The Clubhouse Business Model – How Does Clubhouse Make Money?

Executive Summary:

Clubhouse is a social network where you can listen to interesting conversations with people. Users can listen to interviews and discussions happening online.

Clubhouse does currently not generate any revenue. It is focusing on expanding its user base before it introduces any monetization.

Founded in 2020, Clubhouse has quickly risen to become worldwide phenomenon. The app has been downloaded more than 10 million times ever since.

What Is Clubhouse?

Clubhouse is a social network based on audio-chat. Users can listen to interesting conversations, interviews, and discussions happening between people.

Discussions take place on a variety of topics, including entrepreneurship, marketing, philosophy, politics, and dozens more.

After opening the Clubhouse app, which can be used on both iOS and Android devices, users are given access to a list of virtual rooms they can join.

Every room has live speakers. The other users simply chat casually or observe what’s going on in the room where live people are speaking. Users can, furthermore, chat with each other in text format during the audio event.

Alternatively, users can also host a room of their own. They simply let people know what the topic of the discussion will be and wait for others to join.  

Clubhouse was previously an invite-only app. On July 21st, 2021, its founders announced that the app could now be used by anyone, thereby not requiring an invitation from an existing user.

How Clubhouse Started

Clubhouse, headquartered in San Francisco, California, was launched in March 2020 by Paul Davison and Rohan Seth.

While the app seems like an overnight success, its creation has been a result of decade-long failures and learnings by both founders.

Let’s roll back the tape a little here. Paul Davison, after graduating from Stanford in 2002 with a degree in Industrial Engineering, spent the first three years of his career as a consultant at Bain.

He followed that up with an MBA at Stanford’s School of Business after which he decided to join the startup world.

He joined Metaweb, a database company out of San Francisco, as a VP of Product. Three years later, Metaweb was acquired by Google. Instead of staying on at the search giant, Davison decided it was time to venture out on his own.

Through his time at Metaweb, he became familiar with investors from Benchmark who had previously poured money into his former employer. At Benchmark, he was able to join their entrepreneur in residence program, which allowed him to experiment with different ideas.

One of those ideas became Highlight, a social media app that allowed you to share your location, which he launched together with Ben Garrett in late 2011. One would sign up via Facebook and let Highlight run in the background. Once a friend or stranger with common interests was close, the app would go on to notify you.  

They were able to quickly raise $5.5 million in venture capital funding. In 2012, during South by Southwest, a yearly tech conference taking place in Austin, Texas, the app took off like a wildfire, creating a big buzz.

However, that buzz slowly faded away after the event. For once, Highlight’s location tracking was draining the user’s phone battery. Second, most people simply thought it was creepy to be tracked all the time and have people around you knowing your name and preferences.

Davison and Garrett, however, kept iterating and launched two more apps. One was called Roll and enabled users to share their camera roll with friends. The second one, named Shorts, displayed photos to random people nearby.

Unfortunately, none of them really took off. In 2016, social network Pinterest decided to acqui-hire Davison, his co-founder, and the rest of their employees. Davison stayed on at Pinterest for the next two years and eventually joined cryptocurrency exchange CoinList as their CEO.

Somewhere in 2019, Davison was contacted by Rohan Seth, another fellow entrepreneur whom he met through a common friend in 2011, who needed help raising money for his newborn daughter. But let’s rewind the tape a little bit first.

Seth came to the United States in 2002 to pursue a degree in Computer Science at Stanford University, right when Davison graduated. After graduating in 2008, he went on to work at Google where he helped to develop products such as Android or Google Maps.

Much like Davison, Seth eventually became an entrepreneur as well. In early 2014, together with former Microsoft employee Rohan Dang, he co-founded Memry Labs, an incubator for all types of social applications.

Over the next three years, the team churned out six different social apps such as Dayfie, prompting users to share one selfie a day with friends, or Phone-A-Friend, which allowed users to talk to friends on the phone whenever they were available for a chat.

Unfortunately, none of these ideas took off. As a result, he also faced the same fate as Davison. In April 2017, Opendoor acquihired him and his employees. Over the next two years, Seth worked on various products at the real estate marketplace.

Then, in 2019, life struck. His newborn daughter Lydia was born with a very rare genetic mutation, which would cause severe mental and physical disabilities. For instance, she began having regular seizures, which could severely affect her life later onwards.

After sifting through dozens of research papers, they discovered two things: for once, her daughter’s conditions, albeit rare, were treatable (despite doctors claiming the contrary). Second, there were millions of other children suffering from genetic mutations that caused severe disability.

In order to fund the technology that could lead to the cure, Seth and his wife decided to create a nonprofit. However, he wasn’t really knowledgeable about raising money. To help with the fundraiser, he reached out to Davison. The nonprofit, named the Lydian Accelerator, eventually managed to raise $1.5 million.

