a16z Podcast - The Passion Economy: Redefining Work

Episode Date: April 18, 2020

This episode of the a16z Podcast covers the the rise of online platforms that enable people to make a living off their unique interests and skills. It's a trend that's become increasingly relevant as the demand for virtual work grows. The discussion -- with Patreon cofounder and CTO Sam Yam and a16z consumer tech partner Li Jin in conversation with Lauren Murrow -- covers the new forms of work made possible by these online platforms, why creators today are effectively making more money off fewer fans, and what all of this means for the future of entrepreneurship.See more on the Passion Economy, metrics for it, 100 True Fans, and more at a16z.com/creatoreconomies.

The content here is for informational purposes only, should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, and welcome to the A16Z podcast. I'm Lauren Murrow, and in this episode, Patreon co-founder Sam Yam and A16Z Consumer Tech partner, Lee Jin, join me to talk about the passion economy, the rise of online platforms that enable people to make a living off their unique interests and skills. Though this episode was recorded before the current shelter and place orders, it's a trend that's become increasingly relevant as we see a massive growth in digital

work. Our conversation covers the new forms of work made possible by these online platforms, why creators today are effectively making more money off fewer fans, and what all this means for the future of entrepreneurship. You can also check out our post on this topic, as well as related content at A16Z.com slash passion economy. So first off, how would you define the passion economy? When I talk about the passion economy, I really mean any potential path of monetization where people are leveraging their individuality. So it's beyond just podcasters and YouTubers and visual content creators. And it encompasses things like video course creators or virtual teachers or tutors or virtual coaches for professional coaching. So some of the really

interesting platforms allow creators to create their own online courses. And these online courses encompass everything from how to organize your home or how to not kill all of your plants to more traditional educational subjects like how to start your own online business or how to start a podcast. And then in terms of virtual teachers and tutors, There's platforms that are giving people the ability to come up with their own online courses and offer them to kids. The way that we think broadly about the creator economy, which ties into the passion economy, is any individual who has an interest, has a passion, and is trying to grow community around that.

So there was a study last year by the Recreate Coalition on the new creator economy. they found that there are 17 million creators who are earning an income from posting creations online. They were covering just nine platforms, I think, and included platforms like Instagram, Twitch, YouTube, Tumblr. The creator economy has been around for a long time. So that isn't necessarily new. In the 2010s, we saw the rise of the influencer industry. YouTube has been around for something like 15 years now. Sam, you co-founded Patreon in 2013. what has changed since the early days of creator platforms? In 2013, people were making money online and even online for content,

but the premise was that the economics for these creators were broken. And so you had my co-founder Jack, who was making music on YouTube, and his story is that he would get hundreds of thousands, and even millions of views on his videos, as he likes to put it, several football-sized stadiums filled with fans, but only to log in onto his ad revenue dashboard and see like a few hundred dollars transfer to his back account, right? And if you look at my own life, I studied almost 15 years of classical piano.

I performed at Carnegie Hall in New York before college, so I took the craft very seriously. But I couldn't see any viable path into making my own passion for music a career. You just had to be the best. And so the crux of Patreon was that there was an opportunity to provide an ongoing sustainable salary to creators and that the internet enabled this. Ten years ago, it would have been really difficult for many creators to make a living because what has happened since then is that social networks have reached global scale.

The entire internet has been connected on these large platforms like Facebook and YouTube and Instagram. We needed that to happen first so that creators could find their tribe so that fans could find the creators that they resonated with in order for this next wave of new creator platforms to arise. What types of work would fall under the Passion Economy umbrella? In addition to the ones that people often talk about as new forms of creative careers, like podcasters, online writers, online course creators. There's also a lot of emerging professions that I think a lot of people aren't even aware of yet. After the Passion Economy blog post came out last fall,

I was pleasantly surprised by how broadly some founders read it and thought that it applied to their businesses. There were people who were starting marketplaces for after-school kids activities or summer enrichment activities and thought of themselves as a passion economy platform. There's this new potential profession in the form of a conference organizer. There's also community leaders that are going private or paid and making a living through basically moderating a community. And then in China, there's platforms that enable people to find video gaming buddies for either training or companionship. And I think a lot of people in the West aren't aware that people are actually making a living from doing that. Within our own network, we see this on mainstream areas like podcasters, YouTubers,

even webcomics, but also we see fringe communities and categories around things like animal rescue or knitting or dating advice or even a group that just sails around the world and records their adventures. So for us, the creator economy is any individual that is able to post something, to the rest of their community online? The commonalities between all of those examples is people are providing a service that really only they themselves can create versus previous generations of turnkey work platforms may have prioritized consistency and tried to reduce variation between workers. I see. So individuality is a feature, not a bug.

