Year: 2019

WeWork has made a big name for itself in a short period of time as a global co-working space. In fact, WeWork is now the largest private office tenant in all of Manhattan.

But whether the real estate play alone can support its reported $47 billion valuation still remains to be seen. That might explain the company’s 2018 acquisition spree, as well as today’s newly announced changes to the WeWork app.

The new feature set is aimed at fostering collaboration and real-life communities among WeWork’s 400,000+ members, but if executed properly and adopted, could also provide a way for WeWork to potentially harness the data of its users to find new revenue streams.

Up until now, WeWork has always offered its members the opportunity to connect via the WeWork app in a relatively unstructured way. With the new updates, WeWork is looking to give users the chance to offer their skills up to other WeWork members who may be looking for a freelancer or service provider.

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It starts with the profile. WeWork has added new fields for members to include their skills and interests. The interests portion will allow WeWork to customize programming based on location, so that a building with a high number of people interested in mindfulness (for example) can have access to specific programming in that field.

Where skills are concerned, WeWork has given users the tools to be hyper-specific. For example, alongside noting that John Doe is a graphic designer, he can also specify that he is particularly interested in/skilled at designing brand logos or web pages.

We Company CPO Shiva Rajaraman told TechCrunch that adding structure and matching algorithms to the website allows for members to get the most out of both their local WeWork community and the global community as a whole.

“We think that, in many of these interactions, it’s better to have someone close by,” said Rajaraman. “Being face to face can often help solve problems more efficiently, but there are instances when members might need the expertise of someone within our global community, and the app offers the ability to do both.”

Members who make a request for help from someone in the community are matched with a person who has the skills they seek by the algorithm, which is overseen by community managers who’ve gotten to know the members in their building. The app facilitates setting up a time and place to meet, and interactions are ranked after the fact to ensure that the meetings are productive.

It’s not hard to imagine entrepreneurial minded individuals building up a customer base among WeWork members in fields like design, engineering, and accounting.

In fact, language skill consultant Jen Carmody of the Miami Brickell City Centre location says she’s reached 100 percent of her clients through the WeWork app.

For now, Rajaraman says that there are no current plans to add the ability to complete a freelance contract or transaction within the app.

“For us, it’s about removing as much friction as possible when facilitating these connections between people,” said Rajaraman. “We want to learn from these connections and see what might help. This is largely about making the value proposition of what we do richer than just providing space.”

We Company CEO Adam Neumann has said before that WeWork has made space, which has traditionally been a fixed entity, much more flexible. But it seems that WeWork itself is becoming more flexible as well.

It’s May 7, 2013 and Jack Conte is, in his own words, “totally exhausted, slash, totally wired, in that really weird in-between zone.” He has spent 18 hours per day for the last 50 days building a replica of the Millennium Falcon set from “Star Wars” and shooting a music video in it. When Conte has a vision for something he wants to create, he becomes obsessive. In fact, he maxed out his credit cards to see his vision through on this one.

But this is the moment. He uploads his video to YouTube where he has 100,000 subscribers. It’s not just a music video though: Conte inserted a segment at the end where he encourages fans to support him by going to a website he and his friend Sam have created called patreon.com. There, they will be able to download his new music (for free) and pledge money to help fund each video he creates going forward.

His fans respond with encouragement — and their wallets. While Conte normally makes just $100 in ad revenue per video, his fans commit to funding him with more than $5,000 per video within the first few weeks of the announcement. His creative economics had changed practically overnight.

When he was getting ready to announce patreon.com to his fans, Conte had reached out to 40 other creators asking them to create accounts, but none of them were interested. He, his girlfriend, and his roommate were the only creators on the platform when it launched. But buzz about Conte’s thousands of dollars in patronage triggered hundreds of creators to sign up. And so the story of Patreon begins.

Reading time for this article is about 8 minutes. Feature illustration by Bryce Durbin / TechCrunch.

The founding

Conte came up with the idea for Patreon in February 2013 due to his own financial situation: the small amount of ad revenue he expected from YouTube wouldn’t come close to repaying the thousands of dollars he was expecting to spend on the “Pedals” music video (it ultimately cost $10,000). He believed there was a small subset of his audience who would be happy to help though, and to do so for each future video. He mocked-up his vision on 14 pieces of printer paper and, unable to build a software platform himself, reached out to his old Stanford roommate, Sam Yam.

