A primer on the Passion Economy
Spreading the word about a new economic paradigm for digital creators
Digital platforms and technology are enabling the advent of the Passion Economy which gives creators a chance to live off their unique skills. To better illustrate, the rise of podcasting well epitomizes the relevance of this framework. By better catering to a smaller audience, creators can increase engagement and monetization. The bigger picture is that one can see Founder-Market fit as an extension of the Passion Economy because value creation is driven by problem solvers and innovators who are passionate about breaking status quo in a specific industry. To crown it all, there is little doubt that the coronavirus outbreak will propel this new economy.
Rarely has the threat of disease occupied so much of our thinking. The coronavirus pandemic is on the front page of almost every newspaper; radio and TV programs have back-to-back coverage on the latest death tolls, and social media are filled with frightening statistics. Little wonder that the morale of confined citizens is on the wane. According to a YouGov poll for the magazine Society, published on March 30, there was 40% of French people feeling psychologically “worse” than before the confinement.
Still, I am trying to rejoice over a rampant phenomenon in our lives and a newly-created concept I recently discovered, which is named the Passion Economy. I find it important in those incertain times where we see a peak in digital content consumption, a mass-adoption of work from home (WFH) as well as new ways to interact online. Notwithstanding an unfortunate crunch in the job market. Because of these colliding trends, it is likely that the Passion Economy is here to stay. With no further due, let’s dive into it and open our horizons, not only as consumers but also as creators.
The Rise and Shine of the Passion Economy
From writers launching paying newsletters on Substack to influencers-turned-designers on Pietra, more people are taking advantage of digital platforms to make money off their unique skills. According to a study from Recreate of nine digital platforms (including Etsy, YouTube, Instagram, and Twitch), 17 million Americans earned nearly $7 billion in income from their independent creations in 2017. That is an average of $400, but it is hiding a large standard deviation as top earners capture most of the value. Do not get me wrong, I will not elaborate on the first wave of initially social media platforms like Facebook, Instagram or Youtube. To be fair, it is worth noting that they found more than proven business models out of content creation and they enabled thousands of creators to live off their skills. Still, they deviated to their primitive to become advertising powerhouses for deep-pocketed brands.
Sadly enough for big brands, a grassroots economic paradigm for creators is surfacing back and it needed a new name to fully bloom.
To encapsulate the advent of this new economy, Li Jin, a partner at prominent venture capital firm Andreessen Horowitz (aka a16z), coined a new term named the “Passion Economy” in late 2019. You can also call it the “creator stack” or the “Enterprization of consumer”. The point here is twofold, and to better illustrate it I will start by saying that: i) we are seeing some B2B technology companies venturing into what is now called “prosumer” products with features similar to B2C (think of Loom which is a kind of a mix between B2B Zendesk and B2C Snapchat); ii) but in the meantime, B2B is now filtering into B2C products as frontiers between personal life and work-life are blurred. More importantly for our subject, “consumers today aspire to become businesses tomorrow” as written by Li Jin. This entails that people are now technology-empowered to financially sustain themselves through a set of broader skills they have, we name it “passion”. This is at the foundation of the Passion Economy.
Interestingly, the Passion Economy is redefining the under-attack gig economy according to her: “Whereas previously, the biggest online labor marketplaces flattened the individuality of workers, new platforms allow anyone to monetize unique skills. Gig work isn’t going anywhere, but there are now more ways to capitalize on creativity”.
Users can now build audiences at scale and turn their passions into livelihoods, whether that’s playing video games or producing video content. This has huge implications for entrepreneurship and what we’ll think of as a “job” in the future. Some yoga classes on Zoom are now gathering 100+ participants due to coronavirus lockdown, enabling teachers who charge a small fee to do even better financially. For Li Jin, “the undercurrent here is that digital platforms have enabled people to amass an audience, and so creates an opening to help individuals turn their unique skills/knowledge into a business, whether that’s through designing and selling merchandise, starting a podcast, or other means”.