A lot of previous marketplaces were really about providing the most consistent experience as possible, such that, for instance, whenever you hit the Get a Ride button, you knew exactly what to expect. The difference between that versus Passion Economy work is that as a consumer, you're specifically looking for a very, very individual type of service, and the person who's rendering that service is of utmost importance to you. And so it's not about taking any online course or subscribing to any newsletter. They're not interchangeable. Have you noticed a shift in the types of work that you're seeing on Patreon. Lee has made the analogy that it's like the difference between Amazon and Shopify, like that standardized mass-produced monolith and then the more

indie-focused goods. Have you seen creators become more individualized or more niche? Yeah. Previously, in order to survive, I've yet to appeal broadly to the masses, otherwise the costs for marketing or distribution were never worth it, right? But with the internet, you can have individuals find other members of a community in smaller gatherings. but it still becomes a critical mass. This is something I want to hone in on. Is this type of creative work growing? Is the passion economy, or what we would formally call the creator economy, is it growing?

The number of 1 million plus subscriber YouTubers has been increasing 65% each year. But on top of that, existing YouTubers are having their subscriptions monotonically increasing. And then all our cohorts are growing over time. The way I like to actually look at this when you're talking about overall growth, is it's through this study that seems slightly unrelated where last year during the 50th anniversary of the moon landing there was a hair of study shared in USA today they asked children what did they want to be when they grow up right and they found that in the US the number one answer was that children wanted to be YouTubers and that there was an answer of children wanting to be astronauts too

but it was like three to one more children wanted to just be online and be a YouTuber and so I think this speaks to what's going on in the whole industry. Everyone's attention and interest is in being able to build communities and follow what they're passionate about. And that's just going to dictate continual growth over time as these children grow up and decide what they want to do alongside this whole passion economy. Another way to think about the total potential market for the passion economy, which, by the way, was the biggest question that I got after publication of the passion economy

blog post, lots of people said, you know, this all sounds great, but how many people in the world can actually make a living from their passions? How big can the passion economy actually get? There's two ways to think about it. One is by looking on all of the different creative platforms like YouTube and Instagram and TikTok and seeing how many people have a massed decently sized audience where they could probably be able to monetize that audience. But the other way that I like to think about, Tam, is by thinking through the demand side on the consumer side, what are all the different pockets of spend that Americans are putting their money into that could potentially be up for grabs by creators? So for instance, Americans spend more than $32 billion a year on health

and fitness, $10 billion on self-improvement. The entire online education market is $130 billion. And a lot of these categories, I think, could shift to creators and more niche content that individuals are producing. You mentioned that you got a lot of feedback that was like, this sounds great, but how many people can actually make a living this way? Yeah. And you have argued that thanks to the rise of some of these modern digital platforms, in fact, creators need less fans to make a living than they did in the past. more than decade ago, Kevin Kelly, who is an editor wired, predicted the rise of the passion economy. So he basically argued that rather than pursuing, say, widespread fame, that creators only needed to engage a base of 1,000 true fans. So 1,000 fans that would pay $100 per year.

So, Lee, you argue that with these new tools, creators actually only need to amass 100 true fans, but paying them $1,000 a year. Exactly. It really builds on the same idea as Kevin Kelly's original post, which was that it doesn't take building a huge, massive audience in order to be a successful creator who can make a living. But I took it one step further, and this blog post called 100 True Fans, which outlined the differences in the 1,000 True Fans model versus the 100 True Fans model. It's a difference in the kind of content they're creating, right? Content and I think the mindset that they're tapping into among their fans. So the 1,000 true fans model where people are paying you slightly less than $10 a month is really about tapping into the idea of fan altruism where users are willing to pay you for something that benefits the creator because they want to support you and they want to donate to you. In order to get users to pay $1,000 a year,

obviously there's a tremendous amount of value that needs to be offered to them in exchange for that increase in price point. And so the model of 100 true fans is really about the fan benefit rather than the creator benefiting. And so in order to get people to part with $1,000 a year, users need to be willing to pay for premium content and community that isn't really available elsewhere. A lot of it is oriented around delivering tangible value and results. So, Sam, do you think there's a shift from that influencer model of people subscribing because they're really into a creator versus creators making something for the benefit of the fans? Well, to least point, we've certainly seen the average initial pledge amount increase over time and also a shift in patrons who are paying over $100 per month, which is over $1,000 a year. We've seen that grown over 20% over the past few years.