Conte, who studied music as an undergraduate in the Stanford class of 2006, gained notability as a musician through the duo Pomplamoose he formed with his girlfriend and now wife Nataly Dawn in 2008. While Pomplamoose considered offers from several respected record labels, they decided they could gain distribution without giving up economics or creative control given the rise of YouTube and other direct-to-fan platforms online. After an initial surge of independent success, they fell into a three-year hiatus, a period in which the ad revenue creators earned on YouTube dried up considerably.

Meanwhile, Yam was building a name for himself in the startup world. After graduation, he continued studying at Stanford for a master’s in computer science (Marc Andreessen wrote his letter of recommendation) but took a leave of absence to become one of the first engineers at the social-mapping startup Loopt.

After Loopt was acquired for $43 million in 2006, Yam founded AdWhirl, which allowed iPhone developers to dynamically select their ad networks. It was acquired in 2009 by AdMob, which Google then bought a few months later. After a short stint at Google, he spent three years trying out new startup ideas. For part of that time, he worked out of the Dogpatch Labs incubator space, sitting next to Kevin Systrom and Mike Krieger as they tinkered with early versions of Instagram, as well as media entrepreneur-turned-VC Josh Felser.

After Conte reached out to Yam about his idea for what would become Patreon, they arranged to meet at Coffee Bar on Bryant Street in San Francisco on March 6, 2013. On that day though, Yam’s focus was elsewhere. He had discovered a startup concept he believed could be a winner: a freelance photographer marketplace called OurSpot. March 6th was the day Yam was unveiling OurSpot to the world, and he had arranged for coverage in TechCrunch.

Conte’s pitch struck Yam immediately. He agreed it was an enormous opportunity and that Conte was the natural entrepreneur to drive it forward as a creator solving his own need. Yam had started their discussion by telling Conte there was no need for an NDA because ideas are a dime a dozen and execution is everything, but by the end, he was urging Conte not to tell anyone else about the idea.

That very evening, even as inbound interest from the TechCrunch coverage of OurSpot rolled in, Yam went with his gut: he began coding the Patreon platform. It quickly became his main focus, although he kept running OurSpot in parallel until Patreon’s seed round closed.

Raising the seed round

The month after Conte launched his Patreon page, he and Yam — who agreed to be equal co-founders — set out to raise their first round of funding, setting a target of $700,000. Yam reached out to Josh Felser, who had passed on investing in OurSpot but liked Yam and was intrigued to hear he had suddenly switched to work on Patreon. Felser met Conte for the first time on June 7th and says he knew he wanted to invest right away. His firm Freestyle Ventures formally committed on June 12th, offering to invest the full $700,000 on a $5.5 million pre-money valuation.

Saar Gur, a partner in the Palo Alto office of CRV, heard about Patreon through Evan Tana, who had worked with Yam at Loopt. Gur saw the sudden rise of Kickstarter as a sign of a broader wave of transformation — the rise of a new online creative class with the ability to crowdsource their financing. He had been evaluating a number of crowdfunding startups that all launched around the same time, and he said Patreon was not the obvious standout among them in terms of metrics. But Yam had solid experience, and based on the behind-the-scenes video about the making of “Pedals,” he believed Conte had the qualities of a high-potential entrepreneur.

As Gur and others met Conte and Yam, Patreon quickly became a hot deal among VCs in the Valley. Some investors who had previously ignored them returned bearing term sheets. The founders decided to raise more than they anticipated: a $2.1 million seed round led by CRV and Freestyle and joined by several other investors, including Reddit co-founder Alexis Ohanian.

When I asked Conte how he decides which VC firms to work with, he explained that it has always come down to which individuals most genuinely understood and cared about Patreon’s mission. CRV and Thrive Capital (which led the Series B and C) won the jockeying to invest and gain board seats, he noted, because Gur and Thrive’s Chris Paik as individuals felt like the most authentic partners.

