Opinion
Koo folds up. Why startups fail to join the ranks of Big Tech
Summary
- Koo's collapse exposes the struggles of challenging social media titans. Discover why technology alone isn't enough to succeed in this fiercely competitive landscape.
There are multiple reasons why Twitter copycat shut down. The final blow was its inability to find fresh funding or a buyer, but the primary cause was that it’s very difficult to persuade users to migrate en masse from the incumbent and first mover.
Koo’s collapse underlines the fact that social media platforms are “natural" monopolies because of network effects. In this sense, they are like utilities. Power and gas utilities are natural monopolies. There is rarely room for more than one player in a given geography. Social media platforms have some of the same characteristics although they are radically different businesses in every other way.
Once a social media platform becomes the dominant player, network effects just increase its dominance and builds a moat. If you and your friends are on Facebook, you are unlikely to sign up on a rival platform and you will probably encourage more friends to sign up on Facebook. The same network effect is in play for Instagram, Twitter (now renamed X), and LinkedIn. Meaningful rivals to these platforms exist only in places like China, where Facebook and X are explicitly banned.
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Even with TikTok, after the short video platform was banned in India, no meaningful local equivalent has developed. Quite a few local startups tried to fill the vacuum caused by the ban, but none seem to have succeeded. Indians prefer to go through the cumbersome process of accessing TikTok via virtual private networks (VPNs) and cross-posting TikTok content on WhatsApp (another platform that gained dominance from network effects).
What works
Ousting an entrenched social media platform is very difficult. Facebook managed to push past MySpace and Orkut thanks to its many innovative features. It hasn’t happened since. X, Instagram, Snapchat, TikTok, et al grew their bases by offering new services and features, and each of them now enjoys the moat created by network effects.
Elon Musk may have made a smart decision when he decided to buy the market leader rather than attempt to build a rival. Networks such as Mastodon and BlueSky that offer roughly the same features as X have not been able to meaningfully dent its dominance in micro-blogging. Donald Trump’s attempt to build a X rival in Truth Social hasn’t been very successful. Neither was Koo.
Koo’s unique selling point was that it was an Indian company and it offered users the ability to post in multiple local languages. It also had support from ruling party politicians after the Indian government’s relationship with X hit a snag during the farmers’ agitation. This wasn’t enough to drive penetration or create network effects.
Despite raising at least $70 million in several rounds of funding between 2021 and 2022, Koo was burning a lot of cash to drive app installs. According to an Entrackr report, advertising and promotion was close to 60% of its operating expenses. By comparison, Twitter spent no more than 6% on A&P in the early days when it was pushing to build a user base.
Koo entered the fray when X was still very much in India. Vernacular content isn’t enough of an USP – it is easy to provide real-time translations of languages and it’s getting easier by the day as more Large Language Model AIs enter the public domain.
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The implication from the collapse is critical for startups: If you're doing imitative stuff, you can't beat the network effects generated by an incumbent social media platform. It isn’t even about the tech – it’s about dreaming up features that no other social media platform offers.