The Passion Economy Rocket 🚀:
Stage 1 is engagement with digital platforms 💻
Stage 2 is incentivizing creators to launch online 🎨
Stage 3 is the technology stack required to sustain a digital business🔗
Stage 4 is monetization 💵
As mentioned as a word of introduction, the current coronavirus situation worldwide is propelling the Passion Economy with a strong magnitude. Due to global lockdown, a large majority of humans now relying upon digital platforms to communicate, work, learn, teach, eat … And if we picture the adoption of the Passion Economy as a multi-stage rocket, Stage 1 is engagement with digital platforms and it is now a reality for most of us in our daily lives. Some teachings here are that one can be as productive as at the office, that the future of work is asynchronous, and that technology is powering this vision. Stage 2 is the necessary spur for creators to shift online with the vision of making a living or part of it out of sharing their passion or their knowledge.
Passion Economy is now nudging WFH workers asking themselves: “Isn’t WFH a better setup for my life? Is this really a job for me? Can I start to live off my passion? I lost my job, what are my skills?”.
Stage 3 is the whole technology stack required to sustain a digital business. Stage 4 sometimes never occurs or is not wanted and it is monetization.
A closer look at Stage 4 shows us that startups of the Passion Economy can monetize through SaaS fees that are growing larger as customers increase or by providing creators’ with a set of tools. Similarly, marketplaces active in the Passion Economy can take a small number of the creators’ earnings. Implications for the whole startups/creators relationship is huge as platforms are incentivized to help creators succeed and grow. This is a dramatic change when compared with traditional gig economy companies (think of Uber or Deliveroo) which are taking discrete, one-time transactions.
Levers of value creation for creators are indeed different: they don’t need to pedal faster or to accept more delivery shifts, they just have to focus on community engagement and on value-add content creation or enrichment. To do so, some platforms offer a set of marketing tools ranging from landing pages, coupons, and affiliate programs. Other companies are helping creators with back-office products such as tools for content creation or even customer support. This is what I described as Stage 3, and it means that as a company you can be part of the Passion Economy if you are consumer-facing but you can as well play as a pick-and-shovel service for your digital creator clients.
In my opinion, the best Passion Economy companies will be both providing consumer-facing and creator-centric services.
You will find below a chart illustrating active startups in the Passion Economy mainly inspired by Li Jin. I tweaked it to add European startups as it mainly showcased US platforms.
A closer look at the Podcast Economy
To illustrate how transformational the Passion Economy is, there is no better example but the rise of podcasting. As a former podcast host on my modest platform The Equity Story, I knowingly chose this subsector for our subject of the day. There are many more exciting verticals to further dig such as education, writing, coaching, training, video, audio as well as extended domains such as fashion, craftsmanship, and art.
Getting back to the podcast economy, it is worth noting that this new audio media has largely gained traction over the last 15 years. The explosion of the offer — there are today over 850,000 podcasts and 30 million episodes — have been largely fueled by “indie” private podcast hosts, who can increasingly live off their media, mostly through ad revenue (think of star podcaster Tim Ferriss potentially making $4 million a year, also think about podcast ad revenue growing 10x in 5 years to reach $500 million in 2019) or donations as many podcasters get several thousand dollars per episode on Patreon, such as CitationNeeded.
A longer tail of podcasters has also emerged over the decade, presenting an explosion of new content — ranging from daily news to narrative to talks shows, in many distinct niches — and met the growing listener appetite. Hernan Lopez, the founder of a podcast network called Wondery said he had noticed the strong growth of podcast consumption. “Casual listeners became monthly listeners, and the monthly listeners became weekly listeners”. 35% of Americans and Swedes listen to podcasts on a monthly basis, 25% of French are doing the same.
This rise of passionate producers and listeners have been enabled by a complete ecosystem (platforms and apps to host, distribute, discover, edit, support, play, etc.). These producers have in return fueled this ecosystem and created a virtuous cycle. Take Spotify for instance, who has gone through an acquisition frenzy in 2019 by acquiring podcast startups for a cumulated $650 million. Spotify’s CEO Daniel Elk predicts that 20% of audio consumption on the platform will not be music.
A new Social Media Prism
The global adoption of social platforms like Facebook and YouTube, the mainstreaming of the influencer model, and the rise of new creator tools have shifted the threshold for success. The more Passion Economy grows, the better people are able to monetize what they love. The back door idea is that there is a democratization of creative jobs through digital platforms that are enabling a long tail of creators to exist and thrive. For centuries, creators were considered extraordinary people and few were able to feed their bellies with their work. Maybe with the exception of the rich, who were not required on the field crops and mainly drove the creative process for ages. Even today, creation and a “creative” job are still seen as an elite or niche activity.