Meanwhile, the two guys realized that they actually got along pretty well. Coming from the same tech background, they eventually decided to give this whole social app thing another go.

In the fall of 2019, they unveiled an app called Talkshow, which allowed people to schedule and host radio-like live programs. Hosts would be able to broadcast their shows on Twitter while taking in live questions from listeners.

While Talkshow never really took off, it managed to provide the spark that led to the eventual creation of Clubhouse. In particular, the app’s beta testers enjoyed a feature that allowed them to spontaneously join a show and speak alongside the host.

They rebranded the app and eventually relaunched it as Clubhouse in March 2020, right at the beginning of Covid lockdowns. Initially, Clubhouse was only available for iOS devices and could only be accessed if another existing user had invited you.

The invite-only restriction is a common tactic that social media startups utilize to a) increase interest through scarcity and b) keep complexity manageable and to create safeguards for proper moderation.

Clubhouse became especially popular among the venture capital scene. World-renowned investors like Marc Andreessen of Andreessen Horowitz became some of the app’s early adopters and hype men.  

It, therefore, came as little surprise when Andreessen Horowitz led Clubhouse’s first-ever round of funding. In May 2020, the venture capital firm led a $10 million Series A round, valuing Clubhouse at a whopping $100 million. Meanwhile, Clubhouse still only had around 1,500 users due to its invite limitations.

Despite the small user count, Clubhouse already began facing the problems its giant social media counterparts had been suffering for years. Sriram Krishnan, a Valley-based entrepreneur, jokingly changed his name to Tim Cook (Apple’s chief executive), prompting hundreds of users to join his room.

Over the coming months, Clubhouse continued to carefully expand its user base while iterating on the product. By the end of 2020, its iOS app had been downloaded millions of times and saw its name mentioned alongside other pandemic-fueled tech companies like Tik Tok or Zoom.

Its hype also originated from celebrities, such as rapper MC Hammer, comedian Kevin Hart, or actor Jared Leto, joining various rooms. Nevertheless, regular, lesser-known folks were also able to garner big audiences, with some of them having hundreds of thousands of followers on the platform.

In order to not suffer a fate like Vine, which had its most famous creators leave the platform due to a lack of monetization opportunities, Clubhouse launched its so-called Creator Pilot Program in December 2020.

In January 2021, as a result of its exponential growth, Clubhouse was able to raise a second round of funding worth $100 million. The funding round valued its business at $1 billion, making it a unicorn less than a year after its launch.

The app continued to build up hype. For instance, in February, Elon Musk joined Clubhouse for a variety of talks, even prompting Russian President Vladimir Putin to debate him on the app.

Unfortunately, not everyone was taking a liking to the startup’s ascend. China, just like with other tech companies like Google, banned access to the platform in February 2021.

Nevertheless, this did not affect Clubhouse’s global popularity. As a result, other tech giants began to copy the app and incorporate it into their own platforms. For instance, Twitter launched a product named Spaces while the likes of Facebook, Spotify, Reddit, and more all tagged along with their own solutions.

Twitter didn’t stop there, though. The social media platform allegedly made a $4 billion bid to acquire Clubhouse back in March 2021. Instead of selling the business, its founders raised another round in April that valued Clubhouse at the very same number.

In May 2021, Clubhouse finally unleashed its very first Android app, which could greatly expand its reach. The launch came amidst news that interest in the audio platform began to dwindle due to relaxing lockdown measures.

Then, a year after launching, Clubhouse finally removed its invite-only restriction. On July 21st, 2021, Clubhouse finally exited its beta phase and became open to everyone.

How Does Clubhouse Make Money?

Clubhouse does currently not generate any revenue. Much like Facebook in the early days, it is primarily focusing on user growth and will thereby worry about monetization later on.

In April 2021, the platform rolled out a payments feature that allowed creators on its platform to accept donations and monetize their audiences.

But unlike platforms like Patreon, which charge a percentage-based fee for every donation, Clubhouse has opted out from taking a cut – for now.

Satisfying the creators on its platform will allow them to continue to churn out high-quality content, which in turn attracts new users. Plus, with over $110 million in funding, the company likely has some time until it needs to start monetizing.

Apart from donations or tips, Clubhouse also has other opportunities with which it can monetize its platform. For instance, the company could display advertising on the app, sell tickets for (offline) events hosted by its creators, or charge subscription fees for access to premium content.

Clubhouse Funding, Revenue & Valuation

According to Crunchbase, Clubhouse has raised a total of $110 million across five rounds of venture capital funding.

Notable investors include Andreessen Horowitz, DST Global, TQ Ventures, Tiger Global Management, and many more.

Clubhouse is currently valued at $4 billion. The valuation was assigned to the company in April 2021, a little over one year after its launch.

As a privately held company, Clubhouse is not obligated to share revenue figures with the public. It may do so during a future funding announcement.

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..