Editor’s note: Joe Medved, a partner at SoftBank Capital, focuses on early-stage consumer and enterprise mobile, social marketing, gaming, and commerce investments. He serves on the boards of BestVendor, CrowdTwist, Jump Ramp Games and Thumb. SoftBank Capital’s other investments include BuzzFeed, Buddy Media, The Huffington Post and Omgpop. You can follow Joe on Twitter @joevc or read his blog at www.joemedved.com.
As recent doubts have been cast upon Facebook in response to its stock market dip, it’s interesting to take a step back and look at the company from a different perspective. Despite the precipitous fall of Facebook’s stock price post-IPO, the company continues to grow at a rapid pace globally and sees high retention of new users, with over half of monthly active users coming back daily. In October 2012, Facebook announced hitting 1 billion monthly active users (MAUs), meaning 1 in every 7 people on the planet log into Facebook monthly. The company’s leadership in engagement is also undeniable; the average user is spending over six hours on the site each month.
However, as the world shifts from Web to mobile, there has been a lot of scrutiny as to how Facebook will monetize mobile users. Investors are now looking out for social companies that can build upon Facebook’s success in engagement and growth, and learn from the company’s weakness by driving monetizable behaviors on mobile devices.
Data from AppData
To maintain its dominance as the world embraces a mobile focus, Facebook spent a hefty price on adding Instagram to its wheelhouse. Since being acquired, Instagram has grown dramatically, shooting from 35 million registered users to over 100 million registered users in just 6 months. Instagram continues to show strong user numbers and mobile engagement, with 7.3 million daily actives and 257 minutes spent on the mobile app each month as of August 2012.
Given the current social media landscape, investors have seen a number of social services with similar potential appear over the past several quarters. Many have demonstrated rapid growth but have lacked scalable long-term value, such as social video apps like Viddy, Socialcam and Cinemagram to name a few. As recently debated by Paul Graham, Fred Wilson, and Mark Suster, growth is tricky. Graham warns against running out of possible users so fast that the great growth suddenly stops, or falsifying growth by counting inactive users, “bleeding out invites at a regularly increasing rate.” Suster adds that rapid growth may not be the right focus for all startups. This insight resonates with the rest of the investor community, as engagement steadily becomes a more enticing fruit than downloads and registered users alone.
Data from AppData
Too many mobile services today publicly tout their number of downloads, which is the equivalent of a website calculating the number of visitors it has attracted since its inception. Though Twitter took some time to explode, it has consistently maintained a core of highly engaged users, augmented by strong celebrity presence, which resulted in high engagement from a loyal user base. With 6.9 million DAUs spending an average of 170 minutes per month on the mobile app, Twitter exemplifies the trifecta of users, engagement and mobile success. Led by its Promoted Tweets program, Twitter is expected to generate more mobile revenue than Facebook this year. This revenue burst is attributable to Twitter’s newsfeed-based ads, which yield superior performance on mobile than desktop.
Pinterest blew up in 2012, and despite slowed growth in recent months, has continued to build on its large base of monthly active users. Although the virtual pinboard has yet to home in on monetization, the company has set itself up for success by creating a community that generates monetizable intent. According to Shareaholic, Pinterest now refers more traffic than Bing and Twitter, and it is soon to overtake Yahoo! Similar to other social networks like LinkedIn and Yelp, Pinterest has fostered a focused user base that attracts consumers with a specific purpose, creating a clear path for financial prosperity.
From my standpoint as an investor, my fellow VCs and I are taking note to nascent social networks that have shown clear achievement in mobile, and continue growing in terms of both user base and engagement. Emerging networks like Thumb, which sees users spending over 5 hours on the app each month, are showing that they have what it takes to deliver the robust mobile experience that Facebook lacks. We also see Path having the potential to make Facebook sweat. As of March 2012, the network had users showing three times the engagement as Facebook at the same point in its lifecycle, and the company recently announced 3 million global users. Social messaging apps are also catching investor attention as they continuously explode across the globe. Kik Messenger shot up in the App Annie charts over the past several months, taking the helm as the number 1 social networking app throughout most of July and August 2012. Japanese communication app Line has proven ubiquitous as well, as it made a drastic leap from over 30 million users to upwards of 65 million users between April and October 2012.
These up and coming networks show the investment community that there is an inseparable relationship between user engagement on mobile and long-term value creation. The chart below expresses some of the social services with the highest engagement rates. None of these services have achieved their tremendous levels of engagement through growth hacking alone, but have delivered real value to the user, which ultimately allows them to not only reach such high engagement, but also sustain it.
Data from various sources: Facebook, Thumb, Instagram, Twitter, Pinterest
*All numbers refer to mobile usage, except for Pinterest as it has only released its desktop statistics.
In searching for the next generation of successful social companies, VCs will look for not only growth, but engagement, mobile success and strong intent.