A few days ago, an obscure app graced the top 10 of the App Store.

It was led by a new phenomenon - TikTok cults.

These cults have been getting into keyboard wars by flooding the comments section of enemy cult leader videos.

Most of it was just fun pranks. But it's showing one of the most interesting trends on the internet.

The rising influence of creators.

The leader of the OG TikTok cult, Step-Chickens, urged her followers to download her new app. Before they knew it, the app was in the top 10 beside Instagram, Snap, and TikTok.

The cult leader, a former Google employee named Melissa, quickly monetized her newfound fame by selling merch like T-shirts, yoga pants, and phone cases.

Meanwhile, on another part of the internet, a popular podcast - Call Her Daddy - was embroiled in controversy. The two female hosts breached their contract after feeling they weren’t being paid enough by their parent company - Barstool Sports. It was a trending topic on Twitter for multiple days.

Creators are realizing they can make a living by building their own brand on the internet.

Instead of relying on rent-seeking social media companies, creators are launching their own brands to monetize their audience through merch and premium content.

Over the next decade, some of the most valuable brands in the world will be owned by creators. A creator is anyone that makes money selling a digital product or service. This includes witty writers, master meme makers, and everything in between.

The market opportunity is so large that Li Jin, a former venture capitalist at A16Z, dubbed it The Passion Economy.

In this post, we'll explore how the Passion Economy started, what’s happening today, and what the future may hold.

Let's start by looking at what’s driving this trend.

Why Now

How do disruptive technologies emerge in the first place? Two key elements are cheap infrastructure and unbundling.

Cheap infrastructure makes it easier to produce goods and services. Meanwhile, unbundling makes these goods and services affordable.

Let’s explore each.

For the first twenty years of the internet, it was expensive to start a tech startup. You had to purchase rackspace for servers in physical data centers to deploy your app on the internet.

Data centers look sketchy AF.

Many times, you had to go configure the server yourself in person!

Then came Amazon Web Services (AWS).

In the early 2000’s, engineers inside Amazon realized that different teams kept setting up the same core infrastructure for every new project. Databases. Compute. File storage.

Andy Jassy, Jeff Bezos’ chief of staff at the time and the current head of AWS, suggested they form a team responsible for maintaining this core infrastructure. Now, instead of setting up their own infrastructure for every new project, teams inside the company just needed to make API calls to the AWS service and all the infrastructure was handled for them.

Jeff Bezos loved it.

He sent out a company-wide email decreeing that every new project must use the new AWS infrastructure. If any engineer disobeyed, they would be fired immediately.

He signed off with - “Thank you; Have a nice day!”. What a charming guy.

Source

Over the past decade, cloud providers like AWS, Azure, and GCP have been key drivers behind the proliferation of startups.

The same is happening for creators.

Similar to how there's a "tech stack” for engineers to build products (e.g., cloud infrastructure, web frameworks, version control, etc.), a "creator stack" is being built for the modern age.

The creator stack has three components:

  • Creating / hosting content - Helps creators manage their social media accounts, upload video courses, and store written content. (e.g., Teachable and Thinkific)
  • Growing an audience - Tools for running digital ad campaigns, managing an email list, and building a community. (e.g., Mighty Networks, Local, and Circle)
  • Monetization - Software for handling subscriptions, memberships, and access to premium content. (e.g., Stripe, Patreon, Podia)

This infrastructure is making it cheaper for creators to start an online business.

Similar to how AWS made it easier for startups to build an MVP. Creators are getting a tech stack at a sophistication level akin to enterprise software. This is being dubbed the "enterprization of consumer".

As the costs for starting a business decrease, more creators build.

Welcome the golden age.

The other big trend driving the Passion Economy is unbundling. Unbundling makes goods and services affordable for consumers.

Here’s how it works.

Customers become frustrated because they need to pay for a full product even though they just want a subset of functionality.

A startup usually emerges that unbundles that product by identifying the key features that a market wants.

The startup strips away everything else and charges a much lower cost than the full product.

Incumbents usually don’t respond because either - a) the market for this niche product looks small compared to their existing market or b) they already invested too much in the current product.

Over time, the startup gets more ambitious, adds new functionality, and shoots for a fat IPO so their executives and investors can buy Lambos and Chanel bags.

Eventually, their product becomes too bloated and their product gets unbundled by a new startup.

And the cycle repeats.

This dynamic is a key force behind tech disruptions.

  • AirBnB unbundled hotels. They undercut hotels by removing high overhead costs like real estate and amenities.
  • Netflix unbundled cable packages. They began their streaming service by offering a limited back catalog instead of producing expensive shows or purchasing broadcast rights.
  • Uber unbundled taxis. Taxi drivers had to pay for an expensive taxi medallion which drove them to charge high prices. Uber offered a lower cost service since drivers didn’t have to pay for a taxi medallion.

Consumers are over-served in many other markets which is catalyzing the Passion Economy.

For example, paid independent newsletters is a fast growing category. Traditional media companies like WSJ and NYT charge $20 to $40 for a monthly subscription. The subscription bundles content on tech, finance, art, science, pop culture, comics, sudoku, and crossword puzzles.

