Deep Dive: Entering a New Phase of the Creator Economy
A move away from pure media and a transition to micro-entrepreneurship
By Adriel Bercow (Partner) and Eddie Chan (2020 Summer Analyst)
Sector: Creator Economy
The Creator Economy is a concept that has taken hold in recent years, representing the ability for individuals to build full fledged businesses centered around their unique skill or passion. While the focus tends to be on digital mediums, individuals can participate in the creator economy offline as well.
What’s the history?
The creative economy has evolved over the last several years; in fact, it’s growing popularity is history repeating itself. Prior to the “production economy,” there were artisans, such as bakers and cobblers, as well as service providers, like bankers, accountants, and doctors. Regardless of their craft, these folks worked for themselves or were part of the guild system. In the 1900s, our economy shifted toward a mass production model where nearly everything started to be bundled and commoditized.
In recent years, the gig economy has evolved. We’ve seen V1 of the creator economy materialize via influencers. Technology, enabling business to be done online, coupled with consumers prioritizing digital, flexible, and independent options has allowed for the unbundling of services and jobs; thus, the emergence of the creator economy, where people can now make a living from their skills, passion and interests.
Social-first platforms brought physical connection to the digital world. Leading brands and celebrities fight to maintain their place in the cultural narrative. This popularity contest attracted a new wave of chance social stars and influencers who could help bridge the authenticity gap. However, as more communities and engagement began forming around different individuals and movements, it allowed for a new form of economy to emerge. While younger generations (Generation Z + Millennial) display a higher propensity for entering this economy (making up 53% of the creator economy vs. 43% of the overall workforce), Generation X and Baby Boomers are still participating in side-hustling (20% and 8%, respectively, of their populations).
The initial platforms that enabled the creator economy were not built for creators. Instagram was supposed to be a simple photo app for sharing images with friends and family. Musical.ly (now TikTok) was intended to help users add music to videos. Monetization features that enable creators to make a living on these platforms were added later. To date, social tools have been hacked to support creators.
At K50, we are looking for companies that are built for creators, enabling them to build a business based on their skills, passions, and interests.
Why do we care?
The creator economy operates as a type of micro-entrepreneurship. It is the gig economy 2.0. As part of our mission-driven thesis, we aim to back startups that allow individuals to reach their professional goals of pursuing what they love in a flexible, independent, yet empowered format by entering the creator economy.
Current status of the ecosystem:
Awareness around the creator economy is still in the growth stage.The creator economy is not just media for the younger generations, but also a lifestyle choice for how they want to engage with anyone in their lives.
There is excitement around digital content creation by younger generations. 86% of Gen Z and Millennials are interested in posting sponsored content, and 54% want to become influencers. However, only 12% feel they are influencers. Furthermore, the next generation is defined by their intentionality to pursue entrepreneurship. They aspire to share their passion and craft with others and provide tangible value. Everyone from more traditionally creative roles (musicians, artists, fitness trainers) to more established occupations (markets, accountants, vocational careers) are digitizing their knowledge.
Furthermore, demand for internet content is at an all-time high. Americans have more leisure time (approximately 13 more hours a week since 2000), and chose to spend the vast majority of that on internet engagement. However, consumers desire more targeted content for their specific needs to combat the convoluted internet experience. They are willing to spend money on high quality user-generated content via donations, merch, or directly for courses and other paywall content if it meets the quality thresholds.
Opportunities in the creator space are vast. There are 38 million Instagram accounts worldwide with 500k+ followers. In the US alone, there are 17M digital content creators making $7B. On YouTube, over two million accounts have more than 10,000 subscribers, which meets the threshold for monetization. Yet, there is an unrealized desire of individuals (and willingness) to display themselves and their work for public consumption.
This growing interest is opening a new frontier. While participating in the passion economy seems easier than before, there are still barriers to be broken.
So, what’s the problem?
