Business

This social video app is popular, but not profitable

Fam, a social video app launched in December by local startup Smack Inc., may be the next Snapchat. It’s enjoyed explosive growth, with 5 million users already signed up.
Smack Inc.
Fam, a social video app launched in December by local startup Smack Inc., may be the next Snapchat. It’s enjoyed explosive growth, with 5 million users already signed up.

Has Boston given birth to the next Snapchat?

Fam, a social video app launched in December by local startup Smack Inc., has enjoyed explosive growth, with five million users already signed up. Fam lets users conduct simultaneous video chats with multiple friends or family members.

One reason for its sudden popularity? Fam operates within the iPhone’s iMessage app, putting it instantly within reach of an enormous audience. But Fam’s founders are still trying to figure out how to turn its popularity into profits.

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Founded in 2013, Smack had already built a moderately popular group video chat app called Smack Live. Then in September 2016, Apple released a new version of its iOS software for the iPhone that allowed independent developers to build apps that would run inside iMessage.

Cofounders Giuseppe Stuto, Franco Iudiciani, and Kevin Flynn realized that Apple had just solved a problem that often hinders new social apps: They’re useless unless your friends also use them; so, how do you get your friends to sign up?

With Fam, a new user just sends messages to his favorite iMessage buddies, people he already chats with. By tapping an icon, he can attach an invitation to check out Fam.

If his buddy launches the invitation, the app is automatically installed on his phone, and the video chatting can begin. This painless distribution method probably explains Fam’s lightning-fast adoption rate.

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Fam was nearly strangled at birth by the massive cost of transmitting so much video. The company needed more server capacity to handle all the encoding and decoding of images.

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“Our streaming bill, in less than seven days, was more than the cash we had in the bank,” Stuto said. “We were technically out of business.”

Happily, the company’s investors ponied up additional cash. Since its founding, Smack has received nearly $3.9 million in funding from backers including Flybridge Capital Partners, Boston Seed Capital, New Enterprise Associates, Bessemer Partners, and Norwest Venture Partners.

Still, Fam faces serious long-term challenges. The app is free, and so far, Smack executives have no idea how they will make any money off it.

Moreover, its reliance on Apple for its popularity could become a problem, said Matt Britton, the chief executive of Crowdtap, a social media marketing company in New York.

“They’re building it on the back of another product,” said Britton.

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If Fam’s rapid growth continues, there’s nothing to stop Apple from simply adding the same features to iMessage, and driving Fam out of business. “It’s a pretty easy thing for them to do,” Britton said.

Fam’s reliance on Apple for its popularity could become a problem, said Matt Britton, the chief executive of Crowdtap.

Stuto is betting that Apple won’t do it. “We do not believe that is their intention,” he said. “It is clear that Apple wants to empower developers to build long-lasting, dynamic experiences on iMessage.”

But even if Apple stays on the sidelines, Smack has to find a way to make money off the Fam app. Advertising is the obvious play, but how do you display ads in a video chat app? Banner ads or video pop-ups will interrupt the users’ conversations and consume limited screen space.

Britton questioned if Smack’s founders are hoping to cash in and sell the company before they have to figure out how to make the Fam app self-sustaining.

“Some of these companies just hope that they get acquired,” he said. “That they build up a big enough audience that they get bought before they have to make money.”

But Stuto doesn’t see it that way, saying is trying to figure out the best way to monetize Fam while preserving a good user experience.

There are no plans to charge for Fam. That would put it at a disadvantage against a rival group video app called Houseparty that is also free. Besides, selling the app generates revenue only once. Make it a free app, supported by advertising. and the money keeps rolling in.

Among the ideas Smack is kicking around: building advertisements into a feature that allows users to play turn-based multiplayer games.

It’s also experimenting with a “group watch” feature to let multiple users watch streaming videos, such as movie trailers. Smack might sign up paying sponsors for these video snippets.

Meanwhile, the company is planning a version for Android phones.

If Fam gets really big, will Smack follow Facebook’s lead and head for Silicon Valley? Maybe not.

While Facebook had to go west to find the venture capital it needed, Stuto said Smack has had no trouble raising funds from investors in New England and California.

“We are getting the benefits of West Coast advice and support, and we’re able to stay here,” Stuto said. “We would prefer to stay here.”

Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.