Patreon is aggressively pursuing a new three-year product vision that is, in the words of SVP of Product Wyatt Jenkins, to build “the world’s best membership SaaS product for creators.” With about 90 engineers and product managers, the company sees an opportunity to own a particular niche that’s not well served by other B2B software and is also a growing market.

In this section of the Patreon EC-1, I dive into Patreon’s product strategy, analyzing its history and current approach.

• Business software for artists
• The early product development of Patreon
• Patreon’s transformation into a membership management system
• Building relations one human at a time
• Building upward and outward
• Co-branded vs white-label platform
• A creator-first product mindset

Reading time for this article is about 18 minutes. Feature illustration by Bryce Durbin / TechCrunch.

Business software for artists

The six-year-old startup enables independent content creators to finance their pursuits by converting their most dedicated fans to monthly memberships. Those memberships provide special perks to the fans — like exclusive content, access to private discussion groups, first dibs on tickets, etc. — and stable, recurring revenue to the creator. (Patreon makes its money by taking a cut of that revenue.)

Patreon is building business software distinct to the fan-artist relationship. Creators have a base of superfans who want to support them and get special access. Creators are their business — their fans specifically want them and the content they create. This is why creators often get a manager or agent to handle their business when they find success, whereas a small business owner would normally do the opposite (become a manager and delegate product creation and customer interaction).

Creators need business tools for non-business people. As a result, Patreon’s core product includes a CRM, CMS, analytics, and payments platform with a lot of proactive guidance on what to do (like telling creators in a step-by-step manner when to, say, message certain patrons in order to reduce their risk of churning). 

This is what SVP of Product Wyatt Jenkins calls “a lean-forward CRM.” It is simplified for non-technical users to navigate (lacking a lot of the flexibility other businesses want), which results in an ongoing challenge to make it more advanced without making it more complicated.

Patreon acts a bit like a business partner, not just a tech platform. In terms of human interaction, it goes beyond technical support to provide advice on business strategy, both on a creator-by-creator basis and in a scalable way through educational webinars, articles, and events. The business model of earning a commission rather than charging a monthly subscription, like normal SaaS companies do, also fits the particular dynamics of media and entertainment, where it is standard for a creator’s business partners (talent manager, agent, business manager, lawyer) to get paid on commission. 

“We’re not here to help them do art. They don’t need help doing art,” explained Jenkins, “We’re here to be their hard-core business manager friend who is like ‘no no no, you need to do this.’” He added that there’s an emotional element that is distinct in working with artists as well: “We deal with a constituency for whom price creates anxiety…it’s all wrapped up in their self-worth. So it’s part of our job in that onboarding funnel to give them the confidence to say ‘the thing you do is real and valuable…you should be okay charging for that.’”

The early product development of Patreon

For the majority of Patreon’s life, its platform has been — to varying degrees — a social marketplace with creator profiles requesting funding and featuring content, patron profiles showing the creators they support, and discovery features for patrons to find new creators. 

Modeled as a recurring Kickstarter, the “ask” on each creator’s profile when Patreon first launched was to commit to funding them at a set dollar amount for each creation (video, song, cartoon, etc.) they released. The creator would keep posting their content online for free, but incentivized potential patrons with perks for committing to certain donation tiers ($1, $3, $10, etc.). Fans entered a dollar amount to contribute and set a cap for the maximum they could be charged per month.

Co-founder and CEO Jack Conte was the first creator on the platform and explained the concept to his fans in the video below.

During the first two months of Patreon, the team noticed many creators were trying to “hack” its model of paying per creation to offer a flat per month payment option, so they added that functionality. By 2015, roughly 80 percent of creators were using the per-month payment model that now defines Patreon’s membership business model, according to CTO Sam Yam. Per-month payment was made the default setting for creator benefit tiers and later the option for new creators on the platform to choose the per-creation model was removed.

In 2014, Patreon redesigned its platform to emphasize content consumption rather than creator profiles. It was a move to become more like a media platform for consumers, with the discovery and crowdfunding of creators happening as a natural byproduct. At the time, Conte told TechCrunch’s John Biggs, “Think about why people love and share something online. It’s because of the content. We wanted to showcase what the artists were doing instead.”