With 40% of workers considering leaving their current jobs and 94% of white collar workers wanting workplace flexibility, there needs to be a foundation for individuals to successfully operate in this new economy. There are four parts of the creator economy that ought to be addressed so people can profit from their passions:
- Content Creation and Distribution: Creators are looking to establish a passion area and operationalize quality content creation and optimal distribution. However, there is innovation on consumer consumption patterns that reduce burnout and allow for new entrants
- Community Building: In order to find content-market fit and connect with fans, creators need to build a community. But there are gaps in distributing content and communication effectively to the right people at the right time. Content inundation means quality content becomes table stakes. In order to build loyal fanships, there needs to exist a deep-rooted connection fostered through mutual engagement and shared experiences.
- Growth: Creators require help establishing organizational processes to fuel growth. Oftentimes, creators do not view themselves as a business, thus there needs to be education of business building and simplification of infrastructure. This economy is made up of regular individuals, not just those “born on third base.” Their desires for fulfilling careers around their passions will create a middle-class that does not exist in the current iteration.
- Monetization and Reinvestment: Sustainable business models are essential to long term success. But current monetization efforts feel inauthentic to the creator/fan relationship.
The opportunities:
The creator economy’s most important values are sustainability and authenticity. We see the biggest opportunities in companies that assist creators in building connections with their audiences while giving them ownership. The foundational elements of this new economy should
- Highlight high-intimacy / low-effort options of genuine content creation
- Give creators ownership of their customer relationships
- Prioritize creator well-being and long-term sustainability
There are four ways to accomplish these goals where we see the most opportunity for growth.
1. Verticalized networks and distribution platforms: Currently, creators lack discoverability and are unable to maintain community in huge aggregator platforms, like YouTube and TikTok. To solve this, platforms should give control and governance to creators on the platform in a coop model, allowing for deeper community building within a cohort of creators that also mitigates motivation decay. Engaging in micro-community building initiatives will allow consumers to build their form of relationships with creators and other fans.
2. Creator-Consumer Relationship Management: Creators lack insight into who their consumers are, what they prefer, and how they desire to be engaged. We’re looking for traditional CRM tools that are built for creators, and allow them to engage in a holistic conversation across platforms. Analysis on consumer behavior within the creators own content and across other creators can help better inform content creation and delivery mechanisms.
3. New Forms of Content and Mediums: Creators lack a diversity of content formats to engage with their fans, especially scaled, high intimacy ones. Video creation is high in effort and makes it difficult to maintain connection. Creators need means to transfer their personality to products in more scalable ways. By providing additional mediums for consumption, creators are able to increase their daily attention time with each viewer, leading to a more sustainable routine.
4. Creator to Creator Marketplaces: Collaboration is a proven way to grow an audience, but remains a difficult process to manage, especially for new creators. Creator to Creator Marketplaces fosters organic community cross pollination. Additionally, given positive experiences, creators will have exposure to a larger pool of collaborators; creators are generally hesitant to collaborate with creators without prior relationships. Facilitating creator to creator matches serves to provide lower cost inputs and diverse content, leading to innovation and sustainability.
The future
Our thesis:
A convolution of the ongoing pandemic and regulation changes coming to large tech players has increased the diversity of creator supply as well as put continued pressure on existing platforms to relinquish the strict control they have over the creator ecosystem. Micro-entrepreneurs of all shapes, sizes, and backgrounds are flocking to new technology solutions that enable them to build sustainable businesses by suiting their specific needs along their journey.
Outlook:
In the near term, creators will continue to prioritize their scarce resources in the manner that allows them to survive as long as possible: 1) Monetization, 2) Content Creation, 3) Community Building, 4) Growth. However, as each new vertical becomes more settled, we expect there will be an ability for creators to look long-term and build more creative and unique businesses. Over time, this means that these entrepreneurs will want to place more emphasis on community building, as that will open up unique monetization and content creation options that will be more difficult to replicate for their specific user base. Naturally, these community building tools will consolidate amongst various creator-types with similar needs, but those that can address all stages of the creator journey will be able to sustain themselves.
If you are building a company in this space, we want to meet you! Reach out to adriel@k50venures.com.
Edited by Lauren Huttner
