At Version One, we’ve centered our investment thesis around companies that leverage network effects. We have talked at great lengths about them in marketplaces and in artificial intelligence and machine learning startups.
Social platforms can have incredibly strong network effects, but we’ve been relatively quiet on the subject. And, we’re not alone. It seems like a long time since anyone has given social much attention. Is it possible that this space has peaked?
The fact is that strong network effects make it hard to unseat the incumbents. It’s difficult to convince someone to leave their 300+ friends on Facebook and start over on a brand new platform. It’s this moat that makes network effect companies so attractive to investors and entrepreneurs. Once incumbents establish themselves, there’s little room for newcomers.
However, we don’t believe that opportunity in social networking is dead. There are still possibilities out there for good companies to ride out the last vestiges of the original social wave through vertical niches, to build on the current wave of messaging as a platform/conversational UI, or to jump on a brand new social wave sparked by AI/ML.
Riding out the old wave: new or under-represented verticals
Over the years, verticalization has been a big trend in the social space, with niche sites catering toward interests, locales, professions. It seems like every week, TechCrunch writes about the launch of a new “Instagram for X” or “LinkedIn for X” where X ranges from doctors, teachers, finance professionals, academics, dog lovers, travelers, etc. It appears that much of the white space has already been filled in.
However, there’s still opportunity through a vertical approach if 1) the underlying market is big enough and 2) there isn’t already a social network catering to the specific user group. Figure 1 (a V1 portfolio company) found this opening in healthcare.
In addition, verticals themselves aren’t static. There’s always a potential to build a social network around an emerging vertical; for instance, Twitch rose with eSports’ popularity.
And, the enterprise is still a nascent area for social networking. Clearly, Slack has made some big strides in this category, developing into a true platform with both integrations to other services and a growing ecosystem of apps created on top of it. However, tools like Slack are still very much focused on productivity and workflow first, with social and collaboration being unlocked as an outcome. As a result, we believe there is strong potential to build social in the enterprise, but have a few unanswered questions:
- How can you actually unlock collaboration in the enterprise setting that is targeted?
- Is collaboration vertical and/or horizontal? Does it touch many parts of the organization or just a specific department/team?
Building on the current wave: Messaging as a Platform
There is a lot of excitement around Messaging as a Platform right now. In China, WeChat users get movie tickets, check their bank statements, reserve a hotel room, and schedule an appointment with their doctor, all through the “messaging” app. But a dominant messaging app still hasn’t emerged in North America – and companies and investors are eager to replicate WeChat’s success in China.
However, Facebook Messenger, Google Allo, and Apple iMessage are all opening up their platforms. This doesn’t leave much of an opportunity for a newcomer to build a new messaging platform, although there are still plenty of opportunities to create products that leverage the existing messaging apps as an interface.
The key question is: where is messaging the optimal way of getting things done?
One of the big unknowns is if the command line of a chat app is going to offer a better experience than a native app. In some cases, the conversational approach may be better for accomplishing a task; in other cases, it’s cumbersome and inefficient. After all, there’s a reason why we moved from DOS to Windows.
We have no doubt that we’ll be interacting with brands and companies via a messaging app much more in the near future. However, just because something happens inside a chat app doesn’t necessarily mean it needs to take on a pure conversational UI.
Conversational commerce might be best when 1) it’s a completely new use case (e.g. it’s not already defined like hailing an Uber), and 2) it’s not all that complex of a transaction.
Creating a new wave: the future
As with any industry, the biggest opportunities are typically found at the cusp of a new wave of innovation. The emergence of augmented reality and vertical reality will most likely change how we interact with others.
It’s still too early to predict exactly how social will manifest itself in this new AR/VR age, but we’re interested in seeing how a more immersive social experience can lead to new ideas and products (more Pokemon anyone?).