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Hackernoon logoHow The Heck Did Robinhood Become So Popular? A Data Driven Analysis by@FrederikBussler

How The Heck Did Robinhood Become So Popular? A Data Driven Analysis

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@FrederikBusslerFrederik Bussler

Democratizing data science.

Robinhood launched over seven years ago as a stock prediction app, before it became the brokerage we have today.

10 months later, they pivoted into a commission-free stock trading app, releasing a private beta.

At the time, it was supported by around $3 million in funding, with plans to become self-sustaining in three ways:

  1. Charge other developers for API access.
  2. Let users trade on margin for a fee.
  3. Payment for order flow for stock exchanges.

Around 160,000 people signed up — already impressive for a private beta, but a far cry from the 10-million-plus users on brokers like Fidelity.

It took another 3 years and 2 months to get to 2 million users, owing to the constant improvement of the app’s functionality, aesthetic, security, and of course, marketing.

However, just 2 years after that, they got to over 10 million users.

A common myth goes that these are “dumb money” retail investors, but that couldn’t be further from the truth. Insights from the analytics firm, Apteo, reveal that Robinhood traders are timing market movements with great accuracy.

So, how did Robinhood make the leap from 2 million users to a worldwide sensation used by a wide strata of society?

From 2 million to 10 million+

9 months after hitting 2 million users, they announced Robinhood Crypto, and by then they were at 3 million users (after 1,734 days in existence).

4 days after the announcement, they hit 4 million (you read that right: A broker got 1 million sign-ups in 4 days). Within 2 years, they catapulted to 10 million.

Crypto was an enormous growth catalyst.

So the answer? Robinhood Crypto is how they got to 10 million so rapidly.

When Robinhood Crypto was announced, searches for “Robinhood” became a global sensation, spurring their 1 million sign-ups:

Recall that late 2017 was the peak of crypto hype, where seemingly every media outlet was covering Bitcoin’s wild price explosion, even your grandma heard about “cryptocurrency,” and everyone wanted in.

After the crash, many people saw the low price as a "bargain" entry-point.

Yet, there was no good way to buy Bitcoin. 

LocalBitcoins felt like a far riskier version of Craigslist, crypto exchanges were only making the news after being hacked for billions of dollars (not to mention, they had a terrible user experience), and the actual process of typing in your credit card details, personal information, and Bitcoin wallet address in some web form felt incredibly janky.

Without some known “authority figure” to buy crypto from, it also felt legally questionable to do so. It didn’t help that banks were banning crypto purchases and big names were calling Bitcoin a “fraud.”

Robinhood Crypto solved all these problems. Sure, the roll-out was staggered and imperfect, but it was the first player to let you buy crypto in a trustworthy, clean, safe, and aesthetically pleasing way.

No wonder a million users signed up in four days.

The Nay-Sayers

Since Robinhood’s 2013 launch as a small iOS app to its sensational status today, it has faced criticism from all sides.

Users in a 2013 YCombinator thread saw the app as a “fly-by-night operation” used by “un-informed” and “unsophisticated retail traders.” Several users implied that the app, in contrast to the heroic outlaw Robin Hood, takes from the poor and gives to the rich. 

The sentiment was largely negative:

“This is a bad business.”

“These guys will find it’s going to be tough to build a business on [commission-free trading].”

I can guarantee that they will lose to Interactive Brokers.”

Ouch.

In 2014, Vox called it a “terrible idea” that “nobody should use.” That same year, MarketWatch said: “making it really easy and even free to trade isn’t a completely great thing.”

Throughout the years, commentators from Seeking Alpha to Maker have described Robinhood users as “gamblers” and “addicts,” while billionaire investor Leon Cooperman puts it more bluntly:

“They are just doing stupid things.”

Of course, Robinhood has proven the nay-sayers wrong, showing the value of a commission-free broker, democratizing an age-old industry by lowering the barriers of entry for over 10 million people.

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