Clubhouse's Endgame and Silicon Valley's Insider Trading, Money-Printing Monster
In my recent discussion of Clubhouse, I kept trying to type out what it was that bothered me so much about the app, other than the fact it was apparently worth $4 billion. The thing I kept coming back to was that it just felt wrong. Nothing about the experience felt natural, from the experience of finding something to listen to all the way through to the actual things being said in Clubhouse rooms. It wasn’t simply the lack of unique conversations, but the form in which they were taking - you’re consistently lost if you join a conversation midway through, which is a dissonant experience that makes people simply close the app.
The reason that talk radio generally works as a format is that conversations are intentionally short enough that you can drop in and not find yourself totally lost. The format’s conversations usually don’t take the form of extremely long, meandering conversations between four or five or ten people because it’s quite difficult to keep track of what’s going on. And even if you can keep track, good talk radio is also usually made up of people who can actually talk in an endearing way, a type of person I have yet to find in Clubhouse.
Patrick Redford at Defector wrote a lengthy dunk on Clubhouse, and in particular touched upon the cynical nature of tech, that nobody is buying that they want to make the world a better place, but I fully disagree on one thing: I do not think that a lot of Silicon Valley companies even want to make great businesses. I also do not believe that Clubhouse was built to make money. I think it was built entirely to get acquired - a product knowingly and manipulatively built to attract a certain VC sect and reach a certain pressure point in valuations that it could then be turned into a thing to be sold to another big company so that they wouldn’t have to develop their own thing.
It is history repeating - companies that are built entirely focused on growth at all costs, punting the troublesome idea of “making money” to the future, thinking that once they have a critical mass of users they will be happy to pay. Discord and Twitch managed to find a way around it by actually providing a service that people liked first and making the monetization elements a net positive without detracting from the “free” experience, but companies like Clubhouse don’t really have any valuable things they can offer to people that would cost money beyond, I’m guessing, moderation functions that should be free or “special rooms” or some other nonsense.
My dark theory around Clubhouse is that it is, on some level, an incubated attempt for a VC to create and then sell a product themselves. Andreessen Horowitz were early investors, pumping millions into the product and throwing every single VC and friend and celebrity that they have at the app to give it an air of legitimacy. They have led and pumped up rounds, they have made every call to every friend they have, and they have undoubtably been the ones to leak the news that Clubhouse and Twitter talked about a $4 billion acquisition. A16Z wants to be the investor, the media company, the PR firm, and if things go wrong, I imagine they’ll be the PE firm to pick up the pieces. They have through a dramatic amount of pressure on the press, investors, their portfolio companies and any other allies they have forced a sense of FOMO around a company with a questionable value proposition, no doubt with the intention of a $15+ billion exit to a Fortune 500 company that doesn’t know they’re getting swindled.
This is likely the endgame of A16Z’s hatred of the media. They used to love the media, based on the peculiarly fond and kind retelling Eric Newcomer gave, but clearly turned against them when there was a sign they’d get in the way of the grand design of a self-dealing money printer.
The idea of the entrepreneur-in-residence isn’t new. VCs have always had founders who built their companies in or around the VC, with the suggestion being that they’d have first dibs on rounds in exchange for access to their resources and connections. But this is the ultimate form - the force of a VC doing everything it can to try and take a company that really isn’t a company and turn it into something that can be sold for a massive return.
Yes, companies already hire PR firms to pump up their valuations and they already call all their friends to use the apps and talk about them on social media. They already try and pick winners early and give them the resources to win. However, very few of them go whole-ass in the same way that A16Z has, making sure that every major partner is part of the story, that they’re using the app, that they’re telling all their friends all the time and investing hours of their time evangelizing it. They hate the media because the media doesn’t by default say that every startup is a beautiful creature that must be loved and encouraged, which makes building a case that a company is worth billions of dollars that much harder.
Clubhouse isn’t built to be used, it’s built to be sold. It lacks the basic ability of any social network - the ability to share other people’s content - and has no clear way to monetize beyond sawing off bits that are currently free and adding some glitz. The fact that both Facebook and Twitter are either building or have built near-identical clones isn’t a sign that they’re horrible companies chewing up a startup - it’s a sign that they’re calling A16Z’s bluff.
The argument against what I’m saying is to compare this to Snapchat and how Facebook tried to copy their ephemeral messaging, which only happened because teens actually used Snapchat and it was a network that already had momentum with real people, specifically teens. The audience for Clubhouse has, through everything A16Z has done, become almost entirely focused on startups and startup people, who are capricious, weird, and more importantly upsetting to real people. If I was a person who did not know what startups were, I’d find the whole thing bewildering. What do you do as a person on Clubhouse? What is your first call to action? Follow your friends? Ok, now what? Wait until something happens? You can’t message anyone (god, that will suck when they do it), and I guess you can jump into a conversation that’s already happening. Or log on when one is. Nah, you’ll do something else.
Anyway, it’s now my full belief that Clubhouse is a new model that VCs are going to try out - the full-scale incubation from seed or Series A investment to acquisition. It is the ideal pipeline for the capitalist - the ability to take something “cheap” and invest resources that don’t necessarily cost you anything to take that company from unknown to an IPO or an acquisition, controlling the mediation of information about the company in your own horrifying ecosystem. With a fanbase of people who are desperate to be part of this ouroboran system, you can even build this hype without spending a dime, simply saying that you like it and spending time on it, or talking about it with people and getting them more interest, more customers, and more importantly even more investment. When the hype is at its peak - when you have truly pumped as much as you can into the excitement machine - you can turn around and sell the thing, making a clean return and making someone else rich who will now turn around and talk about how rich you made them.
This is the final thing that explains why A16Z wants to control the media - they want to create a holistic system in which their word is the Bible, and where they are able to manipulate the system in which companies and valuations are grown in the companies that they themselves breed. As I’ve said, this isn’t remotely unique to A16Z, but their scale and power is such that they’re able to truly crush companies into these vast valuations, with Clubhouse being the ultimate test of the model.
If Clubhouse sells for anything over $10 billion, the system worked, and we’re going to see many more random companies that suddenly become worth billions of dollars in an even quicker cycle than before. We may see companies that are founded and sold for over $5 billion in a few months or a year, the ultimate money-making machine for venture capital, bred and fueled on the desperation and cult of personality that the valley breeds.
The model is also quite hard to sustain, and can’t be done too often for fear of upsetting or exhausting the celebrities, influencers and partners that it relies on. The same goes for the media - and why A16Z wants to control it - because you can’t be constantly saying to them that this is the next thing to go nuts for. And every time it doesn’t work, it damages your reputation with everybody from the average joe to your Limited Partners.
Real products are generally things that grow small, active and excited communities because they do something new, or do something old significantly better than before. In any case of a sudden viral smash that feels off and like it doesn’t really fit the rest of the world, it’s fair to ask whether you’re being pulled into a hype machine built specifically to sell the thing you’re using.
If Clubhouse doesn’t and it dwindles to nothingness, then I imagine they’ll blame the cruel media for not supporting their dreams.