A Brief History of the Creator Economy
Traditionally, creators tend to be individuals or small groups. There is good reason for this: their products (creations) are reflections of their distinct personalities, artistic sensibilities, and visions. They are non-fungible and valuable in their uniqueness. Yet for years, the economic viability of independent creator-driven businesses has been nearly non-existent for all but a handful of exceptionally talented individuals, due in large part to this lack of scale. Because individual creators cannot bear the same transaction costs as “traditional” businesses, they lose significant profit margin and must rely heavily on middlemen and rent-takers.
This began to change with the technological advances that brought about social media platforms. These platforms dramatically reduced the costs of marketing and distribution (and eventually, creation itself), while simultaneously centralizing power, control, and brand dominance among consumers of content. With the introduction of creator programs and sharing of advertising revenues, alongside the increasing professionalization of the creators themselves, platform holders were able to create a nice flywheel for themselves:
- Creators share compelling content on the platform (their passion, expertise, or simply entertainment).
- Users engage with appealing, higher-quality content, staying on the platform longer.
- Platforms monetize users via advertisements and share a cut of the profits with creators. Meanwhile, creators seek out brand partnerships, create sponsored content, or and engage in affiliate models with products that may be of interest to their audience.
- Creators utilize the additional income to continue creating and sharing, improving their content along the way by investing in better tools, working with editors or managers, and gaining institutional knowledge of the platform.
- As content quality improves, users continue to engage with increasingly higher-quality content, with some users even aspiring to become creators themselves, thus furthering the momentum of the flywheel.
This profitable loop brought about the Attention Economy–one in which platforms competed for users’ engagement with the help of a growing creator class.
Yet this opened creators up to the risk of platform over-reliance. Changes to a search algorithm, removal of a feature, or sudden closure of a platform itself could all impact creators’ businesses irreversibly. To avoid this, forward-thinking creators diversified content distribution across platforms, building larger audiences and stronger brands in the process. For instance, creators originally emerging from long-form content platforms like Twitch have successfully expanded to more bite-sized platforms by repurposing existing content from their live streams into highlight videos. Creators also focused their products on narrower audiences, establishing unassailable credibility in their chosen niches. With strong brands and intensely loyal followings, creators began to attract corporate sponsorship dollars. This trend continues today, with the influencer marketing industry set to reach $13.8B in 2021.
When viewing these developments through the lens of competitive strategy, we can track the different verticals within the Creator Economy against the Consolidation Curve–a framework proposed by Graeme Deans, Fritz Kroeger, and Stefan Zeisel that proposes a four-stage life cycle of growth and consolidation across industries.
Today, the Creator Economy is in the early phases of Stage 2 (Scale), with major players beginning to emerge across several creator spaces (FaZe Clan & 100T in gaming & esports; The Ringer & Barstool Sports in sports & fan culture, etc.) and more creators joining forces every day to capture market share, intermingle their audiences, and form stronger bonds with their fans through group association.
At BITKRAFT, we have keenly observed these waves of change affecting creators. Never before have creators held the power and influence that they do today, and we believe that this power shift will only accelerate as more investment flows into supporting the new Creator Economy. We see two important trends underpinning this momentum that will ultimately propel the industry into Stage 3:
- The ongoing shift from platform dominance to direct-to-consumer models, with audiences following their favorite creators across multiple platforms.
- The convergence between creators, entrepreneurs, and investors.
Trend #1: Direct-to-consumer models
Today, creators are the new growth businesses. They are no longer reliant on individual platforms to reach their audiences. Creators are monetizing cross-platform–even bypassing platforms altogether in some cases to connect with their fans directly. The model once predicted by Wired editor Kevin Kelly in his famous 1,000 True Fans piece has been superseded by Li Jin’s 100, as tiered patronage and differentiated forms of monetization have become more accessible to creators (and crucially, become more palatable to their fans). Companies like Substack and Patreon have enabled more direct-to-consumer access for creators, while others such as Cameo have opened new revenue streams altogether.
Trend #2: Creators are entrepreneurs, and entrepreneurs are creators
As creators have been able to eliminate intermediaries and increase their profit margins, they have increasingly caught the eye of investors. By consolidating their intensely loyal audiences and joining forces with like-minded peers, creators are capturing increasing market shares in their respective verticals and building businesses larger than just themselves. Queens Gaming Collective is a perfect example of this within our own portfolio. In some cases, creators have even become investors and owners themselves. A great example of this is talent-agency-turned-VC Night Ventures, whose LPs are made up of more than 50 top creators covering TikTok, YouTube, Twitch, and other platforms. Meanwhile, literally hundreds of companies have sprung up to support creators as entrepreneurs in a variety of support functions.
Creators have also found ways beyond pure play content creation businesses to leverage their brands. Many creators, particularly in the world of professional sports, have partnered with others as co-owners to launch entirely new companies. Often, the creator themself does not operate the business in a day-to-day capacity, preferring to offer their branding acumen and network connections as growth catalysts.
The network of revenue streams and support services available to creators has never been this robust, and it will only continue to grow. At BITKRAFT, we recognize and welcome these changes driving the Creator Economy. But don’t just take our word for it–have a look at the companies we’re already backing that are empowering creators at scale.