This has changed a lot as Li Jin is pointing out that “new digital platforms enable forms of work that were previously inaccessible to all but the top creators”. In a brilliant essay, she is challenging the famous theory of Kevin Kelly, stating that creators can live off from their art thanks to the digital economy as soon as they get 1,000 true fans. She believes that the rules have changed, that today “creators can make more money off fewer fans“.
“[Creators] need to amass only 100 True Fans — not 1,000 — paying them $1,000 a year, not $100.“
Here is how the 100 True Fans model works: a creator can cultivate a large, free audience on horizontal social platforms or through an email list. He or she can then convert some of those users to patrons and subscribers. The creator can then leverage some of those buyers to higher-value purchases, such as extra content, exclusive access, or direct interaction with the creator.
The 100 Fans framework put in equation:
Take notice of the change from the traditional donation model — in which users pay to benefit the creator — to a value model, in which users are willing to pay more for something that benefits themselves.
The key to the new economics is there: people are keener to expense more for targeted services that are constructive in their lives, whether it’s related to health, finances, education, or work. Li Jin to pursue: “In the offline world, people are accustomed to hiring experts across verticals […] and are willing to pay premium prices for the promise of measurable improvement and results. Now that mindset is filtering into our digital lives, as well”.
A tale of Passionate Entrepreneurs
In a nutshell, Passion Economy is enabling a generation of digital creators to make money out of their talent or knowledge. Backlash over digital work platforms has a silver lining with the Passion Economy. The current WFH reality is an exponent to this new model and the job crunch may create a new cohort of passion-driven creators and drive them to this market. I also believe that the Passion Economy provides an empowering technology stack for breaking through some glass ceilings too many of us are facing in the offline world. You will not be asked your degree either your gender, your race, your religion or your social background when venturing into the Passion Economy. Your economic success will only depend on how much value-add you are providing to your audience and how good you are to interact with them to finally convert a paying fraction into your own customers or to drive enough traffic for affiliation.
I would add that this new bred of digital platforms have powerful network effects that are changing the narrative for digital creators able to provide their community with a differentiated approach and sufficient perceived value. Your bottleneck is no longer the number of delivery shifts you are taking but the way you are acquiring, monetizing and retaining your audience on the back of your skills and your content production. You passed from a physically-constraint offline word to a new one where your ultimate challenger is IT infrastructure to support your broadband capacity, which means that scale is exponential.
To make this happen, the Passion Economy is powered by a growing startup ecosystem every venture capitalist has to monitor. Be sure we are doing so at Gaia and we will continue in the future. Setting aside the US players, there are already great European examples in this space such as Jellysmack or Depop and a bunch of new entrants. At Gaia, we cherish creators, get inspired by trendsetters, and wish to partner with category-defining startups led by visionary entrepreneurs. Just as we firmly believe in our mission to finance and support extraordinary ventures, we strive to meet and work hand-to-hand with Passionate entrepreneurs that are obsessed with the problems they are solving.
If the Passion Economy is to live off its creative skills and uniqueness to enlighten other people’s lives, we can think of Founder-Market Fit as an extension of it. Because when individuals are so passionate about an industry to disrupt or a problem to sort out, they have the ability to create legendary companies and reap the fruit of their passion. They are also able to build an enduring benefit for society.
The venture capital Exponential View 👁🗨💫:
Market disruption^Founder-Market Fit^Team^Venture^Clients^Capital
Giving a eulogy to this framework is easy, and there is no doubt that the Passion Economy requires many caveats and mitigants. People are craving real-life interactions and one can say that it has dramatically gone down Maslow’s pyramid during this global virus outbreak. It seems that we are not that ready to move our life online much further. Moreover, sustaining oneself out of creators’ platforms requires a significant audience and an efficient monetization strategy. In several ways, Passion Economy workers remain close to the gig economy in the sense that they are lacking job security and safety nets. Inherent challenges to digital platforms remain such as harassment in many ways, protection of children, moderation, addiction, psychological troubles … It opens another debate on how a platform or a marketplace should look to provide greater value. I let the upper hand to a16z about “What’s Next for Marketplace Startups?” and the refinement of curated and managed marketplaces.
As a conclusive word, if you are building a category-defining company in the Passion Economy space, we would love to hear from you.