Table of Contents Hide
- Between passion and frustration: Patreon´s founder story.
- Fast forward: 2020, a transformative year.
- How does Patreon work, and what is its business model?
- Patreon is not a marketplace but a pure enabler.
- Numbers and names. Not an exponential, but a steady growth.
- A simple value proposition: good for creators and for many others.
- Some questions about Patreon´s model.
- QUESTION ONE Is Patreon a disruptive game-changer?
- QUESTION TWO Is it a sustainable model or will it deflate once the Coronavirus crisis is over? Is it just hype or a durable thing?
- QUESTION THREE AND (OPEN) CONCLUSION.
- How defensible is Patreon advantage against incumbents and newcomers? Is Patreon on a path to become a leader or one among the many players in the subscription arena?
A record number of artists, musicians and creatives joined Patreon to compensate the revenues lost during the pandemic, asking their fans to subscribe to them and pay a monthly fee.
After all, if you get Netflix and Amazon by subscription, why not your favourite band? A journey into Patreon and its business model.
Between passion and frustration: Patreon´s founder story.
The founder story of Patreon is fueled by passion and frustration: the passion to create unique artefacts, the frustration against platforms taking the lion’s share of your creative value.
In 2013, Patreon´s future CEO Jack Conte was an indie musician transitioning from a duo band into a solo career. For launching his first solo song, he consumed his savings to produce a 10,000 value video clip. Jack was confident to have this video viewed millions of time on YouTube, and so it happened.
The clip was viewed more than a million times within a month: a genuine success for an indie musician. Later, Jack received the money for the clicks achieved on YouTube: it was 166 dollars. Conte´s story is like the one of many creators relying on YouTube advertising as a source of income. Many views, little dollars. No incentive to keep creating. But what if those people watching the video could put a dollar in an online tip jar? The math could have transformed.
Conte went to an old college roommate, a mobile tech company founder. Together they launched an early version of Patreon in May 2013. Jack Conte was the first user: within two weeks after publishing some of his videos, he got enough paid supporters to make 4,000 dollars for each video. The videos were still available for free on YouTube, but patrons – so the payers are called on Patreon – got access to exclusive updates, first access right to live concert tickets, and other perks.
Fast forward: 2020, a transformative year.
Ben Folds is a well-known name in the US alternative rock scene: singer, songwriter, writer and photographer, several times in the US Billboard Charts and artistic advisor of the National Symphony Orchestra in Washington DC: not a mainstream one, but sure a well-established musician.
In March 2020, Ben Folds was in the middle of a symphony tour in Australia, when all planes were blocked in the airports and half of the world went in Lockdown. Unable to play live shows, and unable to come back to his home base in the USA, Ben turned to Patreon – a platform that he already used occasionally to engage with his fans and “keep the light on”.
Folds converted a small rented apartment in Sydney into a recording and live stage studio: from there, he hosted four live streams a week, uploaded re-edited archive footage and delivered over-the-shoulder piano class, for as long as the lockdown lasted. Ben asked his fans to pay $10 a month for that exclusive content and the access to live conversations and jam sessions with fans.
With close to 1,400 patrons, Folds earned enough money from Patreon to cover his rent in Sydney, along with costs of some instruments and basic studio equipment. The revenues were half of what he’d earn from a single gig, but it was enough to pay the bills of the Australian shelter, while he was also busy writing his second book and working on his next album.
And now, back in the USA? Folds is still active on Patreon, and happy to promote the platform to other artists and creators as a way to “keep the lights on” and stay in touch with fans.
In the meantime, Patreon has become a critical source of support for creative communities, mentioned by many as one champion of the new paradigm called “passion economy”.
Patreon was not born to be a refuge for quarantined artists. But as for many other creators and individual service providers, the pandemic has dramatically sped up some dynamics.
On one side, more and more consumers are happy to pay for quality content and individualized services from people they know, respect and want to support directly.
Subscription business models have entered the mainstream, from entertainment to education, from SaaS to news.
