Opportunities in Consumer Social

Building & investing in vertical networks for the new era

When we think about how we interact with people today, the first thing that comes to mind is likely social media. Facebook, Twitter, Instagram, TikTok — whatever your platform of choice may be, social media undoubtedly dominates societal discourse, especially during COVID where we can’t spend time together in person.

Back in March, I posited that a downturn could actually be a boost to consumer social — if the next big thing came from what people built on nights and weekends, a Covid-based recession meant people would have even more time than their nights and weekends to tinker, explore, and build new ideas. Then in August, I posted my “Covid investment thesis”: the idea that loneliness in the pandemic would be a breeding ground for new venture opportunities in social, education, communities, mental health/coaching, and more.

Look around: Clubhouse has now onboarded hundreds of thousands of users, Popshop Live raised a massive round from Benchmark, and new consumer social pitches flow into investors’ inboxes on the daily — it’s clear that now is a boom time for consumer social.

While it’s nearly impossible to guess what the next platform shift will be (AR/VR? Special Glasses? Futuristic AirPods?) or when it will happen, I thought it would be interesting to dive into the renewed interest in social platforms and what I think will be the keys to success in the next vintage of consumer social businesses.

So why the renewed interest in social?

First off, new social platforms emerge every decade. With teens driving culture and telling us adults what’s “cool,” it's only a matter of time before something new emerges that we never saw coming.

Just as teens don’t want to listen to the same music as their parents, they don’t want to be on the same social network as their parents either; they want to explore and express their own identity. New platforms emerge because as old platforms mature, there are fewer opportunities for users to gain status & social capital, which, as Eugene Wei explains in Status as a Service, is a key motivator for people.

If the cost of earning status on incumbent social platforms is increasing, no wonder people are turning to something new — it would be nearly impossible to get more followers than Kim Kardashian on Instagram, for example.

But platforms like Facebook and Instagram are vulnerable for another reason — they’re becoming more passive, and people feel less and less comfortable with vulnerability on those platforms. Even worse, a teen looking at Facebook today might look at it the way we look at MTV or AOL. They view it as dated, or as an environment that no longer resonates with their core identity.

This disconnect has gotten worse over time. As Facebook continues to turn up the dial on engagement, its users get less open and vulnerable with one another. And changes in degree became changes in type — Facebook is a fundamentally different product than it used to be, which creates opportunities for new networks to emerge.

Sarah Tavel says she’s looking particularly closely at what she calls "Participatory Social" (e.g. Robolox, Fortnight, Discord) — platforms where communities and their members actually interact with one another, as opposed to Facebook where the model is based on content consumption.

Of course, Facebook has tried to introduce participatory features, with likes, comments, and emoji reactions, but the model is still based mainly on the user reading other people’s posts — the participatory components almost feel like a last-ditch effort to make their platform more community-driven.

As a result, people are looking for new environments where they can truly express themselves online — places to actually participate in societal discourse and create their own realities.

Furthermore, before social networks, earlier generations used to explore the world around them in real life. You’d learn your “street smarts” from the kids down the block, or the kids you spent time with in school. Today's sheltered kids are more sheltered than ever by helicopter parents who observe & evaluate their every move — they need to use digital outlets to construct & make up their own realities, since at home (unfortunately enough) they often can’t be their true selves IRL.

So if Yahoo represented the first era of social with “broadcast networks” — the value of the network being proportional to its viewers — and Facebook showed us Metcalfe’s law at work — the value of the network being proportional to the square of the number of users within it — then what does the next era have in store?

Reed’s law says the value of a large network can scale exponentially because of the subgroups formed within it (ie. vertical social networks), and I think this is where we should be looking for new social opportunities today.

Why?

More broadly, social networks have messed with our privacy settings in more ways than one. Everything is public now, partly due to outrage culture and “social highlight reels,” but as a result, there will be a big pendulum swing back to private networks. Facebook is a lot like Walmart in the sense that it's just utility oriented, and it doesn't really speak to a particular audience — startups that are able to authentically cater to niche communities will be the ones to watch in this new era.

Last year I tweeted that the great people who don’t tweet anymore (or as often) are now talking amongst each other in Signal group chats; the same could be said about Clubhouse — some of the vocal people from the early days of the app have now sequestered themselves off into private rooms where journalists can no longer listen to their every word.

