Structure involves trying to balance between keeping a small-scale team (~40) and scale-up tech infrastructure. Many are using Firebase as the back-end, built by Google
BeReal – Business Model Canvas (Mockup)
Photo-sharing app BeReal is exploring the addition of in-app payments for extra features to avoid Instagram-style advertising
FT – Be Real
Example Companies
- BeReal – “Your Friends For Real”
- Gas – “See Who Likes You”
Reference Business Model: Clubhouse
Who wants to be the next Clubhouse?
On one hand, you have a network that caught the world’s attention in a way that rivals Facebook’s earliest days in a matter of months. On the other hand, they plummeted into obscurity months after that.
Clubhouse is still around, yes, but their growth rate has collapsed, relatively speaking. The 86% drop YoY in downloads back in Q1 ’22 sounds bad, but that’s because they were growing at such insane levels in Q1 ’21.
Davison described Clubhouse’s “hype moment,” during which the app grew users 10x month over month and took the No. 1 spot at the App Store in Japan, Hong Kong, Russia, Germany, Brazil and Italy.
Tech Crunch
Clubhouse Business Model Canvas (created Q1 ’21)
Clubhouse had so much growth that within months there were Developers piling in to try and build that all-important “apps” layer that has been the hallmark of success on other social networks. That shifted Clubhouse’s own internal focus towards developing an API, which created all sorts of additional issues around security, etc. Their strategy didn’t work.
So, do you want to be the next Clubhouse or not?
That level of hyper-growth, combined with the right model, could have turned Clubhouse into some kind of a TikTok-like phenomena. Instead, the emerging ‘social audio app‘ was caught between two models:
- Social Phase 2 – built on corporate ads/sponsorship (& inevitably censorship)
- Social Phase 3– built on creator tools/incentives and new methods of dialogue
Clubhouse was dabbling in both sides. Their meteoric growth in late 2020 and early 2021 was enough to get them to a level where major corporates, celebrities, and influencers were experimenting on their platform. Very quickly, Spotify and Twitter launched copycat products and suddenly Clubhouse wasn’t getting those really cool, spontaneous conversations happening on their platform.
The conversation itself is critical on social. But those that drive the conversation need the right incentives, and 18 months after Clubhouse exploded, it feels as though we might be on the cusp of discovering what that Social3 business model is. It can’t be corporate ads/sponsorship.
Future Trend: IRL Benefits
Convergence on social media going forward points to less ‘media’ and more ‘social.’ This means make it happen IRL (in real life) instead of just chatting endlessly online. Social benefits can come in the form of new friends, a date, and/or a sustainable revenue stream.
Much of Social Phase 2 has focused on the Creators/Influencers and creating addictive tech to help them scale to millions of followers/views worldwide. For some, this has translated into a pseudo celebrity status. For others, a series of paid promotions for major brands. But for many, it hasn’t translated into much monetarily relative to the level of engagement they have created on these platforms.
There are Power Laws on social networks that mean the top ~5-10% of accounts drive 80-90% of engagement. If those same accounts got paid relative to what they produced, they would be making major money – yet they don’t. Social networks themselves make $Billions on Ads. Right now, the majority of the Creator/Influencer value is captured by the social networks in the form of advertising dollars.
Finding The Right Incentives
A lot of Web3’s future value premise was based on the idea that adding tokenized incentives were the future of digital communities. The problem is that a lot of Web3’s future promise has been plagued by its current problems – with technology, with its brand, with a series of ponzis.
Social Phase 3 will undoubtedly incorporate certain dimensions of Web3. If Future Trends point to IRL Benefits then there will need to be proper financial incentives built into these networks. Wherever there is the need for financial incentives requires embedding the payments stack in some way – whether it is either Fintech or Blockchain (or both) payments that are embedded.
The high fliers in the moment – who are leaning away from ads – will need to experiment and hopefully crack the right model. If there is a lesson to learn from the Clubhouse collapse, it’s that capturing the moment is critical. Working with the core influencers/creators to co-create a monetization model is the right strategy. Academic approaches to a scalable monetization strategy will be thwarted by the major networks – Facebook, Twitter, Snap, etc. – who can spin up a team to build a replica model overnight if something new is working.
BeReal seems to have this focus, and maybe since culturally France is so much different from the U.S., the development of the business model will skew towards the creative side.
However, investors are urging BeReal to introduce new features that can help it avoid becoming a “one-hit wonder” like other faddish social apps, such as Houseparty or Clubhouse.
FT
As the company is spending $7+ per acquisition on U.S. campuses at the moment, this gives us some kind of idea what the company will need to net back once they decide to turn on the taps in the future.
Overall, various trends have negatively impacted the business models of Phase 2 Social Media giants in 2022. Now, a new era of Social Apps are emerging and capturing the imagination and attention of the youth. Now, the major work to create a new business model or two begins at scale.