Two hot new apps will let couch potatoes everywhere live vicariously through other people’s experiences — as they are happening.
Meerkat and Periscope are the latest in socially connected apps that let users broadcast live video. While similar apps such as Ustream have been around for years, Meerkat and Periscope have gained users quickly through the attraction of a minimalist interface, a sense of immediacy, and the ability for viewers to send messages and even bestow their approval of live streams in real time.
With just a few taps, users can send a flurry of hearts flying across the screen, or touch a heart icon to show their pleasure. Celebrities, famous athletes and politicians have quickly jumped on the two platforms. Actor Jared Leto even invested in Meerkat.
Each broadcast opens a window into another life from anywhere in the world. A ballet fan in France streamed Swan Lake from the Paris Opera as dancers pirouetted to the strains of Tchaikovsky’s composition. A Swedish chef peeled potatoes and bantered with wait staff at a Stockholm restaurant, sharing his day with his viewers. A traveler streamed glimpses of Lihue, Hawaii from the window of a plane as it was taxiing down the runway. In Panama, a conservation group live-streamed a bird-watching activity, complete with commentary.
Meanwhile, Madonna chose to debut her “Ghosttown” music video on Meerkat, albeit with technical glitches. Massachusetts Governor Charlie Baker used the app to live-stream his press conference. On Periscope, comedian Jimmy Fallon streamed his monologue rehearsal for NBC’s “The Tonight Show,” while model Tyra Banks showed off her new pixie haircut to admiring fans.
Such high-profile usage is remarkable for two apps that were launched less than two months ago. Meerkat came out in late February and became a buzzword by mid-March after debuting at SXSW, the film, music and interactive festival in Austin, Texas, that was previously the launch pad of Twitter and Foursquare. From March 11 to 20, Meerkat’s ranking among U.S. social media apps jumped from 75th to 17th place, according to analytics firm App Annie. When compared against all U.S. apps, Meerkat rose even more dramatically — from a rank of 1,168 to 140 during the same period. Periscope, which Twitter recently acquired, came on the scene in late March. It debuted in 12th place among U.S. social media apps and 88th place among all U.S. apps, according to App Annie.
“[Meerkat is] kind of like Snapchat — all the messages disappear. People care about privacy.”–Lynn Wu
A Battle for Supremacy
Since then, the two have been battling it out for supremacy in a David-and-Goliath way. Meerkat had been riding on Twitter’s coattails to let users find each other easily on the app. But then Twitter abruptly restricted Meerkat’s access and the impact was dramatic. Meerkat’s U.S. social media app ranking began falling. On April 10, it was back down close to where it was before the SXSW boost: In 78th place among social apps and 1,263 overall. Meanwhile, Periscope stayed put.
And Twitter is not done yet. It reportedly has been pressuring celebrities and media firms to dump Meerkat, even threatening to cut access to TV promoted tweets if they don’t comply, according to an April 12 story in TechCrunch.
Meerkat is in a stew. “That’s a pretty tough road to hoe,” says Ethan Mollick, Wharton management professor. “If Meerkat can’t use Twitter’s API, it is hard to see Meerkat as being a big winner.” And as Periscope gains in popularity, thanks to Twitter’s help, it creates a “network effect” that makes the app even more successful as users flock to it. “The network effect has to win these things,” Mollick adds. “We’ve seen it happen over and over again with social apps.”
That does not mean Meerkat is necessarily doomed. Lynn Wu, a Wharton professor of operations and information management, says Meerkat might have one key competitive advantage. It does not save users’ broadcasts on its platform, which could be a big deal. “It’s kind of like Snapchat — all the messages disappear,” she notes. “People care about privacy.” That feature could give Meerkat a fighting chance. While the app lets users save their own broadcasts on their devices, it does not let viewers do so. In contrast, Periscope saves users’ broadcasts for 24 hours on its platform for playback.
Clay Burns, a Wharton visiting professor and advisor at green start-up BioLite, says being small is not necessarily bad. “[Meerkat] might have to toe the line as the smaller game in town for a while. But if there’s a strong user body that supports them because of better experience — technology or features — they’ll stick around,” he points out. “That’s kind of what Apple had to do back in the 1980s and 1990s. Now, Apple is more of the heavyweight where you see a lot of innovation and development.”
Focusing on making the best product consistently will let start-ups like Meerkat prevail against their rivals, Burns says. That is especially critical because larger competitors can get distracted if they have different product lines. “Eventually, the big companies focus on other priorities and may start to deliver a poor user experience,” Burns notes. “Sometimes being small and specialized is a good thing.”
To be sure, as a standalone company, Meerkat has to keep raising funds because it cannot tap the deeper pockets of a parent the way Periscope can. Venture capitalists will want to see a business model that will eventually lead to profitability.
An Experimental Era
Kevin Werbach, Wharton professor of legal studies and business ethics, says successfully monetizing a live-streaming app would depend on the size of the endeavor and its market. “If it’s a relatively small number of producers relative to consumers, like podcasting, advertising at the bottom of the screen and premium services, such as hosting for the streamers, could be viable business models,” he notes.
However, if the live-streaming service becomes a utility like messaging, its best path could be an acquisition by a larger company. “Look at consumer videoconferencing, where Skype is owned by Microsoft,” Werbach says. “They keep users in their ecosystem and provide pathways to other revenue sources.”
