What's With All the Hyper-Growth Startups?

By Nabeel Hyatt , written on May 14, 2012

From The News Desk

Why is it that Viddy, Socialcam, Pinterest, and others have suddenly accelerated their growth in such a short timeframe? The surface answer is, of course, the integration with Facebook's open graph.

But that's the symptom, not the cause.

The New Platform Wars: Facebook vs Apple vs Android

What's really happening is that Facebook has woken up to the fact that it was not a major player in the latest platform wars, and it is coming back with a vengeance. The extent of its efforts, as I've gathered from conversations over the last month combined with the company's public actions, have become crystal clear. It is sparing no expense or action to preserve its future as users' default graph.

For context on what would cause Facebook to get aggressive, let's rewind just a few months back and remember what growth was happening at that time. The headlines back in March were about "App Store Payola," not about Facebook at all. Everyone knew at the time that Facebook had closed off most growth channels, and so the hunt was on for other avenues, and mobile was the center of the game. The App Store was the focus, with Android playing as the contrarian approach, and Facebook all but forgotten as a way to grow your product.

It's About the Graph

Why should Facebook care about growing apps? After all, they already are the largest social network by far and on a path to their $100b IPO.

Simple, if you don't need Facebook for growing your application, then you probably don't bother to optimize your app to send Facebook the activity happening in your product. Sure, maybe you still do Facebook Connect for authentication, but fewer events being sent to Facebook means fewer things for Facebook to show to its users. Imagine that happening over dozens of new products over a couple of years, and Facebook slowly starts to feel like "a place," not "the place." If you don't keep the party hopping, the party moves elsewhere.

And so in order to continue to try and own the graph, Facebook got aggressive about growth.

Riding the Fourth Wave of Growth

By my count, in recent history there have been three major waves of growth (and thousands of ripples along the way*). And this could well turn out to be the fourth.

In the early 2000s, there was a family of companies built off playing to Google's rising dominance. Companies like Yelp and TripAdvisor used SEO to help gain unprecedented growth rates and build substantial real businesses. There were also plenty of companies born in this period that simply exploited SEO to gain traffic with little real traction, but these companies eventually fell by the wayside. These tactics became the obsession of an entire market, and therefore inevitably the advantage subsided, as Chris Dixon and others have written about.

Since then, two other waves have occurred, both with similar characteristics.

The second wave was a mixture of pulling strong emotional social hooks and advancing email tactics, including importing address book contacts, which created a flood of social networks like Bebo, MySpace, LinkedIn, and Facebook.

The third was the Facebook app platform, an amazing gold rush as virtually every Web-oriented company either pivoted completely to the platform (Slide, Flixster, etc.), or at least built a sidecar app to see if they could cash in on the user growth (Amazon, Ebay, TripAdvisor again). As with the first wave, each wave had its time to shine, and eventually the early leverage got optimized out of existence.

The fourth wave, which has just begun it seems, is Facebook open graph for rapid adoption, propelling to the top of the Apple App Store to spread to the mainstream, combined with dozens of nuanced product decisions that are in weekly flux right now. While this phase will eventually subside, Facebook is more than just playing around. If you doubted tthe seriousness of its role in growth on mobile, it topped off its recent moves by launching its own app store, with even more to come. They will be swinging heavy.

Of note, Google isn't even in this fight with any real gusto. Android has in a matter of a few months suddenly become the distant third choice in many of the conversations I am having right now with growth-oriented companies.

Isn't This Unnatural Growth?

Of course it's unnatural growth. But it's unnatural for a startup to become a billion dollar company in a short amount of time in any situation. What you look for is an opportunity, and the ecosystems seems to be shaping up very positively for startups right now. But these opportunities are rare.

And yes, there are going to be dozens of fakers that will have their caffeine hit of traffic but which will not be building something of real value. All the more reason for investors and potential employees to take a careful look at key underlying engagement metrics, and the underlying value of the service being offered to its users. There will also be a lot of knee-jerk skepticism to startups as they take off, which I tried to address last week. But that shouldn't be a reason for any startup to ignore this opportunity -- the growth is a wonderful thing, just not sufficient.

People who understand that will check themselves on the core value of their product, and then get aggressive.

  • For purposes of space, I actually skipped a few mini-waves. For instance MySpace's growth helped create Slide (v2) and YouTube. And the first wave of the iPhone app store helped create Angry Birds and Words with Friends.