A Guide to the Creator Economy

The previous decade witnessed the rise of digital platforms like Twitter, Instagram and Vine which allowed individuals to amass large followings but failed to provide them with an avenue for direct monetization. But that’s quickly changing. Creator focussed platforms such as Substack, Patreon and Clubhouse are enabling anyone with unique skills to monetize them. Whether by playing video games or by sending newsletters, creators can now turn their passions into livelihoods. With creators looking for better ways to monetize their skills and manage their business, a host of products and services have sprung up to meet this need, leading to the birth of a fledgling creator economy. The creator economy refers to the businesses built by independent creators aiming to monetize their skills or creations. The term also extends to the companies that serve these creators.

Features

Though there are various emerging creator platforms catering to different audiences they share some common features: 

• Digital products:  While previous-gen companies such as Amazon, eBay, Shopify and Uber focussed on selling physical products or in-person services, the creator platforms are all about digital products. SaaS platforms such as Podia and Teachable allow creators to make and sell video courses and digital memberships.
• A suite of tools: From marketing to coaching to managing customer relationships, creator platforms offer a suite of tools for individuals to manage their business. These platforms either take a cut of the creator’s earnings or charge fees based on the number of customers.
• Focus on individuality: While the gig economy flattened the individuality of workers, and focussed on consistency and efficiency, the new content platforms allow people to earn a livelihood in a way that highlights their individuality.
• Accessibility: Tools that were once available only to established businesses and wealthy individuals are now available to everyone. The rise of no-code/ low-code apps such as Webflow, Glide and Airtable have made it easier to build websites and apps. 

Rising Star

Brands are expected to spend up to a staggering US$ 15 billion on influencer marketing by 2022 according to Mediakix, and funds have been pouring into the creator economy with startups in this space attracting US$ 1.3 billion in 2021 alone.  

In a bid to keep creators, advertisers and ad dollars circulating within the platform social media giants and other tech platforms are rushing to offer creator-friendly deals and features: 

• Both Instagram and Clubhouse have thrown their hats into the ring by announcing new creator programs. Instagram is planning to launch a suite of influencer tools, including creator shops, while Clubhouse welcomed its inaugural Creator First class. Clubhouse will offer equipment, guidance from Clubhouse leadership and a stipend of US$ 5K per month, per show. It also rolled out its monetization feature — tips for audio creators. 
•  Twitter recently announced two new features- Super Follow and Spaces. Super Follow allows Twitter users to charge followers for extra content that includes a subscription to a newsletter, bonus tweets or access to a community. Twitter Spaces which is available on iOS and Android allows users to have live audio conversations on Twitter. 
• TikTok already boasts of a native marketplace that connects advertisers with creators and last July it announced a US$ 200 million fund for US creators to help them supplement their earnings.
• YouTube which has been sharing 55% of ad revenue with creators has paid out US$ 30 billion to creators in the last three years alone. With an aim to compete with TikTok, YouTube launched a US$ 100 million fund to pay its most popular users on Shorts.

Issues & Fixes

The winner-take-all network effects combined with lowering of distribution costs have led to the creator platforms suffering from inequality where success accrues disproportionately to those on top. On Spotify, just 1.4% of the artists raked in 90% of royalties and made, on average, US$ 22,395 per artist per quarter while the rest made just US$ 36 per artist per quarter. Reducing such wealth concentration lowers the risk of competitors poaching top creators and threatening the entire business. The creator economy has also suffered from creator burnout and an absence of strategic and educational resources. So what are the solutions?

• Tweak the algorithms: Instead of using simple recommendation algorithms that are based on what other users have bought/consumed, platforms can use more sophisticated algorithms that are based on a multitude of factors and an element of randomness.
• Superfans: Allowing creators to capitalize on superfans can enable even those with relatively small audience sizes to earn substantial amounts, unlike ad-based models that reward scale and reach.
• Education & training: Education and training similar to that offered by Substack’s Bridge mentorship that pairs emerging Substack writers with experienced ones can help budding creators avoid making rookie mistakes and help them scale up quickly.

Summary

The creator economy which is still in its initial stages is expected to continue expanding the universe of people who can monetize their unique talent. With top creators aspiring to become independent brands and not restrict themselves to a single platform, creator platforms face steep challenges ahead. Creator platforms have to incentivize top creators to stay while also ensuring newcomers get their fair share of the spotlight. Overall, the creator economy has redefined work itself and will hopefully provide a path for everyone to have upward mobility. 

For more extensive analysis and Market Intelligence reports feel free to approach us or visit our website: Venture Capital Market Intelligence Reports | VCBay.

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