This is because, as Jessica Livingston points out in her prescient piece, it’s easy for people to misconstrue your messages online. She says:

“Some of the most useful things I've learned about startups over the years are also things I'd never share publicly. Not because the ideas are necessarily controversial in their own right, but because anyone could twist them to seem controversial if they were sufficiently motivated to. And when that happens I immediately regret having said anything. It's a massive distraction. I have two young kids, and I have hundreds of startups to keep track of. I don't have time to fight with people who are trying to misunderstand me.“

Andy Warhol said we wanted 15 minutes of fame, but we didn't know we were going to want (& get) 15 minutes of fame every single day.

On the internet, if you’re “famous,” you have your lovers and your haters. As Jessica says: “You can't prevent yourself from being a target. It's an automatic consequence of being successful. So the best you can do is react in the right way when people attack you. To some extent you have to resign yourself to letting people lie about you.”

The hope is that private networks will increase authenticity, vulnerability, meaning, and connection — both for those in the spotlight, and the broader network of users more generally. If users are complaining about it today, it’s clearly an opportunity to build something better for the future.

“Go Vertical, Young Man”

Vertical networks present the largest opportunity I see in social — unbundle Facebook (or Reddit) demographic by demographic. 

My mental model for this would be to pick a vertical, go super deep on it, and then add a monthly subscription early on.

Ask yourself: "what can I build that Facebook or Twitter or YouTube structurally cannot do?"

This should be something that doesn't fit their business model, or doesn't fit their privacy model — something that, if you did it, the incumbent wouldn’t be able to shift resources to build.

Perhaps you target gamers, moms, sports fans, fitness freaks, Uber drivers, you name it. The key is find a demographic that’s willing to pay for a value prop they can’t find in any other network — your goal with a vertical social network should be to bring back the serendipity of the early internet, where you’d find fanatics just like you, before it got crowded with, well, everyone.

Here are some of my ideas for how you can think about building social platforms for the new era:

  1. Leverage the Real World — Facebook digitized offline relationships, and now, communities are bringing online relationships offline again. As Greg Isenberg likes to say, every app eventually adds messaging, and every app also eventually adds IRL. Packy McCormick also unpacks this idea in his blog post riffing off one of my tweets. He posits the possibility of venture scale outcomes in IRL social as a result of:

  2. Focus less on engagement, and more on truth, depth, and curation — the engagement arms race has become a zero-sum attention war, so much so that people like my friend Joe Marchese are taking advantage with firms like Attention Capital. Big outcomes will come to those who find a structural way to opt out of this zero sum game. (Ex: Wirecutter, Product Hunt)

  3. Experiment with new formats or social mechanics — Facebook popularized photo-tagging, Twitter popularized the character-constrained text post (Tweets), and Snap popularized Stories. The key to each of these innovations is that the format spawned a new social graph — new sets of vectors and relationships that incumbents couldn't quickly copy. Think about the first time you saw a Snap story and how long it took for those to port over to LinkedIn... The incumbents will catch up eventually, but if done right, you can buy yourself time.

  4. Experiment with new growth mechanics — the main incentive to join a new social platform is status. If you're one of the early users of a new social platform, your network and audience is small; however, if they like you and new users like them, you're more likely to quickly build social capital amongst new users. As we move to a new era of social, status alone will not be enough of an incentive. Consider incentivizing users to join your platform by rewarding them economically for joining early. (Ex. Bitcoin, cryptokitties)

  5. Study how recent platforms emerged — there's often a shift in consumer behavior, technological capabilities, and the like which can be used as a wedge for new social platforms. Instagram & Snapchat, for example, were enabled by the cameras on every smartphone. Ask yourself what new capabilities we have that we didn't have several years ago, and think more macro than micro as you evaluate your ideas. Speaking of which, I like Bobby Goodlatte's idea of using Bluetooth as a means of detecting proximity between people. As Scott Belsky points out in this thread, perhaps this could be used for a new professional social network that determines your "true network" by tracking with whom you communicate & spend the most time.

