The Creator Economy Winter is Coming

The Creator Middle class won't thrive, they will churn from the Creator economy in the next 18-months.

Hey Guys,

A lot has changed since I last posted. You have to check out the Creator Economy Census by Patreon, I’ll be doing a post on just that at some point. More details are coming out about the true state of the creator economy.

Poverty of the Creator Middle Class

Depending on how you differentiate between social media users and creators, the TAM is anywhere from 50-200 million users.

There is winner-take-all distribution of outcomes in the creator economy. A burgeoning middle class of creators is aspirational, but does not yet exist at meaningful scale.

Can you imagine young people dreaming of becoming Creators on YouTube, with a a strong likelihood that they will become gig-economy workers with some of the lowest pay and most mental health stress on the internet?

Some data points to support:

Twitch’s Leaked Creator Earnings

From Twitch's leaked creator earnings:

- 50% of revenue was made by the top 1% of streamers

- 75% of accounts that earn revenue made less than $120

- Only 0.06% received over the U.S. median household income of
$67,521. 

- A quarter of all revenue was earned by the top 1,000 accounts.

Linktree released a survey last month which found only 12% of FT creators make >$50k per yr, whereas 46% make less than $1,000 per yr.

I think we can learn a lot about the true state of the Creator Economy with

• Linkedtree’s survey

• Patreon Census

• Twitch leaks

• Already existing Subscription slowdown

• Many analysts believe many creator economy startups are going to get CRUSHED this year, especially those related to Web3.

Social media stock today had a reckoning, with Snapchat down more than 43% in a single day. Snap instead of growing at a 25% clip will grow at less than half of that and it’s guidance is beyond murky.

Creator Economy SaaS Model Under Threat in Recession

The severity of the delta between Creator Economy "haves" and "have-nots" has clear implications on biz model viability.

Many of the unicorns in The Information's Creator Economy database are SAAS companies.

Yet, with the Creator Economy's VERY high gini coefficient, SAAS companies need to price at consumer levels (not enterprise) to capture meaningful market share.

Using a mid point estimate of a 150 million creator TAM, if we take 12% of that pool (those who make over $50k per yr) we come up with a SAM of 18 million creators.

How Startups Can Survive the Creator Economy Winter

Read the Napkin Math article about it. Evan is a huge clickbait writer over on Every.to but it’s still a good topic.

Going back to the viability of the Creator Economy SAAS model, what happens in periods of high inflation and consumers holding back on discretionary spending for subs and tips of Creators?

Creator Economy SAAS cos are barely scraping unicorn territory at maturity.

VCs will have to tighten their screws and many suspect Creator Economy SAAS will be hit disproportionately hard, as the market size isn't there yet to justify unicorn valuations for but just perhaps a select few companies. This could impact Substack’s hiring and even letting some people go, among others.

And with how hyper-focused VCs are with finding the next unicorn, I suspect newer Creator SAAS companies will have a really difficult time raising their initial rounds to get off the ground. All those flashy NFT platforms come to mind, as Bitcoin is likely going to nosedive given the fears of a recession and its correlation to the NASDAQ, ready to have its 8th straight week of significant declines, though only 20% off the all-time highs, plenty more room for the falling knife.

Some analysts believe that some platforms will need to fix for Creator Economy operation from a shift from a SAAS model to a revenue share model, which both increases SAM and customer capture rate. So models like Every.to of course are tooting their horn as someone more recession-proof, though I’m not sure that this is actually true as they are relatively small and irrelevant in the space.

Substack mostly just juices its popular Newsletters and celebrities with features and so forth, letting the bottom 90% starve until they give up. This is because they want to make money and maximize their growth for their backers and VC board room members. Clearly even taking 10% of the revenue of Creators with no great follower base, can be enough to drive them out of business even as they grow very slowly. Still Substack has invested into their product so much faster than even great big platforms like LinkedIn whose Newsletter feature remains an antique and missing features for many years.

So is a Creator Economy Winter really coming? It seems inevitable.

Substack’s Founders Dive Headfirst into Culture Wars

You can read the Vanity Fair article here. It is a bit of a weird read as traditional media have no idea how to cover Substack.

Vanity Fair claims that the newsletter company is on a mission to disrupt the attention economy away from “cheap outrage and flame wars,” drawing in literati from Patti Smith to Salman Rushdie. Substack has been often criticized for a history of transphobic creators and creators who actively profited from Covid-19 vaccine fears and misinformation campaigns.

Vanity fairs had this to say about Substack’s content moderation policies.

Its laissez-faire approach to content moderation, which sometimes gives voice to objectionable figures booted from other platforms, has made Substack a lightning rod in the debate over regulating free speech.

The truth is Substack is maybe the closest to a no censorship town square of free speech we have left on the Internet, where suddenly Twitter is realizing a good chunk of its supposed user base are just bots.

Substack can clearly profit from culture wars and controversy, just as creators juice them to personal and financial gain. Still it’s better than synthetic platforms filled with fake accounts and content moderation filled with human error, algorithmic changes and a total disregard for the monetization needs of impoverished creators.

Substack is a small company, it couldn’t even afford moderation if it suddenly wanted to go that route. It needs to focus on product, growth and product-market fit, and that’s what it is doing.

The Free Speech Culture Wars of the Future of the Internet

This was my comment on the Vanity Fair article Substack shared on LinkedIn:

Not censoring people and actually standing up for free speech is not the same as having a laissez fair approach to moderation.

It's literally the opposite.

On an internet of platforms along the spectrum of content moderation, misinformation and opinion, letting people decide and having other people share their truth is the entire point.

If Patti Smith wants to get high about singing on the environment, that experience was facilitated by Substack and YouTube. Soon artificial intelligence will automate a lot of digital content.

Having a place for human expression and newsletters about anything is entirely the point. A vivid place unfettered by algorithms and censorship. A human place where advertising and fake accounts don't dominate the conversation with their nefarious amplification of forgeries of human experiences.

You could make the argument the pure SaaS model is better. However both it and the hybrid revenue share scheme like Every.to have elements of being a ponzi scheme that mostly benefit the founders, VCs and the top 1% of creators. The rest be damned.

So until the Creator Economy solves its middle class problem, a lot of its spectacular growth is somewhat deceptive. When a16z are huge backers of Substack and huge backers of NFT platforms, there’s going to be a weird collision between Web3 and SaaS Creator platforms in the end. If you suddenly have an app and a network recommendation system, you are suddenly a real platform as Substack has found out.

I don’t agree with Evan’s self-serving conclusion that revenue share is this ethical thing in the Creator Economy winter. The Creator’s profits should also come first, that’s what being customer-centric is really about. But in a SaaS model the users are the cash-cow, so helping the 1% is how you maximize your profits, instead of being a real meritocracy (which can come presumably later?).

Every.to which feels like pure clickbait that spawned out of Medium, instead of Substack’s core product team, does phrase it well however when it says.

TL;DR Because 99% of creator revenue accumulates at the top .01% of creators, creator economy startups have to find a way to justify taking a % of revenue. This is not an easy task and only a select few will succeed in the coming bear market. 

The sad reality for the Creator Economy is a recession will be challenging at best, and make many creators fold. And make many of the posts on LinkedIn about solo-entrepneurship look plain silly.

Thanks for reading!