On the other side, creators were already – long before the Covid-19 crisis – unhappy about the business conditions of the attention economy and the leading marketplaces that treated them more like gig-workers than like talents.
How does Patreon work, and what is its business model?
In a nutshell, Patreon allows creators—from musicians over artists to trainers, teachers and local venues—, to offer paid subscriptions to their content.
- set their own price or different price tiers and decide what content they offer to each tier of subscribers (the patrons)
- set goals (similar to Kickstarter) to promote goal-oriented fan participation describing what they will do/develop/create once they achieve a certain amount of money or number of fans.
- activate special offers for new subscribers or limited offers for special content and events.
- get access to a creator dedicated page and member-only links to exclusive content.
- The content can be hosted both within and outside of the Patreon platform: for instance, links to private Vimeo videos or to live member-only YouTube concerts or WordPress blog posts or podcasts RSS feeds or download links to games and illustrations.
Patreon is not a marketplace but a pure enabler.
For creators, Patreon handles the audience management backend, the payment processing and a moderate level of curation (e.g. no hardcore pornography). For such services, Patreons keeps a stake between the 5% and the 12% of creators’ earnings, depending on the service level Creators buy from Patreon: Lite Pro Premium.
Patreon does not work as a gatekeeper, and it is not a marketplace.
There is minimal ability for visitors to discover creators and vice versa. It is a SaaS, a simple but holistic service to develop subscription based businesses.
Started with very basic features, including little more than the interface to manage subscriptions and payments (via Paypal or Stripe) Patreon adds additional features gradually, mostly integrating with tools used already by creators, like WordPress.
The additional features do not change the fundamentals: creators own the relationship with subscribers, not Patreon. Creators bring their existing followings on the platform, not Patreon. For more professionally established creators (e.g. organizations, venues), Patreon offers also a white label solution – Memberful – that they can use outside of the Patreon platform.
Patreon´s model is common to other players of the so-called “passion economy”: these platforms take a step back from the audience facing business, acting as business/infrastructure enablers, not as audience owners. They do not earn from advertising. They do not seek for eyeballs. Their only customers are the creators. That makes them better partners for them and never “frenemies”: Patreon’s incentives are directly aligned with its customers’ goal of generating more income from their fans.
Numbers and names. Not an exponential, but a steady growth.
- Almost 300,000 creators use Patreon to distribute music, arts, journalism, fitness courses and many more digital experiences. 100,000 of them just joined the platform in the period February (when they opened their first European offices) to July 2020.
- In August 2020, the number of patrons (paid subscribers) has surpassed the five millions, with the biggest growth coming from the USA, Canada, Germany, Italy and Australia.
- In their corporate communications, Patreon always mentioned that, since its launch in 2013, it distributed to creators over 1 Billion USD net revenues.
- Patreon´s growth is backed by venture capital: it has raised over 160 Million dollars over several rounds of funding.
The vast majority of creators are not popular artist names, and many of them are not artists but venues, local communities or individual service providers like coaches and fitness trainers.
But some names here in Europe stand out and show how appealing can Patreon be.
Here in Germany, for instance, musicians like the band Einstürzenden Neubauten have been on Patreon since 2019. The band is not new to crowdfunding at all – they have been among the ones to tap into their fan base to finance new albums and music projects. Another renowned German name is the indie singer, guitarist, songwriter and author Judith Holofernes (https://www.patreon.com/judithholofernes).
A simple value proposition: good for creators and for many others.
As its name suggests, Patreon finds inspiration in the arts patronage system of the Renaissance, when princes and rich families promoted themselves through the artists they supported.
More recently, with Kickstarters & Co, the new patrons became the crowds donating for good causes and artistic projects in the need of funding. Donations, however, have never been a predictable source of income and always been an arbitrary choice.
The money-making alternatives offered by social and sharing platforms – advertising in exchange of attention – has brought to a very manipulative digital environment, where the most creators work for the platform, not for themselves.
