A couple of years ago, The Sun surveyed 1,000 children, asking them what they wanted to do when they grew up: 34% of them wanted to be YouTubers, and another 18% wanted to be bloggers.
This shouldn’t come as a surprise. In the past decade, social media platforms turned regular people into celebrities, helping them amass a large social following and accumulate wealth in a relatively short time frame:
- Charlie D’amelio, a 16-year old TikTok star, gained 100 million followers and accumulated a net worth of $8 Mn one year after creating her account.
- Ryan Kaji, an 8-year-old YouTuber, generated ~$30Mn last year from his work on the platform.
- Ninja, the Fortnite streamer, earned $17Mn in 2019, just playing a game online!
The success of these creators gave birth to a new economic model, commonly referred to as the passion economy, where regular people build large audiences online and monetize their passions, by sharing video content, playing games, or other forms of creative work.
The passion economy has picked up a lot of momentum in recent years, and creators today play a critical role in global economies. As a result, a variety of platforms emerged to support the development of this sector, and incubators were set up to train them (Ruhnn incubated 168 creators, who collectively generate $500+ million in yearly sales and have amassed 200 Mn+ fans).
Today’s piece will deep dive into this economic model, where I’ll explore the evolution of creators, from the early days of influencing to solopreneurship and individual IPOs.
Let’s dive in!
Influencers: How it all started
Social media provided a platform of expression for young people and offered them tools to create and share entertaining and educational content with people across the globe. Shortly after, creative, funny, and adventurous creators grew audiences and captured a share of their attention.
Brands noticed that Millennial eyeballs moved from traditional media to social media and quickly allocated larger budgets to these channels. A portion of these budgets went to creators (known as influencers at the time) who introduced products to their audience in a more personal way and converted them into buying customers by providing what is perceived as expert/experience-based recommendations.
At this early stage of the creator economy, influencers made money in one of two ways:
- Brand partnerships, which came in the form of endorsements and partnerships (pay-per-post) or affiliate partnerships (pay-per-conversion)
- Platform-ads, where creators are paid based on the number of views their posts get (pay-per-view), such as YouTube’s Partners Program.
Unfortunately, making a living selling other people’s products is tough. Here’s a quick back-of-the-envelope calculation of how much an influencer can make through affiliate brand partnerships (with generous assumptions)
As a result, success in the early creator economy disproportionately accrued to people at the top. The 80/20 rule was more like 95/5 as 5% of influencers collected 95% of returns, with long-tail creators barely getting by.
This dynamic pushed influencers to explore new ways to monetize their audience. To do so, many of them took the entrepreneurial route and sold their own products/ services/ content to their fans directly, capturing a greater share of the upside.
This was the age of solopreneurs.
Solopreneurs across sectors
As influencers looked for other ways to monetize their audience, a new layer of platforms emerged, arming them with the required tools to easily build and sell their products while maintaining low overhead.
As I wrote last year:
“[…] Smaller brands start to ‘rent’ scale from their manufacturing partners (through contract-manufacturing) and outsource fulfillment and logistics to 3PLs (Fulfilment-as-a-service models) paying per unit. Accordingly, smaller brands can now replace massive fixed capital spending, with more manageable variable costs”
A new breed of online-born companies emerged led by creators and influencers trying to sell their own products, food, content, and even raising money to invest as venture capitalists.
[Products] Direct-to-Consumer ecosystem
The fundamental problem for direct-to-consumer companies has always been acquiring customers at a reasonable cost. The intense competition in the space has pushed startups to spend more money buying Facebook ads to drive traffic to their sites, which heavily eroded profitability.
To be sustainable, an eCommerce business, therefore, requires a high share of organic traffic, giving influencers a natural competitive advantage in this space. That’s why creators like Huda Kattan, Kylie Jenner, and Jessica Alba built billion-dollar brands with minimal digital marketing spend.
It’s not only the mega-influencers. Given the ease of building an eCommerce brand today (see graph below), many regional influencers have already ventured into this space:
- Karen Wazen recently launched a new sunglasses brand
- Joelle Mardinian has a lens brand
- Mina Sheikhly has a mascara line, and many others like them.
Of course, not everyone will build winning brands. Success here stems from solving a clear problem that consumers face and offering a robust value proposition (discussed in more detail here)
[Food] Aggregators and cloud kitchens
Like eCommerce, the growth of cloud kitchens and food aggregator solutions made it easier for anyone to set up a food brand and deliver ready-made meals to their consumers. All you need is a menu.
Unfortunately, as I have previously discussed, when something is easy to do, everyone does it. Consequently, the food delivery space witnessed a flood of new entrants with little product differentiation, which moved the fight towards marketing and customer acquisition.
Influencers with organic traffic, therefore, had an advantage as they relied on social media to drive demand for their virtual restaurants. As a result, we’re starting to see the emergence of influencer-backed restaurants across the globe. A couple of notable examples in this space are:
- Jimmy Donaldson, a 22-year-old YouTuber, simultaneously opened 300 delivery-only burger restaurants across the US.
