Facebook’s Clubhouse clone will fail

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SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 13th, 2021.

It didn’t even take a week from Mark Zuckerberg guest starring on Clubhouse to the news that Facebook was developing a clone. The pattern of cloning products is recognizable – but rarely works. SvD’s tech analyst Björn Jeffery explains why.

In April 2012, Kevin Systrom received an unusual proposal. Twitter wanted to buy his company Instagram, which at the time had only 13 employees, for half a billion dollars.

His response was even more unusual.

He told Mark Zuckerberg about the sum, went to his house in Menlo Park, and came back with a $1 billion offer from him instead. Systrom and Zuckerberg shook hands, after which he drove up Highway 280 to his home in San Francisco again. The whole deal took three days from start to finish.

Thus began one of the most successful acquisitions in tech history. What looked like a simple photo app has since become one of the world’s largest and most influential social networks. In 2018, Bloomberg valued Instagram at over $100 billion.

In recent weeks, the hype among social media has been about Clubhouse. The app, where you listen and participate in real-time conversations, is spreading quickly and has a unique positioning in the market through its focus on sound. Clubhouse just raised $100 million in venture capital, with a valuation of $ 1 billion.

When Mark Zuckerberg took part in a conversation at Clubhouse the other day, the joke was that it was only a matter of time before Facebook would either buy them or make its own clone. The joke got a little less funny when the New York Times reported a few days later that Facebook was doing just that.

Large companies often find innovative ideas early on. But they often end up in what Harvard professor Clayton Christensen called the innovator’s dilemma. This means that they tend to offer a watered-down version of the innovation to their existing customers, rather than making it perfect for a new customer segment. Facebook has done this many times over with a long line of cloned products that never took off. Who remembers apps like Rooms, Slingshot, or Lasso?

The next difficulty for large companies is how they avoid cannibalizing their existing products. Stratechery analyst Ben Thompson described this as a kind of tax on the company’s own strategy and defined it as “something that makes a product less likely to succeed, but which is included to achieve other business goals”. Google’s failed social network Google+ is an example of how wrong things can get with those kinds of priorities.

Being innovative as a tech company is therefore not as easy as one first might think. You can always copy others, but there is no guarantee of success. It is with this in mind one should view these giant acquisitions. They can be a shortcut to get the best of both worlds: a new, innovative product, and synergies from a larger organization. Since 2007, for example, Facebook has bought 88 companies that we know of.

In the middle of the Clubhouse hype, it’s easy to think back at Instagram. What would have happened if they had decided to go their own way instead? Had we had another tech giant today? The company had – like Clubhouse today – just raised venture capital, so resources were available. But it takes some confidence to turn down a billion dollars for a company that is only two years old.

Now the eyes of the world are on Clubhouse. It is new, innovative, well-funded and is currently spreading virally. But to become completely independent in the future requires perseverance, continuous innovation and, in the long run, a sustainable business model. Clubhouse has time to find all three – even if the giants will be chasing them.

The tech world would be better off with more big players. Therefore we can hope that Clubhouse founders Rohan Seth and Paul Davison look more towards Snap than Instagram when the acquisition offers start coming in.

Zuckerberg also tried to buy Snap for $3 billion in 2013 – but they refused. Today, Snap has an all-time high on the stock market with a market capitalization of over $93 billion.

This analysis was first published in SvD Näringsliv, in Swedish, on February 13th, 2021.

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