But what if you just care about tech news?

Instead of paying for $40/month for a WSJ subscription, consumers are paying $10/month for newsletters from independent tech analysts like Ben Thompson.

As more creators become independent, this type of unbundling will happen across many verticals:

Now that we understand the trends driving the Passion Economy, let's look at how creators are building their brands.

Building a Brand Online

Over the past decade, the primary way to make money as a creator was to have a massive audience. This is because the business models were limited and generally favored social media companies.

The main business models have been:

  • Serving ads to your followers and making a % per click
  • % per streamed song or video
  • Sponsored posts
  • Tips and donations

These business models usually only work if you have a massive audience. Thankfully, alternatives are emerging.

Going forwarad, many creators will monetize from a combination of subscriptions, merch, and premium content. This way, you don’t need a massive audience to make a living.

As a result, a new class of niche creators will emerge.

These creators only need anywhere from 100 to 1,000 true fans. They can make six figures if they have 1,000 people paying $10/month or 100 people paying $10/month.

This is a much more tractable business model for most online creators.

So, how do you get to that point?

It's useful to think of your online audience as a funnel.

  1. Free - Used to build awareness of your brand. Primarily social media content.
  2. Low-value transactions - Subscriptions and donations for exclusive content like podcasts, blog posts, etc.
  3. High-value transactions - Premium content and services like online courses, exclusive merch, and consulting.

Let’s call this the Monetization Mountain.

So, how do you get to the top of Monetization Mountain?

Not sure. Never been.

But I’ve done the next best thing. I researched the rise of many large and niche creators like Lil Nas X, Emma Chamberlain, and David Perell.

Here are three principles for aspiring creators:

  1. At first, focus on one marketing channel
  2. Create content native to that channel
  3. Grow your audience before monetizing

Let’s walk through how these principles work in practice.

Meet Samantha.

Samantha is a software engineer at Google. She enjoys the free snacks and back massages, but wants to build an online audience so she can travel the world.

So she decides to become more active on social media.

She reactivates her Twitter, starts a newsletter, creates a YouTube channel, and posts dank TikTok videos. She then divides her time equally between all four platforms.

Over time, she realizes she isn’t going deep on any platform which causes her to produce mediocre content.

A couple months in, she decides to focus most of her time on Twitter and the rest on her newsletter. As a result, she’s able to post more consistently and at a higher quality. This helps her develop a niche but fervent audience.

Principle #1 - At first, focus on one channel.

Many creators end up creating mediocre content by trying to do too much at once. For startups, growth follows a power law distribution. 70% of users come from just one marketing channel.

The same is for creators.

So instead of trying to dominate on Twitter, TikTok, YouTube, and IG, focus about 70% of your time on one platform to start.

Samantha wants to be efficient with her time so she starts tweeting the title of her latest newletter post with a link.

These tweets don’t do very well though.

Why?

Because links to external content isn’t what make Twitter great. Twitter is about offering opinions and participating in discussions.

Principle #2 - Create content native to the channel

On Twitter, the native content is replying to tweets, summarizing opinions, and tweetstorms. Not external links. That’s for grandma to see on Facebook.

For IG, don’t just post a screenshot of a tweet. Post an IG story of the tweet with colorful animations instead.

Get creative. Learn the nuances of the platform. Stay consistent.

Samantha is crushing it.

Her audience is growing. Randos are sliding in her DM’s. She even had a few tweets go viral.

She continues to publish a weekly newsletter to go deeper on topics that interest her. The newsletter also helps her build a direct relationship with customers instead of relying on a social media platform.

The newsletter has 1,000 subscribers and is growing about 5% each week.

So she starts charging for it.

About 100 people subscribe but her growth plateaus.

Since the content is behind a paywall, her best essays can’t be shared with others. This limits the growth of her audience.

Principle #3 - Grow your audience before monetizing

If you begin charging too early, you will limit your growth.

As you're getting started, build loyalty by giving away as much value as possible for free. This will help build trust and increase word-of-mouth for growing your audience.

While in the growth phase, you want to build a direct relationship with your audience. This allows you to monetize with your own products later.

Otherwise, you will be handcuffed by the limited monetization models available on the social platform you are using.

Usually, the best way to build a direct relationship with your audience is through email. Email allows you to speak directly to your audience and advertise your own products once you begin to monetize.

Gathering emails is tricky though. One of the best strategies for capturing emails is:

  1. Build a personal website with an input field for gathering emails.
  2. To increase the rate of people inputing their email, offer a “lead magnet”. Basically, give away something valuable for free. A PDF guide with your best work. A free product. A $10 Chipotle gift card. Anything.
  3. Then, include a link to your site in your social bios.
  4. Keep adding value to your email list by consistently pumping out valuable content. Consistency is key.

Eventually, your audience may ask for other types of content which you can then begin charging for. This is when you can begin to monetize. An exclusive podcast, an online course, merch, etc.

Even when you begin monetizing, continue offering valuable content for free. This is the key to keeping the growth engine going. Counterintuitively, once your audience reaches critical mass, growth will happen all on it’s own.

But you have to get to that point first.

