Co-founder and CEO at Asia Innovations Group, overseeing strategy and growth for the company.
Many have heralded the creator economy as the switch from an ad-driven, attention-based monetization model to a direct user-support model. But at least in the U.S., that definition doesn’t match reality. U.S. creators are still overwhelmingly dependent on advertising revenue: A recent survey of 2,000 creators found that 77% of creators list brand deals as their highest-earning revenue source. As the creator economy continues to grow, it’s time to take a hard look at the consequences of an ad-driven model and consider the viable alternatives already implemented elsewhere, particularly in emerging markets.
The creator economy in the U.S. is still tied to the established, dominant social media platforms. With the recent explosion of investment in creator economy startups and the wide range of platforms and tools emerging, the core of the creator economy has been obscured. While Substack and Patreon may be the poster children for the new world order, behind the scenes, it’s the big tech social platforms that retain the lion’s share of the creator economy: A recent survey revealed that over 70% of creators use Instagram as their primary platform.
The platforms allowing creators to build a direct financial relationship with their fans, such as Substack and Patreon, aren’t the platforms where creators are actually being discovered by new fans. That discovery process still happens on big tech social media, or, in the case of Substack, on established media platforms. Consequently, creators are still dependent on the ad-driven models of those platforms. In 2017, only 2% of Patreon creators made more than the federal minimum wage on the platform. Even Patreon CEO Jack Conte acknowledges the role social giants play in the lives of creators on Patreon. In an interview with The Verge earlier this year, Conte said, “The way members find new creators — on YouTube, on Facebook, on Instagram, on wherever it is, a creator will mention their Patreon.” To garner direct support, a creator first has to cultivate a presence on social media platforms. Despite the proliferation of new platforms, big tech’s ad model is still by far the dominating driver in the U.S. creator economy.
The Dominance Of The Ad-Driven Model
What does the dominance of traditional social media in the creator economy mean for creators and their fans? Because these platforms are built on the foundation of advertising revenue, creators are tied to that same ad-driven system. Advertising undermines the ability of creatives to connect with an audience and authentically share their talents while earning a living. As a result, the creator economy in the U.S. is pyramid-shaped. On Spotify, only 1.4% of artists make 90% of the income generated on the platform. On Instagram and Facebook, creators need to amass a sizable following before they’re noticed by brands. The advertising model is blocking the mass market of smaller creators from earning a living.
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Even the creators who achieve the follower numbers needed to monetize under an ad-driven model are left with little control over their revenue sources. The advertisers are the ones in control because they pay the creators to perform for users. Rather than being about the connection between creators and users, the creator economy as it exists today places advertisers in the position of power vis-a-vis creators and their fans.
Not only does the advertising model place power with advertisers rather than creators, but it’s also harming users consuming that content. The oft quoted saying, “If you’re not paying for it, you’re the product,” describes the driving force in the creator economy. Rather than paying to view the content of the creatives they’ve chosen to follow, users are subject to advertisements that divert attention from authentic content and toward brand purchases. This harms children more than anyone: Studies show that young children can’t tell when they’re being sold something, thus making them prime targets of commercialization.
Alternatives To The Ad-Driven Model
U.S. social media giants are slowly beginning to explore alternatives to ads, such as direct tipping, but given that the overall company income is still ad-dependent, there is not much incentive to invest in direct-monetization models. But when we look beyond the U.S. to the burgeoning creator economy across emerging markets, the entire social media ecosystem is far less reliant on advertising. For example, Tencent, a social media giant in China, earned about 16% of its revenue from ads in 2020. In contrast, 98% of Facebook’s 2021 Q2 revenue was from advertising.
When social media companies use direct user-generated income as a monetization strategy, it enables a creator economy that’s more equitable and effective. Direct income fulfills the egalitarian vision of the creator economy in which the one who consumes the content is the one paying for it, restoring the relationship and accountability between the user and the creator. Developed in emerging markets, the direct-tipping model was born from the constraints of creating social platforms in varied economic and cultural conditions.
How To Contribute To A More Egalitarian Creator Economy
Big social media companies should shift their focus from milking ad revenue from the biggest brands to truly serve and encourage the new and small creators. Whether social media giants in the U.S. will be able to pivot to this more diverse income strategy remains to be seen. But even if those large ships are difficult to maneuver into different waters, new social platforms can increase competition and force big social platforms to diversify the revenue models, as has happened in emerging markets.
Startups in the field should try to offer more fun and innovative features for audiences to interact with creators. In the field of social apps, as with most industries, innovation is the best way for smaller platforms to compete against the dominant market players. In this case, this ingenuity will also enable a more egalitarian creator economy, thus advancing the truly small and independent market participants.