I certainly think price point is relevant. I think to your earlier point, what's being offered is highly relevant to, like, there's this comedy podcast called Righteous and Ratchet. It's two podcasters who offer commentary on entertainment news. When they originally launched, they were generating $2,000 a month from their community of supporters. But when they focused on offering exclusive content, extra commentary, even early access to their content, they saw that actually the business jumped up to

25,000 a month. And I think there are a few reasons for this. When we look at our creators are able to retain subscriptions at 90 plus percent several months out, it's because they have a consistent stream of content that I'd argue is very intimate with users. I think what happens with podcasting is, A, you're almost speaking directly into the ear of your audience and you're doing it on a very regular basis. And so when we talk about being able to move communities and having influence over them, I think building that connection and that relationship through engagement is what we've seen be very effective. I think broadly there's eroding trust in ad-driven social platforms and creators have the trust and distribution of their fans. For a lot of people,

creators have become their main social experience and fans are craving a way to engage more with them. Yeah. For us, we've seen all our creator cohorts grow over time, but the more recent cohorts have actually been growing faster on overall revenue than past years of cohorts. People have been able to send creators over a billion dollars through the first six years of our existence, but then over half a billion of that happened in the most recent year. And so we're seeing this acceleration of growth across these communities. Now with the creator economy, there is also not only different ways to monetize, but the potential to more directly monetize. So what are the lovers in which you do that? Well, just to start off, the gig economy is obviously huge and

isn't going to go anywhere. But one of the key differences between passion economy work versus gig economy work is that the lovers that a creator has for growing their business are different. So in the gig economy, when it was really about one-time transactions through doing a particular gig, the lovers for growing your revenue was just through doing more. You know, spending more time doing gigs, driving more miles, doing more jobs, et cetera, et cetera. Whereas in the passion economy, the lover for growing one's business is really about expanding your audience and offering something that's more differentiated than anything else that exists. So it's about the fan-based growth and the quality of your service or product. So I think expansion of your

audience is absolutely one dimension, which is important. And I think what we're trying to promote is the depth of that relationship, too. How so? So Facebook and Google broke out the revenues this year for Instagram and YouTube respectively. And they basically said that Instagram was making $20 billion in 2019, and YouTube made $15 billion, but both almost entirely through advertising. But there's also been a narrative that these sort of social media companies are now getting criticized for focusing entirely on this notion of like growing engagement and developing addiction among individuals. And we see it too where some creators that have developed a large following or likes on their Facebook page or whatever that when it comes to asking their fans help support

them, you still get wildly different results. And that speaks to the point of depth of connection with your audience, where you could have a much smaller creator in a niche community where those fans really appreciate the content in that creator, and they're willing to pay a lot more. And so you can focus more instead of mass audience penetration to what is the craft that I care most deeply about that I think others will care deeply about too. What are some ways that you see creators fostering that depth? It's an easy thing to say, but how is that done? When people talk about community, they typically mean a sense of belonging, which I think is fostered. But more than that, I think what communities mean nowadays online is actually just more content.

And so when you go to like a Reddit thread and you look at the commentary there, a lot of people don't even read the main Reddit article anymore. They're just there to see what the community has to offer in terms of additional information or their opinion on a thing. When you go into Discord channel, that's the thing that people care about. They want to be like very knowledgeable in a particular area. Everyone actually wants to learn more and they want to watch and observe other. creators online to understand how they're making things. There was a stat that YouTube shared that 70% of millennial YouTubers use the platform to learn a new skill. I think people, even through merchandise, are just looking for a way to represent that they have this belonging and this

interest for themselves as a representation of what they care about. So as an example, if you look at the DJ cascade, and you're going to one of his exclusive concerts and then you get that merch, that t-shirt or that hat or whatever. that's just tied to that particular events, then when you're out in the real world wearing this, you're effectively signaling that you're part of this community. And you're such a zealot about being a Cascade fan that you went to this exclusive concert.

And so I guess that's what I mean when I'm talking about engagement, whether creators are able to foster that sort of excitement around wanting to get a depth of knowledge in either their interest area or the community's passion and interests. So I think of depth as a very critical element of a lot of these new platforms, as Sam mentioned. When I've observed a lot of the startups in this space, a lot of them have this initial go-to-market wedge of a single product that they give to creators that they can monetize through.

So for instance, Substack started with newsletters, run the world is starting with online events. But they oftentimes have a vision of offering greater depth over time. In other words, they are trying to offer additional content types or products that give creators the ability to earn more, even if they keep the audience size the same. So, for instance, for Substack, beyond just newsletters now, they also support the ability for creators to publish paid podcasts. And for Run the World, a lot of the long-term vision is about supporting ongoing community building and community interaction and engagement. And you can imagine that creators are going to be able to earn more if they not only charge for these one-time ad hoc events, but they're able to charge for belonging to an ongoing existing community. And that's part of your 100 True Fans theory as well,

that you can start with a broad fan base and then only a small percentage of those actually make it up the ranks in which they're paying $1,000 a year or more for really premium content. Exactly. But at the same time, what we've seen is that the network of all these creators is getting denser and closer over time. And so with new creators on Patreon, at least, 40% of their initial revenue comes from the existing network of patrons who are already on Patreon. And we've seen this increase over time. And actually, over half of the revenue overall now comes from patrons who are subscribing to multiple creators. And that only flipped for us a few years ago, where instead of most of our revenue, you're coming from people just pledging to one creator. Now people are paying multiple creators at a time. And so, like, yeah, what does that all mean? From my perspective, this notion of a niche community is actually becoming less isolated. They're not orphan groups.