Jehoshua Eliashberg, Wharton professor of marketing, says it is too early to say which business model will work best. “We are still at the stage where live-streaming services are experimenting and I do not see at this point any clear winning business model. Each model has its strengths and weaknesses. Moreover, some of the providers change their business model over time.” Eliashberg points to Ustream, which discontinued its pay-per-view model last year.
“We are still at the stage where live-streaming services are experimenting and I do not see at this point any clear winning business model.”–Jehoshua Eliashberg
There are many ways to monetize live-streaming apps. One is sharing in the compensation that arises from connecting celebrities with their fans, Eliashberg says. On Meerkat, a button appears after a broadcast has ended that allows viewers to give money to the artist or get more information about the topic streamed. For example, at the conclusion of Madonna’s “Ghosttown” music video premiere, Meerkat users could click a button that would send them to iTunes if they wanted to buy her Rebel Heart album. Another option is to share in the revenue received by amateur content creators, he says. For example, live-streaming app YouNow lets broadcasters earn money when their followers leave digital tips and gifts. Users may also give premium goods, which cost money to acquire. YouNow splits the revenue with the people streaming the content.
Eliashberg says another option would be to charge subscription fees, which is the path taken by Livestream for broadcasting live sports, news, education and music content. It also offers a free, ad-supported service. Evntlive, an interactive digital concert venue that lets music fans stream concerts, follows the pay-per-view model.
Ustream is using a “freemium” business model where the basic service is free and supported by advertising, he says. The company also offers advanced plans that are free of ads, but charge monthly subscription fees that depend on viewer hours. Meanwhile, apps such as StreamUp derive compensation by being the platform upon which marketers interact with their customers.
But Wu says there is a danger of pushing monetization too soon on a social app: “If you do it early, you will degrade the user experience — who wants the ads?” she asks. Instead, apps should first focus on attracting many users and keeping them engaged. “One of the biggest things about social media [start-ups] is they don’t care about monetization [early on]. It’s about how to acquire users and how do we keep them engaged,” Wu notes. “Then they will think about monetization later.”
So when is it optimal to look into generating revenue? “When the network effect is in your favor, when you’ve captured enough users and it’s difficult for them to leave,” Wu says. During Facebook’s early days, analysts wondered whether the social networking site would ever make enough money because it was not charging for its service. But that concern is now moot. After Facebook attracted enough users who found it hard to leave because their friends and family are also on the site, it began to push monetization and it worked, she points out.
Indirect Monetization
Wu says a large part of a social app’s monetization could come indirectly — when data yields valuable consumer insights — rather than through direct compensation. Periscope gives Twitter a more robust understanding of its users, of which only Facebook could currently boast. “Periscope not only shows you where [people] are, but also what interests they have,” Wu says. “Twitter acquiring Periscope is just another way of completing the holistic picture about existing users and how to target them more effectively.” This consumer data yields financial benefits. “The more you know about a person, the more you know how to make money from that person,” she notes. “The social media game is really about data. Whoever has the most information about you is the one who has an edge.”
On the flip side, social media apps should ensure that advertisers are fully aware of their data’s value — one that goes beyond how many likes their Facebook pages generate or with how many customers they interact. But that is often not the case. Wu cites a 2014 CMO Survey showing that only 15% of companies polled believe they can quantify some of the impact of social media on their businesses. That means the overwhelming majority said they could not prove that their investments in social media are yielding tangible benefits.
“One of the biggest things about social media [start-ups] is they don’t care about monetization [early on]. It’s about how to acquire users and how do we keep them engaged.”–Lynn Wu
“With corporate social media spending expected to double in the next five years, the pressure to prove the value of social media investments is mounting,” according to a paper co-written by Wu called “Addressing the Social Media Productivity Paradox: Evidence from Large-Sample Firm Value Analysis.” It was presented at the WISE 2014 conference last December.
Mining this consumer data is a profitable endeavor for advertisers with the right skills. “Maybe you are producing one line of products and your users do not care about it at all,” she says. “This is real-time data that will transform business decision-making.”
After analyzing seven years of social media adoption decisions by publicly traded U.S. firms, focusing mainly on their Facebook presence, Wu and her co-authors discovered that companies with employees who are skilled in data analytics were able to get greater value from social media data compared to those without the same knowledge. Interestingly, “this benefit is unique to social media,” they write. “Data skills do not appear to be strongly complementary to other types of IT innovations such as ERP” or enterprise resource planning.
Of course, all this assumes Meerkat survives. Co-founder and CEO Ben Rubin’s earlier version of the app, Yevvo, became popular quickly after it launched in 2013 but then died out, according to news reports. If Meerkat does manage to stay alive, it faces another hurdle: generating significant revenue.
Werbach says the only consumer live-streaming video service that was able to build substantial revenues is Twitch, which live streams people playing video games. Twitch attracted advertisers and was eventually acquired by Amazon for $1.1 billion last year. One big question is whether live streaming will become a mainstream activity or stay a niche service. “There’s no doubt it will fill a role. The question is how big a role is it going to fill?” Mollick says. “Nobody knows at this point.”
