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.

The difference between the two will come down to how well these startups are able to answer one question: what are you doing to earn revenue share?

A report from Linktree pegs the total number of creators at ~200M. Another report by Kajabi puts it at 50M+. (Much of the difference is determined by how you determine the split between social media user and “creator”).

Startups serving creators face multiple challenges around customer concentration, the importance of demand aggregation, and the low earnings of the creator middle class. 

99% of creators won’t generate meaningful revenue

In contrast, over 90% of the gains accumulate with the top .01% of creators.

In my own experience as a creator, and in my discussions with over 100 creators in the past year, every creator has had the same desire: more fans. The hunt for new fans is the most challenging and draining aspect of the work.

The only companies with robust consumer demand aggregation efforts are the social giants. Youtube’s recommendation algorithms, Twitter’s trending topics, and Facebook’s recommended pages are the most powerful agents in Hollywood.

“As a good rule of thumb, proprietary technology must be at least 10 times better than its closest substitute in some important dimension to lead to a real monopolistic advantage. Anything less than an order of magnitude better will probably be perceived as a marginal improvement and will be hard to sell, especially in an already crowded market.”

According to the same Linktree survey I mentioned earlier, only 12% of full-time creators are making more than $50,000 per year, and 46% of the same cohort makes less than $1,000 a year. Even more brutally, 66% see this as a side-hustle.

Regardless of which cohort of creator a startup is serving, the interesting thing is that the creators make money with identical methods: ads and gated access.

Contrary to popular belief, ads are a beautiful thing! They allow content to be offered for free, increasing distribution for the creator. They also scale beautifully—whether you have 100 subscribers or a million, there is an ad product for you.

Ads can introduce perverse incentives to grow the top of the funnel at all costs even if they have negative externalities.

A well-run ad-exclusive company will typically see roughly $10-$20 in annual revenue per user. On the subscription side,  conversion rates at the very best content shops are somewhere between 5-10%.

The startups serving these creators must be hyper-aware that their customers are not as numerous as they would like, and will be unable to pay enough in subscription fees to build a traditional SaaS startup.

On an average day in the stock market, the typical high-growth SaaS stocks trade at ~20x sales. If your goal is to build a $5B creator economy business, you’ll need ~$250M in ARR to make that happen.

Currently, the company that is the best at using revenue share to its advantage is Youtube. They take 45% of the ad revenue for themselves and give the other 55% to the creator. While many creators feel this take rate is too high, it is actually the best in the business because the company performs a dual role of aggregation—aggregating both demand and advertiser supply.

if a startup is unable to gain significant revenue share from creators, they can invert their vertical software serving creators exclusively towards a more horizontal platform serving businesses generally.

The wave of people leveraging the internet to fund their passions isn’t going anywhere.