Contrary Research Rundown #90
The curse of consumer social, plus new memos on Redwood Materials, StockX, and more
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Research Rundown
Consumer social is increasingly impossible for any startup to build a really successful company. It can sometimes be surprising because, for a lot of people, social media was their first introduction to technology. Plenty of people learned about HTML for the first time having to customize their Myspace pages. From there it was YouTube, Pinterest, Instagram, Reddit, Snapchat, Yik Yak, Tumblr, and (obviously) Facebook. So what happened from the golden age of social media to now?
Driving the perpetuation of the “consumer social is hard” narrative is the announcement this week that photo-sharing app, BeReal, was being acquired by French game and app developer, Voodoo, for ~$600 million. This is about at the same price as BeReal’s Series B in April 2022. Some are rightfully pointing out that a half a billion dollar acquisition in consumer social should feel like a win. It’s certainly rare! Sheel Mohnot even noted; “I want to know who BeReal's bankers are... seems like they did a great job of maximizing value.”
And he’s not wrong. BeReal’s downloads have plummeted since its peak in 2022.
In fact, this spike in downloads is reminiscent of another recent attempt to break through the ceiling of consumer social hardship: Clubhouse.
For a brief moment in 2021, social audio was the future. The company’s valuation shot from $100 million in May 2020 to $1 billion in January 2021 to $4 billion in April 2021. And then? It disappeared as quickly as it came on the scene. Why are apps like Clubhouse and BeReal, that could have likely dominated in the early 2010s, so difficult to succeed now?
One key reason is that, for most people, their social graphs are already established. Twitter, Instagram, Facebook; all of these platforms grew up around the same time that people were first starting to establish their preferred networks and means of communication online. Now that those are built in, its incredibly difficult to replace. Even newer social apps, like Airchat, try and leverage existing networks to help you find people you know.
But a primary driver is that, in social media, advertising is king. And advertising requires sustained engagement. App experiences that are fads rarely create the types of audiences advertisers want. Amy Wu made the point that this may be one driver of BeReal being able to sell for such a stable price (relative to its last valuation). While downloads have plummeted, daily active users (DAU) is declining much more slowly, with ~20 million people still using the app daily.
Alexandre Yazdi, the CEO of Voodoo, who is buying BeReal, made a similar point about advertising when announcing the acquisition: “We think advertising is necessary for the business model of a social media platform.” If BeReal really does have an engaged user base of 20 million, that could be an attractive advertising opportunity.
But by and large, the days of being able to build a multi-billion dollar social media company are pretty much over. Notable counter-arguments are things like TikTok, which was only launched in 2017. Maybe newer modals of interaction, like short-form video, are enough to break through the malaise? Only time will tell.
StockX is an online resale marketplace for deadstock sneakers, streetwear, watches, handbags, and other high-demand, supply-constrained lifestyle accessories that become collectibles. To learn more, read our full memo here and check out some open roles below:
Application Security Engineer - Remote, USA
Junior Graphic Designer, Creative Marketing - Detroit, MI
BeReal is a social media app designed to meet changing preferences around social media use by showcasing life without filters. To learn more, read our full memo here and check out some open roles below:
Backend Engineer - Remote
Redwood Materials recycles lithium-ion batteries from EVs and consumer electronics in order to extract anode and cathode components, refine them into reusable material, and repurpose them for battery cell production by US auto manufacturers. To learn more, read our full memo here and check out some open roles below:
Chemical Engineer - McCarran, NV
Mechanical Engineer - McCarran, NV
Check out some standout roles from this week.
Hypermode - Developer Relations, Product Designer. Reach out to research@contrary.com for more info
BuildBuddy | Remote - Software Engineer, Senior Software Engineer, Solutions Engineer
After talks fell through for Lacework to be acquired by Wiz for $200 million, down from an all-time-high valuation of $8.3 billion, the company has now been acquired by Fortinet for an undisclosed amount.
Research platforms AlphaSense and Tegus have announced the two companies are merging. The combined entity will have over $300 million ARR and be valued at $4 billion.
A data breach at Snowflake, which impacted customers like Advanced Auto Parts and Ticketmaster, could end up being one of the largest data breaches in history.
Carta, a cap table management software platform, is reportedly in talks for a secondary sale that would value the company at as low as $2 billion, down from a high of $8.5 billion in late 2022.
Mistral, a barely one-year old French AI company, has raised $645 million at a $6.2 billion valuation. A bastion of open source AI, the company is taking on Anthropic and OpenAI, while also having received investment from Microsoft.
Speaking of OpenAI, the company has, yet again, had a big week. The first big announcement was a partnership between Apple and OpenAI to integrate ChatGPT into iOS, iPadOS, and macOS. Some pointed out that this could make ChatGPT the first interaction many average people have with AI. Others, like Elon Musk, were not so happy, saying “If Apple integrates OpenAI at the OS level, then Apple devices will be banned at my companies. That is an unacceptable security violation.”
Around the same time, OpenAI then announced it had hired the former CEO of Nextdoor, Sarah Friar, as CFO, and Kevin Weil, who previously led product at Twitter and then Instagram, as Chief Product Officer.
Finally, The Information reported that OpenAI has doubled its revenue since the end of 2023, growing to $3.4 billion.
Databricks announced that the company was at a $2.4 billion run rate with growth accelerating, from growing 50% year-over-year last year to growing 60% as of Q2 2024. In addition, the company shared it has 140% net retention, with products like data warehouse sales growing 300% year-over-year to $400 million.
Perplexity has come under fire for “plagiarizing” articles from media outlets like Forbes. The company was quick to share that it was reportedly working on revenue sharing deals with publishers, but the outcome is still unfolding.
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