Patreon has chosen a different mission than Kickstarter. Instead of helping to fund a single project, it aims to develop a sustainable funding system for the entire creative class: a way to free them from the gig economy, from the dominant marketplaces and from the dictatorship of the social feed algorithms.
Patreon value proposition is simple:
- Visual artists can diversify their revenue streams by offering things like behind-the-scene access, raw files and supporters´ involvement in the creative process. By doing so, they can aggregate a cohort of superfans and strengthen their connection with them.
- Video makers can use Patreon to better monetize their videos than on YouTube.
- Podcasters can stay independent from the big platforms like Spotify that want to act as gatekeepers and exclusive owners of podcasting audiences.
- Communities of interest, social purpose organizations, clubs and venues can ask their members to contribute as much as they can and want, regularly and with different subscription tiers. They can combine physical and virtual experiences and keep an ongoing relationship with their members.
During the Coronavirus crisis, Patreon has sold itself as the solution of choice for venues to keep their doors virtually open and reinvent themselves with virtual events – dj sets, jam sessions, get-together nights -, interact with their audiences and get support from them, both money and ideas.
Patreon´s value proposition can appeal to many more creators, not only musicians, visual artists or clubs: in the USA there are sports journalists using Patreon. There are gamers offering themselves as “buddy gamers” to help players at home to practice their skills. There are animal shelters that receive monthly payments from supporters, so they can better take care of animals in need.
Some questions about Patreon´s model.
1. Is Patreon a disruptive game-changer?
2. Is it a sustainable model or will it deflate?
3. Is Patreon´s advantage defensible?
QUESTION ONE Is Patreon a disruptive game-changer?
The answer is yes.
- Disruption, as defined by Clayton Christensen, has not always to do with technological breakthroughs. Sometimes, it is the ability to see and serve an under-served customer segment. Sometimes, it is the creation of a new market by unleashing a new supply, as Airbnb did with apartment owners. Sometimes it is the ability to make things simpler and serve a new customer segment that needs fewer features, pays lower fees, but is big enough to generate significant revenues. That is what Canva did with a simple, affordable, made-for-all design tool, that could compete against Adobe CC.
- Offers a basic holistic solution that covers content storage, presentation, audience management and monetisation, charging creators with an affordable fee.
- It grants access to payment tools that before only enterprises could afford (think: Zuora).
- It does not want to standardise the offer: you have abundant freedom to shape your creator offer to fans as you like.
That is enough to attract creators that otherwise would have never embraced the subscription model for their artefacts, performances and services.
- Many of the current and potential creators of Patreon are individuals whose skills and abilities were previously under-monetised or under-used.
- Some of them have accumulated large social followings on advertising-based social platforms, but the business model of those platforms made it challenging for them to earn a viable income.
So, Patreon is disruptive because it unlocks the economic value of an existing cohort of creators and motivates many more to become creators and earn from customers´ subscription.
It is creating a new supply and educating the demand to the idea that there many more valuable things you can subscribe to, not only Spotify and Netflix.
QUESTION TWO Is it a sustainable model or will it deflate once the Coronavirus crisis is over? Is it just hype or a durable thing?
The most significant growth of Patreon happened during and right after the Lockdown of this 2020.
Patreon could communicate impressive numbers and sell itself as an artist saver, attracting the attention of mainstream media. It is a pity that Patreon´s communication has focused so much on the only theme of Corona, since there are many more success stories that Patreon could generate to inspire new creators to join and establish its position as a platform for creators.
The reasons that make Patreon a champion of the creator’s economy have been already there before Corona, and will be there also after.
I have already mentioned the growing frustrations for the business model of the attention economy and its unfair treatment of the most creators. A demand-side powerful driver is also the changing attitude of consumers to paid content.
More and more people pay for digital content and embrace subscriptions to fulfil interests and passions. In the media business, too many people talk already of “subscription fatigue”, being obsessed with the media battle among SVOD services.
