Lloyd's Thoughts: Why Spotify Could Acquire Clubhouse

After Spotify's purchase of fast-growing startups Gimlet and Anchor way back in February 2019, CEO Daniel Ek said Spotify's goal was to become the "world’s number one audio platform". I highly doubt that when he made this statement, he envisioned that there would've been a fast-growing audio startup where people could have podcast-style talks live with their audience. And to be fair, this business may not have succeeded in 2019. The calculus has changed due to COVID, and with an ever-present competitor in Apple, Spotify may be looking to differentiate itself even more. I personally believe that Daniel Ek and company are looking seriously into Clubhouse.

Background:

Clubhouse was founded on March 15, 2020, by Paul Davison and Rohan Seth.
Their latest funding round, a Series B, was led by Andreessen Horowitz and raised $100 million. They are now valued at $1 billion.
They now have 2 million WAUs, according to Statista and have surpassed 8 million downloads.
Spotify is a global behemoth in audio. They went public in 2018 after raising a total of $2.6 billion in funding. They are now currently valued at $72 billion.

The What:

Funnily enough, Daniel Ek was asked just recently about Clubhouse. On Monday, January 22, 2021, Spotify held a 90-minute event where they showed off new audio products and podcast ad technology.
About Clubhouse, Ek told The Verge that he's not surprised at Clubhouse's success as it follows the same format that has worked very well for podcasts.
- He went on to say that it's an interesting space that his team is "keeping an eye on."
- But he pointed out a weakness of Clubhouse that Spotify is strong in, and that is people want media-on-demand, which they can't get on Clubhouse.

The Why:

Spotify loves social.
- Spotify has dabbled in social over the years, enabling users to discover, follow, and interact with other users, artists, and podcasts. Clubhouse's discovery features are also great; they help users know who to follow and what rooms may interest them.
- They have many features that are social in nature and that drive their success, such as seeing what friends are listening to, user profiles, and a new party mode.
- Spotify has shown that it's not afraid to try social features that seem a bit "out there". Remember the news about them testing Stories?
Clubhouse may want to move past (some of its) ephemerality in the future.
- Currently, after a talk is finished on Clubhouse, it is gone forever. 'Live' can be monetized, but just like other platforms with live features such as Instagram, YouTube, and Twitch, users are able to save these live shows for further viewing.
- When Facebook and Twitter follow through on their plans to release their Clubhouse competitors, they will most likely integrate them into their Stories features. Stories (in Twitter's case, Fleets) are ephemeral, yes, but they last for 24 hours. That brings more eyes and ears for ad dollars.
There is increased competition.
- Twitter's and Facebook's moves to compete with Clubhouse could eventually enable them to disrupt the podcasting space.
- Can you imagine a new kind of podcast that lasts only 24 hours? Spotify can't afford huge competitors other than Apple in the podcasting space.
- Also, Clubhouse surely can't afford to compete against giants like Facebook and Twitter right now. Sure, Clubhouse has money to burn, but they're not going to win against companies with the infrastructure, talent, money, influence, and established networks like Facebook and Twitter have.
- Oh, and if they acquire Clubhouse, they could stop them from being a likely and formidable competitor.
Their marriage would be beautiful.
- Spotify's podcasts don't have the magic of a live discussion. I think podcasts and live audio should be merged, and it would be a beautiful thing.

The How:

Clubhouse is "cheap" now, and it's my hunch that their valuation will be quadrupled by this summer.
Spotify spent nearly $600 million in 2020 on acquisitions and other investments, but they still have over $1.3 billion in the bank. A cash plus stock deal doesn't look farfetched.
- AND AMAZINGLY, there was news released today that said Spotify took on $1.3 billion in debt for acquisitions. Hmm 🤔
I made some imperfectly fleshed-out tweets a while back on how I think an acquisition could go. One of them went like this:
Prediction: Spotify will buy Clubhouse amid competition from Twitter and make it run independently. It will scale with the help of Spotify's infrastructure.
— The Lloydinator (@lloydmiller) January 29, 2021
- The alternate thing that could happen is Spotify immediately brings them in-house and renames the app Spotify Clubhouse. They may let it operate as a separate app but Clubhouse's features will get deeply entwined with Spotify's. Spotify would have more powerful ways to get ads into more ears.

Conclusion:

Why aren't more people begging for this to happen? To be fair, I'm just a layman, so it could be a very bad idea, or impossible. However, I am also a very logical person, and I highly doubt it would be a terrible or impossible move.
I do see arguments against a quick move, though. One could say that Spotify would be throwing its weight around too quickly and lose sight of its podcasting goals.
But wouldn't it be prudent to buy Clubhouse while they're cheap, and give them a year or more of leeway to grow with Spotify's resources? They could do this while Spotify consolidates its position in podcasting and only fully integrates Clubhouse when it's ready. Wasn't that Facebook's playbook with Instagram?

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