The Houseparty Business Model – How Does Houseparty Make Money?

Executive Summary:

Houseparty is a social media app that lets you connect with friends and other users through video calls.

Houseparty makes money from in-app purchases. Users can buy packages whenever they play games on the app.

Launched in 2016, Houseparty has quickly grown to millions of users. The company saw over 50 million downloads during 2020 alone.

What Is The Houseparty App?

Houseparty is a social media platform that allows you to connect with friends and other users via video calls.

The platform can be accessed in a multitude of ways, for instance by downloading its Android or iOS app, Chrome extension, or by visiting its website.

Once an account is created, users can add friends by either sharing their contact list or searching their usernames.

Houseparty is primarily used to video chat with friends. These chats can either be conducted between two and in groups of up to eight people.

Furthermore, while Houseparty is mostly used for live video chats, users can also send so-called facemails, which are simply video messages that can be watched at a later point in time.

Apart from chatting over video, users can also play games with each other. The company has partnered with game creators like UNO for that matter.

Additionally, as a result of its acquisition by Epic Games (more on that in the next chapter), users can also stream their Fortnite gameplay to friends and other users.  

How Houseparty Started: Company History

Houseparty, which is operated by Life On Air and headquartered in San Francisco, California, was founded in 2015 by Ben Rubin, Itai Danino, and Sima Sistani.

Its story, however, began much earlier than that. In 2012, Rubin, who pursued a degree in architecture at the Israel Institute of Technology during that time, as well as Danino incorporated Life On Air.

The goal of the business was to act as a catalyst that they would use to develop different social media platforms.

After raising a small seed round, the duo eventually released their first app in August 2013. Dubbed Yevvo, the app allowed users to not only follow their friends but also nearby events, locations, and more. Unfortunately, Yevvo never really took off.

Rubin decided to pack his bags and move to San Francisco to be closer to investors and other innovators. The team managed to raise an additional $3.7 million to continue exploring new business opportunities.

Over the coming months, they continued to dabble with various ideas. One of those ideas eventually turned into Meerkat, an app that CTO Danino had built by himself over an eight-week time span.

Meerkat utilized a corner feature of Yevvo, which had been extremely popular with its users. The feature allowed them to initiate a live stream, for instance, to broadcast a concert they were attending.

Danino took that concept to another level with the development of Meerkat. The app was directly connected to Twitter’s social graph, so users did not have to recruit a whole set of friends to join the platform. Everyone you’d be friends with on Twitter would immediately be able to consume the live streams.

Meerkat was formally launched on March 1st, 2015, and immediately took off. Celebrities like Ashton Kutcher and Gary Vaynerchuk became some of the early adopters. Within two weeks, Meerkat had attracted over 120,000 users.

Unfortunately, things weren’t going as smoothly thereafter. Just days later, Twitter cut off access to its social graph. It, furthermore, purchased a competing startup named Periscope, which was still in beta, for $100 million (similar to Vine, which was acquired a few years prior).

Despite the cut-off, Meerkat became the talk of the town during South by Southwest Interactive (SXSW) festival, a tech conference taking place each year in Austin, Texas. Ironically enough, Twitter also became famous at SXSW back in 2007.

The heightened attention allowed the team to raise another round of funding, this time raising $14 million from the likes of Greylock, Comcast Ventures, and other Silicon Valley investors.

While Meerkat soon crossed the million-download mark (in part because it released an Android app before Twitter/Periscope), interest in the app soon began to stagnate. To combat the declining interest, Meerkat’s team was able to close a partnership with Facebook to use its social graph instead.

Yet, even subsequent partnerships with GoPro (to stream videos through the device) or the Discovery Channel (for content) weren’t able to stop its demise. To make matters even worse, Facebook also launched a live streaming feature months after their initial partnership announcement (which later became known as Facebook Live).

By the beginning of 2016, the founders realized that all hope was lost. Given that they still had over 70 percent of the cash they received from the $14 million fundraise, Rubin and his team decided to do another pivot.