  6. Figure out reputation — Humans need a reputation and a portable identity; without these things, we're just beings with no value or purpose. Right now, the main things that determine our reputation, outside what we say and do, are credentials given to us by institutions (like universities). As it relates to social networks, I see opportunities in unbundling institutional credentials and making them peer-to-peer. I’m hoping we tackle this next year at On Deck.

  7. Find new data sources and build networks on-top — As it relates to my "request for startups" in social, "Twitter for Money," or a social network for receipts, greatly interests me. What we spend our money on is sometimes more interesting or indicative of what we think. While it's funny to look through people's Venmo feeds (am I the only one who does this?), someone will be successful building a *real* Twitter for money: tracking purchases, investments, and donations — all peer-to-peer, opted in, of course. Other examples of data sources that have yet to be mined for a social use case include email, screenshots, podcasts, wearables & health data, and more. Email is also a data set we haven’t truly harnessed yet, and there’s a social network leveraging email data waiting to be built.

  8. The tried and true Ev Williams framework"Take a human desire, preferably one that has been around for a really long time...Identify that desire and use modern technology to take out steps."

And here are some specific requests for startups:

  • Twitter meets Quora — We need something that combines the timely, “Github-for-thinking,” building-block nature of Twitter with the timeless, searchable, compounding-knowledge nature of Quora: a true social network built around knowledge. Forget news, and scrap the photos; I want to see a network where social capital can be earned through proof of intellectual work.

  • More Audio — Though Twitter recently released an audio feature, I’m more curious about spatial audio platforms where the interactions between users are more analogous to real world experience. For example, Sonar presents a unique use of spatial audio in a modular environment built around emojis — navigate voice rooms with swipes, and you’ll notice other people’s voices get louder or quieter based on your dot’s distance from theirs. Airpods also present interesting opportunities for audio-first social apps. Often I'm participating in conversations that I wish were recorded so I can revisit them later as well as share them with others. AirPods will enable a social network around this. (h/t @jessewldn & @Iiterature)

  • New Opportunities in Dating — While some would say we have too many dating apps, I think we’ve only scratched the surface on what’s possible in the space. People often build relationships with others based on mutual interest, and we’ve yet to see that many vertical focused dating apps. Not to mention the untapped data sources we could be mining for new interest graphs. Why don’t we have dating apps based on what books you like? The music you listen to? Who follows you on Twitter? I think there are opportunities for unique digital-first experiences that gamify the dating process and use new social mechanics (audio, video, games, etc.) to make dating more interesting. We could even allow friends to match other friends, creating a way to stake who matched who — I want this, and I know many people who feel the same. (h/t Ship for doing this; they’re owned by Match Group)

  • Network & Market for Memes/Ideas — Meme creators often post to social platforms with a watermark on the photo/video to prove they created the content. I’m surprised we don’t yet have a way of verifiably certifying memes/ideas, along with a way to establish who found something first and stake it. Economically it’d look like speculation (crypto), and socially it’d look like collectibles, effectively quantifying someone’s sentiment in something. I envision the ability to go to a website and see “communism down 20% today,” for example.
    In venture investing, it’s clear who was the first investor in a company by looking at a cap table — why don’t we have something like this for memes & ideas? This would also allow meme creators to better monetize their content, instead of it getting repurposed as a sort of public good with a free rider problem.

  • Personal Tokens (Self-IPOs) — Income-sharing agreements have been justifiably controversial, but, assuming the downside is capped (No taking equity in people & no debt), personal tokens could unlock so much human potential and new types of investments. Alex Masmej is doing some interesting things in this space. 

By this point you can likely tell there's no right or wrong way to think about building a consumer social business, and getting one off the ground often feels like trying to catch lightning in a bottle. It's arguably one of the hardest businesses to start, but once you do it successfully, you'll have network effects that draw people in and keep them from leaving.

Thanks to Zach Davidson and Vikram Rajagopalan for contributions to this piece.


Read of the week: Restoring the Promise: Higher Education in America by Richard Vedder

Listen of the week: The Rest Is History, Tom Holland’s new podcast

Watch of the week: Michael Lind on the New Class War w/ Palladium

Cosign of the week: Rishi Tripathy, Chief of Staff at On Deck, who just launched our Chief of Staff fellowship

Until next week,

Erik