Patreon: A Platform for the Creative Community
Patreon is a platform specialized in enabling creators to monetizing their content.
In this digital age that has enabled content creators or artists to broadcast their work across a number of platforms and social media channels, Patreon is providing the tools for fans to financially support their favorite creators. By connecting patrons with creators—who produce content spanning Youtube short films, writing, music, and more—Patreon is an online platform making subscription models easy for creators to implement. As the platform continues to grow, however, Patreon may find it necessary to explore new revenue streams to build a more sustainable business.
Value Creation
Based on tiers of membership that patrons can subscribe to—specific to certain creators on the platform—patrons can receive benefits such as early access content, private discussion forums, exclusive content, and more. Patreon differentiates itself from other crowdfunding platforms such as Kickstarter by focusing on the distinctive fan-artist relationship.
Fans are in many ways what you might consider in a business context to be super users or brand loyalists. Oftentimes they care more about the brand (i.e. the artist) than the product itself (i.e. a particular piece of content). This dynamic makes monetizing the fan-artist relationship particularly conducive to a subscriber model, and Patreon provides the tools for creators to leverage this.
Patreon’s platform simplifies the process by which creators can implement a subscription model to turn their talent into a business. The core product includes tools such as customer relationship management (CRM), analytics, and payments.
Value Capture
In May of 2019, Patreon changed its model for monetizing creator memberships from a single option to three tiers. In order to minimize the impact on existing creators on the platform, the new structure was applied only to new creators who joined the platform after the change.
Prior to the change, Patreon charged creators on the platform a commission fee of 10%. This fee was divided into 5% for Patreon’s take, and the remaining 5% for transaction fees. [1] After the new model took effect, creators could select from Lite, Pro, and Premium membership plans. Patreon Lite resembles the former payment model, whereas Patreon Pro and Premium charge 8% and 12% commission respectively. The Premium model also includes a $300 minimum monthly fee, with added benefits for the creator including a dedicated partner manager and team access to the same account. [2]
Scalability and Sustainability
Monetizing online content creation and consumption is a very attractive market, as social media platforms increasingly permeate consumers’ everyday lives. An increasing trend in self-employment also contributes to the rising tide of opportunities for creators to translate their talents into viable businesses. [3] As a niche player in connecting artists with fans, Patreon is poised to capture the market for monetizing this relationship.
Scaling the platform quickly, however, could pose a challenge for Patreon. While virality may exist within fanbases supporting a particular creator, there are minimal to no network effects across fanbases. Similarly, while acquiring patrons on the platform happens organically through the creators they support, Patreon must individually attract each creator to the platform—barring some word-of-mouth marketing. As the platform grows, Patreon may gain some limited economies of scale from a learnings and technology perspective, but the cost of customer acquisition will not decrease by a meaningful amount. As a consumer SAAS platform, Patreon’s lack of virality and vulnerability to multi-homing among its key customers—the creators—is a significant barrier to scalability.
In order to grow the business sustainably, Patreon must find a way to increase not only the value that it can capture from creators, but also the value that creators are able to generate from their patrons. Patreon’s recent change in creator membership plans reflects their efforts to hone this business model.
The company must also explore how it can lift the Patreon-specific revenue of its creators, potentially by providing them with tools to create more compelling and Patreon-exclusive content. Exploring different ways to make Patreon stickier for superfans can improve the economics of the business at the margins and improve its overall sustainability. In order to build a defensible position against social media giants like Youtube that are increasingly integrating monetization natively into their platforms, Patreon must capitalize on its unique database of knowledge about the marketplace behaviors driving the creative community.
Sources
[2] https://venturebeat.com/2019/03/19/patreon-now-offers-creators-3-plans-with-fees-ranging-from-5-12/
[3] https://techcrunch.com/2019/02/23/patreons-future-and-potential-exits/
Thanks for an interesting article! One interesting piece here is the disintermediation potential which would cut Patreon out of the mix. I’ve seen several YouTube channels which publish their content, get a cut of YouTube ad revenue, and can scale their fanbase very rapidly on that channel. With increasing ease of building your own website, what stops a YouTuber from directing fans to their own site and simply setting up a paywall to access exclusive content there? Or what stops YouTube from displacing Patreon and charging lower fees across more artists since the content is largely hosted on the platform already? Seems like Patreon may be facing significant challenges as technology becomes increasingly accessible. One potential solution is connecting fans of one artist / creator to similar artists as a referral platform, though I imagine the margins would be smaller and again, YouTube may be able to displace this service with at-scale machine learning.