Going Beyond Gamestop: Opportunities for Social+ in Fintech and Insurtech

What is social+?

Gamestop, the stock (or stonk) that generated a thousand memes, a congressional hearing, and endless analysis around the disruption of capitalism also captured something else: a social+ market opportunity. Social+, dubbed by Andreesen Horowitz, is a startup that builds products with an integrated social network focused on a single category, such as fitness or shopping. Rather than build product first and social second, the social experience is completely integrated into the product from day one. The features are a commodity; the stickiness is the community.  Most technologies we use today are from a single-person experience, reinforcing the misconception that we think in a vacuum. The human brain is wired to think communally – our social networks influence everything from how we process information to how we feel pain.

The Gamestop Short Squeeze validated how truly disruptive technology is not driven by product, but by community. With barely 1 million users, the Reddit community WallStreetBets was able to upend the stock market in a matter of days. Reddit gained millions of users, but Robinhood and other trading platforms captured the revenue. Thanks to WallStreetBets, Robinhood generated $331 million in revenue for Q1, up 3x from 2020. How would this have played out if users were able to message each other while trading in real-time rather than going back and forth between both platforms? Perhaps WallStreetBets could have executed short squeezes across multiple stocks in hours, rather than days. Regardless, it validated the market opportunity for a social+ entrant. (Not coincidentally, Public, an investing social+ network, announced a $200 million Series D round at a $1.2 billion valuation, just three weeks after WallStreetBets made headlines.) Robinhood may have gone public but that doesn't mean it's captured the market. It took Spotify 15 years to reach 356 million monthly active users. It only took TikTok 5 years to reach 1 billion.

Social+ advantages

For social+ startups, the user is not only a revenue source, but also a revenue driver. Users create and facilitate growth loops, drive engagement, increase retention and ultimately become the differentiator. Growth loops help give social+ startups a buffer against some of the typical challenges faced by early-stage startups, such as high customer acquisition costs, high churn rates and low retention. Once you've reached critical mass, it's an easy crossover to other market segments. For example, Fortnite, an online video game with 350 million users, began broadcasting concerts in 2020. More than 27 million people* tuned in live to watch a Travis Scott concert with total views amounting to 45.8 million.

Social+ communities are built by:

• Replicating and recreating in-person experiences from anywhere, regardless of location (e.g. Peloton)
• Building and scaling communities on established platforms like Facebook or Reddit, then lifting them onto a new platform with tailored features that drive engagement

For new market entrants a community following before product build can be advantageous and help de-risk the concept. The top reason startups fail is “no market need” – too often, founders build a product only to find out no one actually wants it. Early-stage founders who don't yet have a product but have established an active community on other platforms may find themselves at an advantage over startups with a fully-developed product but no users.

What are the risks?

The ultimate challenge for social+ startups is that they are inherently more difficult to build. The product must be designed so that users are incentivized to not only engage, but also share. There can be categorical disadvantages for sharing, too. Asking people to exercise or listen to music together online isn’t uncommon, but asking people to share their personal finances with strangers online? That’s another ask altogether.

Growth and engagement are also highly sensitive to the design of the community experience and number of members. Too few, and the experience feels like a Kirk Cameron birthday party. Too many users brings to mind the Yogi Berra quote, "Nobody goes there anymore, it's too crowded." Clubhouse, which launched in March 2020, was originally an invite-only, iPhone-only, audio-enabled chatroom designed to recreate the intimacy of a salon-style discussion. The social driver wasn’t the voice feature, but rather the exclusivity feature. Our brains are hard-wired for social status. Invite-only for iPhone users implies a social hierarchy; exclusivity drives value (think Facebook in its early days). Clubhouse grew to 10 million users in 1 year with negligible customer acquisition costs. In less than a year, Clubhouse became a unicorn, raising a $100M Series B led by Andreesen Horowitz at a $1B valuation. Facebook, Bloomberg, Twitter and other industry giants rushed to create copycats. iPhones may be more popular in the United States but Android dominates worldwide with 73% of the global market share. Clubhouse didn't launch the Android version until May 2021, already past their growth inflection point. Now, Clubhouse now must compete for Android users to participate while the world opens back up.

Opportunities in fintech and insurtech

While social+ has largely scaled in industries outside of financial services, this likely won't remain the case. Long-term social+ startups will drive behavior changes across all categories and industries, just as sharing and social media platforms have in the past. Each technological advancement has shifted the boundaries of trust and networks – we trust that a Lyft driver will take us to our destination; we bond with strangers in Facebook groups. Trust in financial services has been inherently challenging, not only as an industry, but for individuals. Talking about money with friends or strangers has always been taboo until recently. Millennials are more comfortable discussing their personal finances with friends than Baby Boomers. Thirty-eight percent of Millennials look to financial influencers on social media for financial advice, versus 16% of Gen-Xers and 12% of Baby Boomers.

Social+ fintech startups that remove the taboo around discussing personal finances have a unique market opportunity to not only drive financial wellness, but also redefine how people engage with their finances and build healthy, long-term behaviors. Given the nature of insurance, it is more likely that we will see a successful social+ fintech expand into offering insurance products or a B2B player offering embedded insurance solution to other social+ startups. Social+ still presents an interesting opportunity for insurtech, particularly for a P2P (mutual) model. The P2P insurance model has eluded even the most famous of insurtechs and quickly faded as a trend when it became evident that it's hard to get people excited about sharing insurance with their friends. A social+ startup with traction has already solved for all the problems that plagued P2P insurtechs – scale, a built-in community, a seamless way to distribute funds, and trust. Depending on the category, an embedded P2P insurance player could leverage underlying product features to further incentivize group members to engage in ways that lower claims and improve loss ratios.

It may take some time but I'm personally excited to see what social+ brings to the financial services industry, particularly for building financial wealth and resilience. If you still doubt the power of community - just remember that some of the top Wall Street hedge funds lost more than $5 billion dollars thanks to a guy on reddit called "RoaringKitty."

* Fortnite later announced full attendance at 27.7 million users, not 12.3 as originally estimated. So, double the size of the circle in the graph.