May 7, 2021
Over the pandemic, I’ve done more puzzles than I have ever done in my life. Everything from 10,000 piece jigsaw unicorn puzzles, to David Dobrik’s $100k puzzle. I won $0.25 on the latter. If you've ever done a puzzle, you know that oftentimes you can get fixated on a certain piece. Your fixation can lead to you missing out on the bigger picture. Similar to a puzzle, companies are missing the bigger picture. In order to be successful when building for creators, you need to understand the opportunity costs associated with your product.
I've written previously about the big two. The main challenges impacting creators are monetization and discoverability. The large rounds and money being thrown at creators focus on one part of the puzzle, monetization. Little focus is being directed towards discoverability, ownership, finding talent, aggregating various tools, and in general, building tools/solutions that extend beyond monetization.
In Antler’s latest market map of the creator economy the top categories are as follows:
Note: audience curation is a misleading title as I would define Clubhouse and Discord as social networks vs. curation tools.
When we think of the creator economy in phases, phase 1 of companies focused exclusively on monetization. This makes sense in theory because incumbents were caught flat footed on building solutions for creators. Outside of YouTube, few platforms cared about offering ways to help creators earn money. For years, creators had to rely on their own ability to hack together tools and work with brands in order to generate revenue.
This allowed early entrants to offer solutions that should have already been on native platforms.
Incumbents had the power to help creators generate more money, but they didn’t see the value of it. The opportunity cost clearly wasn’t worth.
Incumbents have woken up and like a bear after a long hibernation cycle, they’re hungry. They’re building new products layered with rev share, low commission, and hefty payouts. Think Snapchat’s 0% commission marketplace and $1M daily payouts from Spotlight, or Instagram’s new marketplace, affiliate model for product recommendations, shoppable livestreams, and shops.
The big bears have already built trust, habit through app usage, and compelling incentives to use their platform over third parties. A new startup will not be able to outcompete on strictly revenue. So, what does this mean for platforms that compete strictly on areas such as live-streaming or payouts? Especially when the opportunity cost is higher for a creator to leverage a new platform focused strictly on monetization? It looks bleak for companies focused strictly on monetization.
When defining opportunity cost in the creator economy, factor the benefits a creator will get from leveraging a new platform over an existing platform. An example can be seen with live-streaming commerce in platforms like PopShop over TikTok, Instagram, Facebook, Amazon, Twitch etc.
Popshop makes money by leveraging a value-based model dependent on the size of a creator. They charge a service fee, processing fees, and up to 9% commission (even though it isn’t advertised on their site). 9% commission isn’t bad. Especially when other platforms take up to 20% commission. However, that’s when you don’t look at the opportunity cost.
While yes, value-based pricing is great and a 9% commission isn’t too bad, this means a creator needs to create a new account, familiarize themselves with the app, cross promote their livestream on existing social channels and hope their audience will also migrate off the native platform (e.g. TikTok or IG) to engage and hopefully purchase from your livestream.
It’s a decent amount of friction there. Right now, that friction is fine as incumbents haven’t rolled out their shoppable livestreams. However, what happens when they do? Especially when they can offer 0% fees across the board in effort to get existing users to leverage the feature in app helping creators make more money.
This is why opportunity cost is essential when your competitive edge is strictly monetary. You will not outspend an incumbent.
When factoring opportunity cost outside of monetization, the situation looks less dire. Companies such as Stir, Karat, Spore, offer monetization capabilities but they offer solutions that don’t naturally benefit incumbents.
Stir provides cross platform finances and revenue management for omni-channel creators.
Karat provides the first credit card for creators. Banks are notoriously slow to innovate and offer solutions for growing categories, so it’s likely that web 3.0 companies will become competition before banks.
Spore is building the infrastructure for creators giving them management over their business and audience, while also owning their data and having the ability to generate revenue. Think of them as the Shopify of the creator economy.
The trend you’ll notice above is that the above companies are competing with other creator companies and offering solutions that aren’t in the interest of the giants of today. It’s easier to compete with other creator focused companies versus bigger players.
Small-midsize businesses are often compared to creators; however, it’s more like Apples to Oranges. It doesn't really work. The reason being is that few creators have the money to actually leverage the tools and resources to take their business to the next level. Even fewer creators will get to the point of Mr Beast, Emma Chamberlain or Colin & Samir.
When looking at the creator economy is more akin to compare them to artists vs. business entities. Most creators would be happy with a revenue that let’s them live comfortably off their content. Comfortably doesn't always mean MRR in the six figures range. Sometimes it can be an extra $500 or $5000 a month. Creators want money but a majority aren't and will never be at a point that they will generate enough monthly transactions to keep monetization focused companies afloat.
When thinking long game for creators, the next batch of companies will be a mixture of web 3.0 companies and web 2.0 companies focused on providing value that incumbents can’t or won’t tackle. They’ll appear in the form of creator DAOs, NFT marketplaces, social tokens, and aggregating the aggregators.
Incumbents may be able to throw more money at creators; however, they'll never prioritize building an authentic relationship with creators, giving creators true ownership, and truly wanting creators to succeed despite being multi-channel. This is your edge, but it requires you to compete in other areas outside of throwing as much money as possible at your problems.
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