Patreon’s $4B Product and Growth Engine 🚀
Back in 2009, when YouTube was just picking up steam, a 2-member band of Jack Conte and his then-girlfriend (now wife) Nataly Dawn, played music out of their home, covering famous songs 🎵 and making original music. This band was Pomplamoose.
Their big hit came when they covered All The Single Ladies by Beyonce. It gained millions of views, got them media interviews, and continued success led them to tour frequently. But as many in the music industry know, viewership and following doesn’t always translate to stable income 😞.
Their income started dwindling when streaming services like Spotify came along. Jack’s frustration with the economics of the music business drove him to think about a way for artists to make art sustainably without having to rely on advertisements, record studios, labels and the like supporting them.
Meanwhile, Jack’s eventual partner-in-crime 🕵️♀️, Sam Yam, had spent his post-college years working in startups, notably working beside YC’s Sam Altman at Loopt — a location-based social networking mobile application.
When Jack reached out to Sam in March 2013, with an idea to help artists monetise their art, the duo got cracking and 3 months later, launched Patreon. Today, Patreon is valued at ~$4 Billion and supports 200,000+ musicians, artists, and content creators.
So, what is Patreon exactly?
The platform is a modern take on the age-old concept of patronage. Historically, artists such as musicians and painters relied on wealthy donors’ patronage to finance their work.
Patreon takes that concept and enables a larger audience to finance creators they follow at affordable monthly rates.
Creators can establish membership tiers — the number of tiers and the subscription rate at each tier is left up to the creator. Casual fans can pay a low rate — even $1 per month — while dedicated followers can subscribe upwards of even $20 per month. Higher tiers grant access to exclusive content not available at the lower levels.
For creators, Patreon helps manage their projects. Simple page design tools let the creator add artwork to a public-facing page to attract patrons. It provides tracking tools for delivering rewards for each membership level, chat and email tools for communicating with patrons, etc. Creators can also set up surveys for patrons to assess their satisfaction and track income to the project.
Patreon’s product strategy 🧬
In its early years, Patreon acted as a social marketplace connecting creators and patrons. Creator profiles featured content and asked patrons to become paying members.
However, Patreon faced challenges in trying to take advantage of the platform’s cross-side network effects. Early versions recommended new creators to patrons based on creators they already supported. This was considered highly damaging by creators on the platform — as Patreon was introducing its fans to potential competitors.
The team came to the realization that competing on discoverability would not be how Patreon would win. Platforms like YouTube 📺 do a much better job when it came to creators getting discovered.
Patreon accordingly shifted its product strategy to essentially become a CRM for its creators, no longer acting as a marketplace connecting fans and creators but as a SaaS platform with a suite of tools 🛠 for creators.
They take care of everything from minimizing declines on a credit card, to automated email flows to patrons, to CMS systems where you can gate particular types of content for specific tiers of patrons — $10 patrons, $50 patrons, etc. — to understanding the analytics of your patron base.
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Patreon’s viral growth model 🔁
How did Patreon manage to become the behemoth it is today?
Creators follow other creators. This was the basis of Patreon’s Growth loop. Here’s how it works:
A creator announces their Patreon page via social, YouTube, etc, and a portion of their audience who are also creators find out about Patreon, going on to sign up themselves.
Patreon also sees extremely high retention once a creator’s income crosses ~$500 per month because:
- This amount represents a significant and stable income source for creators who previously had to rely on unstable ad revenue
- It is extremely hard to move hundreds of credit cards from one spot to another with consumers. Without access to payment data, switching costs are high for creators once they have built their paying fan base on Patreon
Aligning pricing with product strategy 🤑
It charges creators between a 5–12% platform fee on what the creator earns through Patreon.
This aligns Patreon’s incentives directly with their customers (the creators). The more revenue creators generate from fans, the more financially independent they become, and the more Patreon receives as commission.
This also means that Patreon doesn’t need to prioritise solving for the long-tail of creators who are just starting out without fan bases — they would contribute to minimal revenue. As we saw earlier, these creators need fans to discover their work, which doesn’t align with Patreon’s current product strategy.
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Acquisitions-a-plenty 🤝
Patreon has made strategic acquisitions with two goals in mind:
- Doubling down on its offerings to creators; and
- Moving upmarket to capture bigger and more established creators
Acquiring Kit — Enabling creators to send merchandise
Designing and shipping merch 📦 packages for patrons has been a common pain for creators for the longest time. For example, an illustrator will design a cool new t-shirt 👕 and automatically send it as a perk for patrons in their top benefit tier.
Acquiring Kit, a startup building a merchandise logistics backend so creators don’t have to fiddle with spreadsheets and stuff envelopes themselves, went a long way in addressing these concerns.
Patreon now allows creators to design merch products. They take care of everything from production to global shipping and customer support, freeing up time for those creators to instead spend on content creation.
Acquiring Memberful — Moving upmarket to the most successful creators
Memberful is a service for independent creators who prefer to have complete control 👩💻 over their membership program. It is the white-label, do-it-yourself alternative to the core Patreon platform.
Most notably, Memberful creators retain full control of their brand and maintain a direct connection with their audience. This is extremely important for larger, very-well known creators who don’t want to dilute their brand by sending fans to a page hosted on Patreon’s domain.
For Patreon, the acquisition helps them move up-market, recruiting creators having more established audiences on other platforms.
A masterclass in creating a moat — Membership across the web
With platforms like YouTube experimenting with ways for fans to directly pay creators, Patreon needs to ensure they go above and beyond.
They understood that creators need to interact with their fans across the web 🕸, such as on WordPress sites, Discord communities, etc. The patron business model requires an ability to track which fans are paying patrons and match patrons to benefit tiers — no matter the platform on which the patron interacts with the creator.
For example, the WordPress plugin enables gating content on your website and making it available to Patrons on specific membership tiers.
The API links a creator’s patron data to a whole roster of third-party platforms. Creators can also add a “Sign in with Patreon” login function to their own websites for patrons to access walled content or forums.
These integrations and the level of guidance Patreon provides to its creators are core differentiators in defending against YouTube and Facebook, as it enables creators to give patrons a special experience no matter where they interact with them online.
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Next in line ➡️
After tripling its valuation to $4 billion 🤯 last year, Patreon’s goal in 2022 is to make the best membership platform for its creators, with tools for sharing exclusive content and connecting with their community.
Patreon is already working on a number of exciting things this year, including a host-video-on-Patreon itself (so exclusive video content can live on-platform), an improved posting experience with more formatting options, different ways of organizing content on a Patreon page, better analytics, a cleaner app design, simpler playback experiences for multimedia and more.
There are also talks of an IPO sometime in the near future. That will be quite something to watch out for 👀.
Originally published at https://www.plotline.so.
