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FRI, JUN 02, 2023

Can Facebook beat Clubhouse and Substack? From the Archive

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I wrote this piece two years ago, but the ideas still resonate as we look ahead to a mixed reality headset launch from Apple next week, taking on Meta’s Quest. In this On the Other Hand archive read, revisit 2021’s arguments about whether Facebook itself would be able to beat upstarts in live audio and newsletters. (For the record, the second argument won, sort of; as the pandemic waned, the entire live audio category fizzled including Facebook and Clubhouse. In newsletters, Facebook shut down Bulletin, but Substack has been struggling.)

From 7/8/2021: Facebook has taken bold moves into two new product categories: It’s taking on Clubhouse with Facebook Live Audio Rooms, and Substack with Facebook Bulletin. Can Facebook beat the upstarts at digital radio shows and newsletters? Jon Fortt is here to weigh in.

JON:

“Yes, Facebook can beat them.

Its platforms had 3.45 billion monthly active people in the first quarter. That’s roughly 44 percent of all the human beings. Facebook’s worth a trillion dollars now.

What Facebook can’t do is buy the competitors. Not with antitrust and legal pressure mounting. That would never get past its critics in D.C. Also, Facebook beating these companies is going to look different than you’d expect. Could Facebook pound Clubhouse and Substack into dust? Sure. Technically. But then that would become exhibit “G” in the antitrust case against Facebook, Destroyer of Worlds.

No, the way Facebook beats the competition here is by staying nimble — staying in the game with Live Audio and Bulletin: good products they can lean into if consumer demand in a category takes off. Look, Clubhouse said it had 10 million users in February. Respectable number. But to a 3.4-billion-user Facebook, that’s less than a rounding error. Substack has more than half a million paying subscribers to newsletters on its platform. Which is great — but Facebook just signed Malcolm Gladwell, who has been known to sell millions of books all by himself.

So it’s not really a fair fight. Fortunately for Clubhouse and Substack, Facebook isn’t going for the K.O.”

You really think Facebook could crush these companies, but just doesn’t want to?

JON:

“On the other hand, I bet Facebook’s going to fail to catch Clubhouse and Substack.

Just because companies are big, doesn’t mean they’re great at everything. If that were even remotely true, “Facebook Watch” should be doing a lot better, for one. With Netflix, Apple and YouTube in the high-end video game, Facebook should at least get on the scoreboard. How come the only Facebook Watch show I can name is “Red Table Talk?”

And what about virtual reality. Remember how Facebook was going to make VR a big thing? Facebook bought Oculus seven years ago and it’s closer to being the next Google Glass than the next Instagram.

The bottom line is that making hit products is hard. It requires talent and focus, and big companies don’t necessarily have more of that than scrappy ones. Take Microsoft 20 years ago. Microsoft was trying hard to make a handheld computer, and then an mp3 player. Remember Pocket PC? Remember the Zune? The Zune was not on purpose. That wasn’t Microsoft saying, “Let’s make one, but let’s not make it so good it crushes the iPod.”

In Clubhouse and Substack’s categories, there are a lot of creative people who want to build businesses based on a direct connection with the audience. That’s just not Facebook’s M.O. Facebook is known for owning the audience and renting it out to others on its own terms. The right partners are more likely to trust the little guys.”

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On the Other Hand is Jon Fortt’s weekly segment on Squawk Box, Thursdays in the 7 a.m. ET hour. He’s been writing it just about every week since August 2020. The second (or first) argument each week isn’t necessarily the one Jon agrees with. He just makes an honest effort to construct the best argument he can for each side.

When he’s not debating himself, Jon co-anchors Overtime at 4 p.m. alongside Morgan Brennan. Jon also researches and writes the weekly Working Lunch segment on Power Lunch, Fridays in the 2 p.m. ET hour, where he introduces viewers to founders and CEOs through their origin stories and strategic goals.