The 'Creator Economy' and the digital middle class
This is issue #11 of Russell’s Index, where I write about the lessons I’ve learned—and continue to learn—as a founding employee at SharpestMinds. Subscribe for a new issue in your inbox every week-ish. Emphasis on the ish.
In a previous Index, I talked about marketplace inequality. Many modern companies have increased opportunities for creators and entrepreneurs by giving them useful tools and access to a vast audience. But—due to superstar effects—most of the spoils on these platforms go to a few, which leads to a high degree of inequality.
From The Economist ($):
A few online stars earn megabucks, but the tail is long… Spotify says it wants to give “a million creative artists the opportunity to live off their art”. But only about 0.2% of the 7m-plus musicians on the platform make more than $50,000 a year in royalties; just 3% make more than $1,000.1 There are 20m gaming “experiences” on Roblox, but nearly 15% of all play takes place on one game… On Patreon, where people can subscribe to creative services of all sorts, 200,000 creators earn a total of $1bn a year. The top earner makes around $2m, but about 98% make less than the federal minimum wage of $1,257 a month.
There’s a lot of buzz in Silicon Valley circles about the growing “Creator Economy” (or, as VC firm Andreessen Horowitz has dubbed it—The Passion Economy). The opportunity for the average person to earn and grow their own income on the internet has definitely increased. But is the average creator better off because of it, or will this new paradigm just increase inequality? Can there be a “digital middle class” of creators and entrepreneurs?
Many companies of the previous age understood the Pareto distribution of outcomes inherent in many of these “creator” markets. Record companies, for example, make most of their earnings from a handful of superstars. But to find those superstars they have to lose money on a lot of duds. Record companies are often painted as the bad guys because they extract a lot from their artists. But since most artists won’t make it big—or make it at all—the record company takes on significant risk when signing a new artist. The value extracted from the huge successes effectively subsidizes that risk-taking and lets the company fund more artists.2
This is how a lot of industries operate, including venture capital. Give a ton of startups some funding and let them try and scale, but expect that only a few will succeed and generate large returns. Those large returns, however, then get invested in a new batch of startups—giving more of them a chance at becoming the next unicorn.
It’s not an inherently bad model, but it does introduce some gatekeeping.
The capitalist in me loves the shift to the “Creator Economy” that many modern internet platforms are enabling. The barrier to entry for so many markets has been lowered. All you need is an internet-enabled computer and you can start writing on Substack, publishing your music on Spotify, or teaching a subject on Udemy. Opportunities abound, but the same goes for competition. The best performers in each category are still going to reap most of the rewards.
Is there a world where the platforms driving the Creator economy don’t have a Pareto distribution of outcomes? Where the majority of creators and solopreneurs can make a decent living?
Perhaps the inequality will remain, but the floor will rise. I think shifting norms will help here. Most of us are used to getting content for free, but it’s becoming increasingly normalized to give money directly to creators. All you need is 1000 fans paying you $5/month, or 100 fans paying $50/month (and so on) to make a decent living. Not an easy feat. You still need to hustle and get lucky. But it’s getting easier to find your niche thanks to the distributional power of the internet. And many of the platforms enabling the passion economy, like Substack, are incentivized to help more of their writers make more money.
Substack is probably making most of its money off a handful of very popular writers. But I still think it is a net increase in opportunity for emerging writers. A friend of mine recently told me that he explicitly seeks out Substack newsletters with low follower counts and becomes a paying subscriber. I think that’s wonderful. And I’m hopeful that kind of consumer mindset (seek out niche creators, pay them directly) will only increase.
I mentioned in a previous post, that some marketplaces will be more equal than others. A couple of things play a role here: (1) scaling limits and (2) differentiation.
There is technically no limit to how many people an song, book, or self-serve online course can reach. These are markets where the best artists/writers/teachers will win. But some markets have limits to how much each participant can scale. Particularly, ones that involve high bandwidth communication—mentorship, for example.
Another thing that helps is differentiation. Take the case of Uber vs Airbnb. Your experience as an Uber passenger is largely the same, regardless of the driver.3 This drives prices down. On Airbnb, however, every host has something unique to offer—their home. This lets hosts charge more money, and makes it possible to earn a decent amount.
At SharpestMinds, a marketplace for mentorships, there are natural limits to scale (mentorship is very high touch), and a lot of differentiation (every mentor has a different set of skills and style). So it’s likely that our marketplace will have a lower inequality than most.
Someone pointed out to me that the numbers from Spotify are hard to parse. Of those seven million musicians, how many are actually trying to make a living off their music? Some folks just publish a song and move on. This applies to many other platforms and creators—some folks just want to create for the sake of it.
This is a very uninformed take on the music industry. Would love to learn more though! Let me know if you have any good resources.
Uber is not quite an open marketplace. The drivers don’t set their prices (but if they could it would probably be a race to the bottom).