The Creator Economy
A... pseudo-philosophical look at the future of work?
I’m sure most of you already know and experienced this but Covid-19 has indeed accelerated the WFH situation and ushered in a new paradigm about… “work”. What used to be considered “work” - commuting to office, meeting in person with your colleagues - seems to have taken a different meaning. At least to me previously, WFH / remote work always seem like a fantasy / a futurology situation. However, the past 12 months have shown how “work” has change for many, many different groups of workers.
The past 12 months - especially the first 2 months of circuit breaker - have prompted me to think deeper about the type of content I’ve been consuming. Some of them are as such:
Fitness: taking online Zoom fitness classes, YouTube fitness videos
Entertainment: Netflix, YouTube
Enrichment: reading Substack newsletters, listening to podcasts
Thinking one step deeper, who are the “sources” of these content? Do they do it full-time? Can they do it full-time? How do they do it full-time? How does a “typical” day work work for these… self-employed individuals?
Monetizing your own individuality is not a new trend… some might point to Fiverr, Grab, Shopify etc and more, but I believe Patreon, Twitch are more related examples (read further).
Trends
I follow startup funding trends quite obsessively and if I do see related startups getting funding, it prompts me to read up on the “investment thesis” by various VCs. Many VCs don’t have a great thesis as to why they invest, they follow the sector that’s hot right now, but I find that some VCs so publish philosophical pieces outlining their thoughts for the future and why they choose to bet on certain startups/trends. I find it refreshing to read and think about these.
1 such startup funding caught my attention - Substack (newsletter platform) just raised $65M Series-B at $650M valuation. At this current era of more frothy tech valuations, this amount of funding is not that alarming - but something that I pay attention to, because I do see the philosophical ideals of what Substack purports to push: down with the centralized entities, power to the individuals.
Monetizing individuality, giving them the platforms/tools to build their own creative identities and make a proper business out of it. The analogy is that of the Amazon vs Shopify narrative.
You might call them freelancers, but I think it goes a bit deeper than that.
Defining the Market - the ‘Passion’ Economy
I realized the more ‘creative’ side of this, is aptly called the passion economy. I don’t mean OnlyFans that kind of passion economy, but more of the creatives, the creators, the writers, the podcasters, the content creators, the online tutors and more.
Some sectors:
How… big is this market size globally?
I’m so lazy so I googled “passion economy market size” and found this report:
The Re:Create Coalition’s second annual report reveals that more than 16.9 million independent, American creators earned a baseline of $6.8 billion from posting their music, videos, art, crafts and other works online in 2017. Building upon last year’s study, the updated report found the number of new creators grew by 2.4 million (16.6%) and total revenues grew by 14.8%. New creators live and work in every state, using platforms like Amazon Publishing, eBay, Etsy, and Instagram to earn income and drive the growth of the multibillion-dollar New Creative Economy.
So… in theory, the market is… “big” because typically, the passion economy tends to focus on digital products and products that can “scale”. For instance, if you write a newsletter, more people can consume your content at no marginal costs to yourself. If you’re a Substack writer, technically the world can consume your content… of course certain factors limit your market:
the language of your content
the type of content (do you focus on politics? tech? sports? culture?)
the ‘local’ nature of your content?
the quality of your content
and more…
Key Differences between ‘Gig’ and ‘Passion’ Economy
At this point, you might think… aren’t Grab/Uber drivers, Fiverr freelancers part of this already? This is a nice table summarizing the differences:
Source: https://a16z.com/2019/10/08/passion-economy/
Products
What defines the platforms in the passion economy? How… are they different?
After fiddling around with Substack, I realized a few distinct points:
Passion economy platforms hope that you can “express your individuality” and make your niche different from the rest of the other creators
They try to focus on helping you (the creator) with the full suite of tools and services to make it a real business (easy tools to create content, do marketing, charge a fee and more…)
Compared to marketplaces (Medium), they don’t try to drive traffic for you (again, back to the Shopify example), you have to market yourself and distribute your content
How much $ can you make?
I was curious to see how much Substack writers can possibly make.
It seems… like you can indeed make a living out of it (assuming you’re that good). Of course, they are the top 1% of creators:
I’m sure the same 80/20 power law happens in other platforms as well…
Metrics in the Passion Economy
Well, key success metrics do define how you think about what’s considered “value” in the company… Shameless copying a16z here again:
Success Metrics
Conversion of free fans to supporters and subscribers
Total creators with sales (cumulative and in a given time frame)
Creators who have reached a certain revenue threshold
Revenue Metrics
Gross Transaction Value
Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR)
Average selling price (ASP)
Share and sources of earnings
Revenue retention (creators & audience)
Engagement Metrics
Fan engagement rate
Loyalty and retention of fans
Creator retention and churn
Growth Metrics
The Flywheel: Percentage of fans that become creators, creators bringing new creators, fans bringing new fans
Creator affinity and value
Acquisition costs and channels for creators and users
Thinking about these key success metrics indeed made me think about the different dimensions that define ‘success’ in the passion economy, or a platform in the passion economy.
Key Risks
Big tech will want to “monetize individuality” as well.
Very true, Facebook/Twitter reportedly are building tools to help independent newsletters and creators as well. Since they own the traffic, they can help their creators distribute content and potentially monetize better.
In theory, this might be sound but the economics and business model might not make sense
Medium has pivoted quite a number of times, doing experiments on their business models.
The top 10% of creators might earn a great deal, retaining them on the platform but I believe the vast majority of creators might not be able to sustain themselves. Interestingly, a portion of Substack’s funding will go to create an independent fund to support writers
What’s next?
I’m excited to see this new wave of passion economy platforms arising. I believe in the future, you’ll see more and more partnerships if they haven’t been happening yet:
Partnerships with credit-card/fintech companies (specifically for freelancers and/or creators)
Partnerships with legal services
Partnerships with incorporation/corporate secretarial services
Partnerships with tax companies
Building the end-to-end value chain of what defines a business
Deeper verticals
Discussions with governments for this “passion economy” (as what we see with the gig economy)