And so you'll see these collaborations happen within creators on areas or communities that look niche to begin with. I think that's super interesting. And when you first told me that, I sort of puzzled over it because I had been thinking that the whole creator economy space and everyone, monetizing online was really about tapping into the specific niche that they couldn't access anywhere else and that each of those fan bases were probably dependent of each other. My takeaway is that I think overall consumers broadly are shifting their information diets to things that are creator-led. As opposed to what? As opposed to traditional media sources. So for instance,

before substack, any aspiring writer had to go get a job at a traditional media company. And Someone at that company had to give you a platform to write and distribute to an audience. With Passion Economy platforms, it's about directly connecting the creator with their audience. So the Passion Economy is basically cutting out the middleman. Yeah, exactly. It's those layers of intermediaries that sit between a creator and his or her audience that is taking a cut. That really makes it more difficult for a creator to make a living off of a smaller audience size. consumers are deciding that they're not going to go with the content subscriptions that someone else has bundled and determined came together, but they're creating their own information bundles from creator-led content.

Yeah, your point that people are unbundling their consumption we've seen across the board. You have folks like Try Guys, who used to be part of BuzzFeed, spin out where their fans are supporting them directly. You have this group kind of funny, which used to be part of IGN, and then again also managed to build. a sustainable career on their own. We've talked about how previously it used to be that only established businesses could create websites and edit software and build apps. And now that's no longer the case. So how do you think about not only attracting creators and patrons, but then providing

support for continued growth and engagement? How do you think about that from the platform perspective? I think it's happening through the network, meaning whereas previously you had to go through large media providers. those media providers can now be other creators. And so this notion of collaborating, where the barrier of entry of collaboration is much lower, too. Creators are willing to work with each other. I think it's sort of this shared plight of figuring out how to see sustainability in this business.

If you look at what happened with the YouTubers, Jeffrey Starr, and Shane Dawson, so they on YouTube collectively have 40 million subscribers. But they collaborated together on a makeup line, and they sold out tens of millions of dollars on this. launch in just half an hour. And then immediately, the makeup stock was then being resold on eBay, and they were outselling billion-dollar-plus company makeup lines because of their power as an influencer. So direct connection with an audience is immensely powerful. And you only develop this credibility through meaningful connection with the audience, which is what the internet has enabled. So we've talked about how one of the key features of the passion economy is building

this direct channel between the creator and the consumer. And we've talked about how you need to foster engagement. But once you create this direct engagement, there is the risk that then that creator will take their fans and go off your platform. How do you guard against that? The short answer is we started from day one thinking about your audience very differently and your community very differently than other platforms. And our thinking around this is this creative first mentality. For us, it's the belief that if we can provide you the right tools to interact with your audience, that's why you're going to stay here, not because you're effectively stuck on the platform. That's interesting. So in the same way that these creators have to provide specific

value to their users, the platforms also have to provide appreciable value to the creators in order to keep them on platform. Yeah, it's a refreshing take, I think, in the industry. The whole thesis about the passion economy stemmed from doing a lot of in-depth research in consumer marketplaces and from studying the evolution of different marketplace models over time. And my colleague, Andrew Chen, and I had traced all of these different marketplace paradigms from the Craigslist model to the Uber for X model to manage marketplaces. And a trend that I saw evolving there was that newer generations of marketplaces were taking a much more supply-focused approach and thinking about how can we become a really attractive place for these service providers to work. So one catalyst

of the passion economy thesis was observing the evolution of marketplaces. Another driver is my personal experience of having studied art and painting intensively growing up between the age of five and 18. I took private art classes every single weekend. And when I was a senior in high school, my path really branched out between going to art school versus going to traditional college. And like Sam, I just didn't see a viable path towards actually becoming a professional artist and being able to make a living and sustain myself that way. And you took the much more risk-averse path, right? Like me too, of starting. which is what I believe you did before this.

Yeah, so the passion economy is not just this intellectual exercise about how people make a living and the future of work. Well, thank you so much for joining us on the A16C podcast. If you start painting again and Sam, if you start playing the piano, I'll subscribe to both of your channel. Thanks, Lauren. We're going to charge you a thousand dollars a year.