- Jessica Kahawty, one of the leading influencers in the region, launched Mama Rita, a delivery-only restaurant offering a modern blend of Middle Eastern Cuisine.
[Content] Subscriptions platforms
Beyond products and food, creators are monetizing their audience by directly selling content to their fans.
After making a mere $166 for a video that he posted (with 1Mn+ views), Jack Conte, a YouTube musician, realized there must a better way to monetize. This drove him to build Patreon, a platform through which creators build a recurring revenue stream by charging their fans for exclusive content and community perks.
OnlyFans founders had the same aspiration and built a platform that helps individual creators in the Porn industry capture a higher share of upside by setting up paywalled accounts and charging consumers a subscription fee for content.
Bhad Bhabie, the ‘catch me outside’ teenager that went viral after her episode with Dr. Phil, set up an OnlyFans account six days after she turned 18, making $1Mn+ in the first six hours (over $750K+from subscriptions, $260K+ from message payments, and $5K in tips)
It’s not only Patreon and OnlyFans, many other platforms provide creators with direct-fan-payment solutions, allowing them to earn a modest income from their highly engaged fans:
- Substack helps writers monetize through paid newsletters, with the top 10 authors on Substack collectively make over $15Mn per year.
- Teachable helps teachers create and sell courses on any topic. The ten most successful teachers have collectively earned over $100Mn.
- Gumroad helps writers write and monetize topic-specific books
- Twitch allows gamers to charge subscribers a monthly fee for watching them play a game.
- Cameo and Superpeer are platforms that connect influencers with fans in personal videos or through one-on-one chats, creating direct connections between them and enabling influencers to generate income in new ways.
Hugo Amsellem wrote a great piece on the creator economy here and mapped the ecosystem of tools and platforms enabling their growth. Check it out if you’re interested in a more detailed perspective on these platforms.
[Investments] Venture Capital
On top of products and content, creators have recently ventured into the investment space. Josh Richards, a 19-year-old TikTok influencer, just launched a $15Mn venture capital fund to invest in consumer and Fintech startups and help them tap into his 25 Million TikTok followers.
A venture capitalist’s success is directly correlated to his/ her ability to find attractive startups and secure investment allocations in them. Founders typically look for VCs that can add value to their company beyond just money. This value can come in the form of strategic help, talent acquisition, overcoming obstacles, introduction to partners, and other forms, but best of all is support in customer acquisition.
Influencers with a solid audience that matches a startup’s customer base can therefore be very beneficial, thus guaranteeing investment allocation and making it easier for creators to attract investors for their VC fund.
Solopreneurship has been an excellent way for influencers to monetize their audience beyond ads, however, success requires a certain level of virality and a large enough audience, which leaves many smaller/early-stage creators marginalized.
What if there was a way for early fans to help their favorite creators grow while in parallel sharing the upside of their growth?
Cue, Individual tokenization!
Individual tokenization and IPOs
In a recent piece, I explored the impact crypto has had on art and how Non-Fungible Tokens have disrupted digital art, arguing that NFTs would play a critical role in enabling individuals to collaborate better (collaboration economy). Similarly, Fungible tokens (not NFTs) will play a critical role in the creator economy by allowing early fans to invest in creators.
In such a model, a creator would mint a limited number of tokens, governed by predefined protocols, and offer them to his/her early fans at a specific price. Fans would buy these tokens, giving the creators capital to build their business while retaining more control over their work.
In the early days of building her company, Huda Kattan had difficulty raising money even though she was a renowned beauty influencer. Had individualized tokens existed at that stage, Huda could’ve issued 5,000 $HUDA tokens to her superfans at 100$ each, giving her $500,000, which she could have used to launch her business.
Ownership over $HUDA tokens would’ve granted holders the following:
- Dividends: A small share of Huda Beauty’s profits, allowing fans to participate in the economic upside of the company.
- Capital appreciation: As Huda Beauty grew to become a billion-dollar company over the years, $HUDA tokens would have significantly increased in value, granting the early believers in Huda a great return on their investment.
- Special perks: For example, owning 250 tokens would offer you a quarterly Zoom meeting with Huda)
Of course, this is still theoretical and full adoption of such a model will take time and requires many nuances to be worked out. However, a few platforms are already playing around with the concept:
- BitClout has recently attracted attention for letting customers buy and sell individual-specific coins. There’s an Elon Musk coin, a Justin Bieber coin, and Kim Kardashian’s, all of which trade on the platform.
- Human IPO allows anyone to buy and sell someone’s time, one hour at a time, as if you’re buying a stock in a company. As the person gets more important, his/her time becomes more valuable, generating a return on a fan’s original investment. You can buy shares in Valentine, a data scientist, or Deborah, an MBA candidate at UCLA, hoping that as they become successful, their time value increases.
It remains to be seen where the creator economy is headed. But one thing is for sure. It’s a great time to be a creator as new tools are becoming available every day to allow creators to develop and share content with their fans.