After doing a company-wide retreat in Israel, they developed the initial idea of a live-video social network. This idea would act as the foundation of Houseparty, which they quietly introduced in February 2016.

On top of that, they recruited Sima Sistani, who had previously led teams at Yahoo and Tumblr, as the firm’s third co-founder and COO.

Despite the fact that they waited until September 2016 to make a formal announcement, Houseparty already surpassed Meerkat’s user count within months of being released. The app even reached the number two spot on Apple’s App Store in May, just three months after launch.

Over the summer, Houseparty’s user growth stalled because the app simply wasn’t able to handle all those newly joined users. As a result, Life On Air restructured its whole engineering organization, moving them from Israel to San Francisco while hiring a new Head of Engineering – ironically enough from Twitter.

With growth picking up again (the app crossed one million downloads in September), the team was able to get investors excited about the prospects of Houseparty. In December 2016, the team successfully raised another $52 million round.

By the end of 2017, more than 20 million people had already downloaded the app. Over the coming months and years, the team continued to iterate the app experience, for instance by adding the ability to play games. Despite the fact that platforms like Facebook or Snapchat launched competing products, growth remained undeterred.

In March 2019, after seven years, CEO Rubin announced that he would step down from his role as CEO and hand the keys to COO Sistani. Rubin himself stayed on as a board member and advisor while having launched proceeding to launch business later that year.

Three months after that announcement, an even bigger one emerged: Fortnite creator Epic Games said that it just had acquired Houseparty. Subsequent reporting, later on, revealed that the purchasing price was about $35 million.

Interestingly enough, Facebook wanted to make a bid for the company at the end of 2018 but ultimately pulled out due to upcoming monopoly investigations by the Federal Trade Commission (FTC).

Meanwhile, Epic Game’s timing could have not been better. A few months after purchasing Houseparty, the novel coronavirus essentially forced the worldwide population to quarantine at home.

Houseparty, next to Zoom, became one of the tools that allowed friends and families to stay connected with each other. The platform saw over 50 million signups in March 2020, alone.

Unfortunately, not everything was always going according to plan. In March, thousands of users reported that their accounts had been compromised, leading to deductions from their credit cards amongst others.

Epic Games denied all these claims and even offered a $1 million bounty for anyone that would be able to show proof that Houseparty had been hacked. That proof came two months later by Zach Edwards, the founder of analytics firm Victory Medium.

He found that a well-known hacking group used dozens of subdomains owned by Houseparty to redirect users to malicious files. Once these files had been downloaded (without the user’s consent), they began infiltrating their devices and attempted to extract credit card and other information.

Growth, however, remained unaffected. Epic Games eventually began to take advantage of the acquisition, for instance by allowing users to live stream their Fortnite gameplay to Houseparty.

How Does Houseparty Make Money?

Houseparty makes money from in-app purchases. For instance, it has partnered with Heads Up, a game that spawned from the Ellen DeGeneres show.

Within the game, users can use a standardized set of decks. If they want to have an enhanced gaming experience, they can opt in to buy additional decks.

It has to be noted that Houseparty has to pay a commission to both Apple and Google whenever it sells a package within the app. The fees range between 10 to 30 percent.

Houseparty has explicitly opted against displaying ads on the app. The reasoning is to not affect the user experience, which intrusive ads tend to do.

Furthermore, speculations arose in the past that Houseparty was selling user data to other companies. The company has repeatedly denied those claims and, so far, hasn’t been disproven.  

Houseparty Funding & Valuation

According to Crunchbase, Houseparty has raised a total of $70.2 million across six rounds of venture capital funding.

Notable investors include Comcast Ventures, Greylock, Arena Ventures, Aleph, NFX, Sequoia Capital, Rainfall Ventures, and many more.

The last time Houseparty’s valuation was disclosed was during its acquisition. Epic Games allegedly paid $35 million to acquire the company.

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..