The end of the 1 billion active user ad-supported consumer startup

And why highly-monetizing, useful, vertical apps might be the next thing

(below: TikTok has been the latest horizontal app to hit a billion — but 8 years after its release, what’s next?)

You may have seen that this month, we’re kicking off SPEEDRUN 4 — a 12-week program starting in Jan 2025 in San Francisco — focused on funding $750k+ into brand new startups. I’ll be personally involved in investing over $30M in the next 30 days, picking the best of the bunch. More info here. As part of this, I’ve been sorting through a bunch of next-gen startups and had some new thoughts on where the industry is going.

First, observation: It's been a long time since we last built a broadly horizontal consumer app like YouTube, TikTok, Linkedin, or Snapchat. 8 years ago, in fact. I'm convinced it may not be possible anymore, because we're in the final years of the mobile S-curve and 15+ years after the launch of the iPhone, there are major hurdles to apps to broad, billion user horizontal apps.

Vertical apps with whale monetization and focused utility
Instead, the next generation might be "vertical apps" -- appealing to a vertical segment of the market, like Monopoly Go, Draft Kings, Canva, etc -- that are smaller audience products with higher "whale" monetization (sometimes even workflow/B2B)

First, why these broadly horizontal apps are hard:

• the novelty effect has worn off on new app ideas. Consumers have heard it all. And over the last 15+ years, founders have tried the obvious permutations on social/communication/photo/video apps -- the most horizontal of all apps -- and a lack of novelty creates a lack of intention to try new apps.

• retention is more elusive than ever, because of the competition. At the start of the mobile revolution, all you had to do was to create a mobile app that was more entertaining than waiting in line, or sitting on the toilet looking at the blank wall in front of you. These days, new apps compete with the most addictive products ever created. If you don't provide every day value, people will switch over to TikTok or Instagram, and you may have lost them forever. (And no, spamming them with a ton of notifications won't help)

• building an ad-supported startup is sort of a "two miracle" problem, as they say. First, there's a miracle of getting to 10s of millions of users -- enough scale so that ads can even be a revenue generator -- and then a second miracle to build an ads marketplace, targeting systems, bidding systems, etc, to attract millions of advertisers. It's a great system when it works, sort of a secondary network effect on top of an existing network -- but it takes years to build these ad systems

• easy growth is mostly over. Mobile ads are expensive (and harder to target than before). Viral invites have low response rates and have gotten nerfed. Working with creators/influencers can be spiky but temporary. Prior web channels like SEO, getting traffic via press/PR, don't work well for mobile. If these channels don't work, and viral invites are ineffective, then it means it's that much harder to get your friends onto the same social app at the same time

So what's next?
Vertical apps with beefier monetization, and different network characteristics seem a likely candidate. When you look at products like Monopoly Go, Draft Kings, web3 games, Canva, etc., and start to generalize towards new opportunities, you can come to see them as vertical apps with distinct new advantages.

• Rather than ads, these products often let customers spend big dollars directly to upgrade their experience. Free-to-play games often have "whale monetization" mechanics where the top users can spend $100,000s of dollars if they want. Same for a betting product like Draft Kings. If the top 10% of your users drive all the monetization, then it's the quality of users (and their ARPPU) that matters, not just the scale of users. Blockchain gaming/apps have been a preview of this — you might have a small set of high-ticket virtual items owned by players, and as such, it may not take a huge audience to generate a huge amount of value across the various tokens.

• the silver lining for all the new advancements in AI, of course, is that we are discovering novel use cases that are in particular useful for productivity use cases. These "prosumer" tools often often scale up in terms of $ on usage, or have tiers around teams and enterprise, all of which drives direct monetization. These amazingly visual/interactive generative AI tool also create sharable content that helps drive growth

• network effects can work differently if the products aren't meant to be broadly horizontal apps where all your friends are on it -- instead the networks can be built around specific activities and interests. Dating apps are an example of this, or looking at multiplayer games like Valorant, where you mostly interact with non-friends. The product just needs to build a network that's big enough to create interaction (like dating, or gaming), rather than hinging on having all of your friends on board. This dramatically lessens the growth requirements

• similarly, I think we'll see more apps focused on single user utility, and the use of game design mechanics (as Duolingo has done), to create stickiness without having lots of users commenting/liking/etc to drive interaction. In a world of more growth saturation, the ability to build products that are very useful by themselves, rather than networks, becomes a competitive advantage

To conclude, tomorrow's apps might look more vertical. Higher spending, smaller audiences, focused on interactions that are useful and solo. Some may target productivity/utility use cases, particularly as AI creates novel interactions, at least until the next tech platform emerges.

I certainly hope a new broad-based social consumer app can emerge, and I know folks are working on them still, but I also want to advocate for a more focused approach. I think more of these may work in the future.