Now that we've looked at strategies for building an audience, let's explore what the next decade may look like for creators.

The Future of the Passion Economy

Three trends I'm excited about over the next decade include:

  • Influencer Tokens
  • Bootcamps-as-a-service
  • Shopify for Creators

Influencer Tokens

Today, creators are grossly underpaid relative to their value.

Whether you’re an artist, teacher, or engineer, you probably don’t make what you’re worth.

This is because intermediaries like agents, investors, and corporations extract substantial amounts of value.

Similar to how companies raise money from the public in an IPO, creators will use blockchains to raise money from fans all over the world in seconds.

Blockchains enable global peer-to-peer transactions without intermediaries. This will upend how creators finance projects.

In fact, it’s already happening.

NBA player Spencer Dinwiddie recently launched a token on the Ethereum blockchain. His fans gave him money in return for a percentage of his future earnings.

Instead of taking rent-seeking sponsorship deals for erectile dysfunction pills and mattresses, he can raise money directly from his fans.

Instead of fantasy sports that bet on an athlete’s performance on the field, fans can speculate on an athlete’s earnings potential OFF the field.

And not just athletes, all creators.

A grammy-award winning artist recently released an exclusive mixtape using smart contracts on the Ethereum blockchain. Anybody in the world could purchase the mixtape or speculate on it’s value.

There are even exhchanges being built on blockchains to help creators raise money and sell products directly to fans around the world.

This will completely change creator’s relationship with their fans.

Bootcamps-as-a-Service

Education is the most infamous example of egregious bundling. The three most valuable components of the university bundle are:

  • Knowledge
  • Social connections
  • A credential

But universities also bundle fancy facilities, subpar food, and boring textbooks.

As a result, universities are becoming too damn expensive. So how can we unbuild the university experience to make it more accessible?

One recent alternative has been the rise of “bootcamps”. These bootcamps usually focus on technical skills and last anywhere from three months to two years.

However, it’s extremely difficult to start a bootcamp. You need to integrate different systems for applicant tracking, content hosting, livestreaming, community managment, and payment processing.

This limits the number of bootcamps that are started.

But what if there was a platform that provided everything you needed in one place?

I think there’s an opportunity to provide this as a service that anybody could plug into. Imagine if there were bootcamps for everything from how to improve your IG profile to how to become a better cook.

I’m extremely bullish about this idea because I believe it could solve the two most acute problems with online education today:

  1. High churn
  2. Lack of a high-signal credential

How to reduce high churn in online education

Most EdTech platforms focus on asynchronous content. This is content that’s experienced individually. Such as recorded video lectures, PDF’s, and discussion boards. Inevitably, students get bored or demotivated and drop out.

As a result, only about 5-10% of people finish a course they started.

Meanwhile, bootcamps provide a synchronous experience.

Students are in a livestream together. They can go into breakout rooms and discuss. They’re actively engaged. There isn’t much hard data to cite, but my most transformative learning experiences have all been synchronous.

Bootcamps-as-a-Service could lead to a much more dynamic online learning environment and thus reduce churn.

How to solve the credentialing problem

Credentialing is hard. However, I think the Bootcamp-as-a-Service model could lead to some creators building their own curated “micro-universities” with 100 to 1,000.

For example, a writer could host an “Advanced Masterclass Bootcamp” where 10 people are selected every six months. They could charge $1,000 for the bootcamp and then $10/month for access to a community of previous cohorts.

I think a curated online learning community like this will become the next Stanford or HBS.

Note: If you’re interested in building something like this. Reach out :)

Shopify for Creators

Shopify is my favorite company in the world.

They enable independent businesses owners to launch an e-commerce site. They empower business owners instead of competing with them.

Interestingly enough, they’ve integrated with service providers to provide business owners with a robust set of tools like e-commerce, fullfillment / logistics, and financial services.

From raising initial capital, to displaying your inventory, to processing payments, to 2-day shipping - Shopify has you covered.

The same type of business will be built for creators.

There will be a company that will extend credit to creators, host content, provide marketing automation, develop community management tools, handle merch logistics, and process payments.

This is the holy grail of the Passion Economy.

The key will be identifying a narrow wedge and expanding from there.

For example, Substack started with a limited set of functionality like hosting content for writers, managing newsletter lists, and processing payments. Over time, they've developed more features and continue to expand. As such, I think they're in a great position to build the "Shopify for Writers".

Similar vertically integrated businesses will be built for other industries like social media influencers, online educators, fitness instructors, etc.

Conclusion

Over the past decade, the main path for online creators to earn a living was to build a massive audience.

This is changing.

With the rise of cheap infrastructure for creators, unbundling of consumer goods and services, and new monetization models, niche creators can now make a living on the internet.

With this new wave, I'm most excited by the prospect of talented people making a living doing what they love.

I’m also hyped about the opportunity for more people to have access to high-quality content at an affordable price.

In ten years, we will all be creators in our own little way.

If you want to dig deeper into the Passion Economy, read Li Jin’s essays on the subject here.

Also, if you enjoyed this essay, say hi on zee Tweetter :)

‍

Posted 
May 28, 2020
 in 
Tech
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