To further empower creators and propel the growth of the Creator Economy, we’re focusing on three key areas:
- Identifying platforms that support and enable creators to do their best work
- Partnering with creator-backed and creator-driven businesses
- Placing bold bets on blockchain tech, cryptocurrencies, and decentralized finance to unlock a new Creator Economy
Focus Area #1: Creator-Focused Platforms
There is no shortage of platforms available to creators these days. At their worst, these can actually run contrary to the trend towards creator ownership, creating unnecessary middlemen. But at their best, creator-focused platforms uplift the “Middle Class” of creators–those historically underserved creators that may not dominate their fields, but are still able to earn a living doing what they love. We believe that the creator-centric platforms of the future will help to elevate this Middle Class–in part, by democratizing the tools of creation. Our investments in companies like Voicemod, Fuze.tv, and SplitmediaLabs are perfect examples of this: enabling streamers to produce high-quality shareable content with ease and connect with their fans in innovative ways.
Another of our portfolio companies, Manticore Games, is not only lowering the barriers to creation through its user-friendly game creation platform, but also uplifting all of its creators via an industry-leading revenue share. With all the attention currently being paid to the far less equitable splits offered by Apple and Google, we believe that more platforms will begin to adopt this creator-centric approach.
Focus Area #2: Innovative Partnerships
Another way that we seek to uplift creators is to find innovative ways to allow them to do what they do best–create. We aim to work with creator-centric businesses that are trusted experts in their respective fields. Some of our most successful collaborations to date have been in the fields of sports betting, gaming culture, and esports. We enable leading creators to scale their businesses–not only through direct funding, but through investments in companies like Koji that allow creators to further grow and monetize their fan bases. Opening additional revenue streams, such as Koji’s Billboards feature, can be incredibly powerful for creators–especially when they don’t have to open another account or move to a different platform to do so.
Like other creator-led businesses, our portfolio companies have also experienced the cross-pollination of creators and investors. Our own Queens Gaming Collective has brought American pro athletes JuJu Smith-Schuster (NFL) and Baron Davis (NBA) into its ambassador network. Similarly, streamer and esports athlete Nickmercs hand-picked our portfolio company H4X to launch his exclusive apparel collection. H4X has also partnered with FaZe Clan’s Nate Hill on multiple occasions.
Focus Area #3: Unlocking a new Creator Economy through blockchain, crypto, and DeFi
Our biggest bets on creators are aimed at realizing the fullest value of creation. We believe that blockchain technologies, cryptocurrencies, and decentralized finance will radically transform the Creator Economy, and we (along with our friends at Delphi Digital) are committed to unlocking this future.
The open infrastructure that these decentralized technologies enable will unlock new business models and content types. Yet the promise of these advancements goes beyond provable ownership of speculative digital assets. Entirely new business models will be possible, allowing buyers and sellers to do business with one another directly without the need for a platform to intervene or intermediate. To borrow a turn of phrase from Ethereum founder Vitalik Buterin, instead of putting creators out of a job, blockchain puts Spotify, YouTube, Twitter, and other platforms out of a job and lets the creators work with their customers directly.
While platforms still fulfill other important functions (e.g. content discovery), allowing creators to transact directly with fans has enormous potential. Smaller creators will be enabled to earn a living based on their passion, knowledge, or talent through new iterations of the aforementioned patronage model. Super patrons will no longer be limited to just financially supporting their favorite creators, but will be able to own a stake in their success, too. When mega-fans have a vested financial interest in the success of their favorite creator, they will be far more likely to act as evangelists and growth agents, thereby bringing in additional fans.
Improved patronage models will not be the only outcome, however, as fans are not the only type of customers a creator may have. With the power of decentralization and open infrastructure, a new Ownership Economy will begin to emerge, whereby creators of the future will be able to monetize their intellectual property in ways that transcend our remix-driven culture:
- Musicians will be rewarded automatically when verses, choruses, or samples are used in other songs.
- Engineers will receive proper attribution for their verified blocks of code.
- Game artists will share in the revenues of games that utilize their shaders, textures, or environment assets.
However the original work of a creator is used, copied, or remixed, that creator can be compensated. Not only does this increase the flexibility and addressable market of creators’ products, but it also lowers their transaction costs in doing so.
Yet this only scratches the surface of what an individual creator can achieve in the Creator Economy of the future. Consider also the promise of creator-driven decentralized autonomous organizations, or “creator DAOs”. These new forms of businesses would be wholly owned by creators in partnership with their backers, consumers, and co-collaborators–all with their financial interests aligned solely on the business of creation.
Our Commitment to Creators
At BITKRAFT, we are tremendously excited about the many possibilities unlocked by the collision of the Creator Economy with these revolutionary technological advancements. Our goal is to enable a more creator-driven future at this critical intersection. We’re backing creator-focused platforms, crafting innovative partnerships with today’s leading creator-centric businesses, and investing in the foundational technologies that will unlock immense value for creators. We’re excited about what the future looks like when it’s truly in the hands of creators, and we’re dedicated to catalyzing the growth that will take us there.
We are already actively partnering with today’s leading creators and creator-centric organizations… and we’re not finished. If you’re a founder building in this space, and you share our vision of a creator-driven future, then reach out to our team.
Stay tuned–our biggest bets on the Creator Economy are yet to come.