Subscription models are now mainstream, and it is time for many businesses – starting from news and journalism – to rethink themselves as primarily subscription-based businesses. Many vendors have already done that and helped to educate and convert users to subscribers: mobile apps, gaming platforms, individual productivity tools like storage providers, google services, Microsoft 365, creative tools like the whole Adobe CC Cloud.
So, this is the right time for Patreon. How sustainable its business will be, that depends on its ability to foster enough creators that develop enough robust propositions that attract enough patrons, make decent revenues and generate a number of success stories to inspire others to become creators and reinforce the virtuous circle.
Let’s say that 1% creators can show they can make good money with their digital subscription experiences: this would be much more than the 0,01% of people becoming successful influencers or high-value sellers on Etsy.
That speaks in favour of the new ecosystem. But how does it speak in favour of Patreon becoming its indisputable leader?
QUESTION THREE AND (OPEN) CONCLUSION.
How defensible is Patreon advantage against incumbents and newcomers? Is Patreon on a path to become a leader or one among the many players in the subscription arena?
Nothing of what Patreon has developed so far is unique or not replicable. It can improve a lot.
At the moment, the biggest differentiators of Patreon as “soft qualities”: the credibility it enjoys as an independent platform from the big tech giants; the fair business model it has developed to serve creators.
Patreon could grow in the last years because it running a business not big enough to fall under the radar of the big platform incumbents. It is always like that, with disruptive technologies and business models: large companies wait to react until the market is large enough to be interesting.
YouTube rolled out in 2018 tools for creators to let them raise subscription money from fans, but never pushed the gear on that. For a platform that raised 3.81 billion dollars in advertising revenues in Q2 2020 (+ 5.8 YoY) and 14 billion dollars in the full year 2019, the direct monetisation is neither attractive nor functional to its core business. Facebook too rolled out such a tool on Facebook Watch in 2018, to let pay for live streaming viewing.
For podcasters, the scenario is more complicated: as of 2019-2020, with podcasting becoming mainstream worldwide, the battle is between an open distribution (difficult to monetise by independent podcasters) and the leading audio subscription platforms (Apple Podcasts, Spotify, Audible podcasts and Co.) that are fighting to have exclusive titles to attract new subscribers or develop originals.
There are many podcast-specific tools for hosting, distributing and monetising Podcasts such as Spreaker, Podbean, Podigee and others. They are more focused than Patreon on supporting podcasters across the creative chain and can help them get visibility and implement different business strategies. Patreon´s product for podcasters is too generic.
What about writers? For journalists, experts and writers starting a paid newsletter, there are already more and better alternatives. Just think at Substack, whose smart design, good usability, user-centred product evolution has made it a preferred choice by journalists.
So, if Patreon can claim a defensible position against the big tech platforms, the real threat comes from players born with creators in mind and deliver them with a more vertical offer:
- players that work around one specific media type (such as newsletters, or virtual live events, or digital learning tools)
- players that serve specific creators verticals (fitness trainers, business coaches, teachers, gamers)
The openness of Patreon for a multitude of creators with no limitations is also its weakness:
- The Patreon product is very generic and does not yet develop specific features to optimise the creation experience based on individual categories.
- Because of this one-size-fits-all approach, the platform cannot deliver optimal searchability and match-making features between creators and potential patrons.
That makes room for more vertical platforms that can act as destinations for similar offer and demand and design features around specific needs, such as Teachable for online courses or Runtheworld for live events. Or platforms dedicated to yoga teachers or mental and business coaches.
That does not mean Patreon will not be a leader. But as for many disruptors, most probably it will be a path opener, whose proposition will be refined and improved by others developing their products now.
Instead of going ahead with its “one-size-fits-all” proposition, Patreon should probably focus on some of its high potential categories of creators.
It should, carefully and rapidly, tune the product to better serve specific needs: there are so many aspects where to support creators beyond subscription management with features, additional services, integrations.