Patreon soon faced a tension in its burgeoning marketplace. To increase engagement, it wanted to help patrons discover more creators. Yet, many patrons were coming in on the recommendation of a creator, and so Patreon was essentially taking that superfan and awkwardly directing that user to other creators — possibly even competitors. So the product shifted its focus back to the pages of individual creators, which were the primary landing pages for new patrons.

One year ago, the company launched Patreon Lens, a copycat of Snapchat Stories and Instagram Stories enabling creators to share daily behind-the-scenes video exclusively with their patrons. It was the last major product release in pursuit of the vision that Patreon should be a daily destination for content consumption — competing with YouTube, Instagram, Snapchat, and other dominant social platforms — in order to help creators convert and retain patrons. 

Patreon provides business infrastructure to independent content creators: people making videos, music, podcasts, paintings, comics, games, magazines and other forms of media for fans online. It helps them turn the small subset of superfans within their broader fan base into paying monthly patrons and manage relationships with those patrons across the web. Patreon is angling to become the dominant platform for creators to build these membership businesses, a position from which it could expand into other products and services for creators.

In this section of the EC-1, I am digging into the structure, performance and health of Patreon as a business. The sections are organized as follows:

1. Business model
2. Revenue
3. User metrics
4. New revenue streams
5. Costs and efficiencies
6. Mergers and acquisitions
7. Investors and fundraising

My analysis of Patreon’s product, competitors, and overarching thesis have been spun out as their own articles.

Reading time for this article is about 20 minutes. Feature illustration by Bryce Durbin / TechCrunch.

Business model

Patreon’s business model is straightforward, though it is becoming more complex. It charges creators 10 percent of their revenues through the platform, which is divided into a 5 percent platform fee and a 5 percent payment processing fee. Patreon has always had a flat 5 percent platform fee, but its payment processing fees have varied in the past.

Patreon has shifted strategy, no longer acting as a marketplace connecting fans and creators but as a SaaS platform with a suite of tools for creators. Rather than viewing its fees as a marketplace rake, a better analogy is to the commission model akin to that of a talent manager, agent or record label. Patreon’s incentives are directly aligned with its customers’ goal of generating more income from their fans.

That simple model will get more complicated, as Patreon is poised to introduce additional commission fees in exchange for access to some new functionality and services. Plus, the company acquired two startups last year (Memberful and Kit), which each come with their own business models.

Revenue

On January 23rd, Patreon announced it expects to process more than $500 million in payments in 2019. That would put the company’s 2019 revenue from its core Patreon platform at north of $50 million, given its 10 percent cut.

Back in May 2018, CEO Jack Conte said in a video that they would process $300 million in payments that year, implying roughly $30 million in revenue for 2018. That was twice the $150 million they processed in 2017 (the payment fee was variable until 2018, so the 10 percent assumption doesn’t hold for 2017, but I assume revenue was in the $12-15 million range).

None of these figures include revenue from Memberful or Kit. Kit’s revenue is likely a rounding error by comparison, and there is no longer any team working on it or resources allocated to developing it further. 

In contrast, Conte told me calling Memberful a rounding error would be “way off” and that it’s a product with “incredible product-market fit and incredible traction” whose revenue doesn’t look tiny next to Patreon’s. TechCrunch’s Josh Constine reported it had 500 paying customers and seven employees at the time of the acquisition. I haven’t found helpful data to use in estimating Memberful’s revenue, so whether this is $3 million or $5 million or another amount, I don’t know.

Is Patreon profitable? “Yeah, we’ve a ways to go there,” said Conte. After multiple years of trying to figure out its long-term business model and role within the online creator ecosystem, Patreon has clarified that creators are its customers and it will generate new revenue streams by offering new products and services to them.

User metrics

Creators

Patreon reports the total number of creators earning at least $1 on its platform as “over 100,000,” but they have been using that statistic since mid-2018. The independent website Graphtreon, which estimates Patreon data using the company’s API, says the total number of creators with at least one patron is 132,500. 

Based on this same Graphtreon data set, the number of creators increased 105 percent year-over-year in 2017 (to 92,500), but then only 39 percent in 2018 (to 129,000). Patreon’s Head of Communications said the correct 2018 growth rate for creators is “slightly over 50 percent growth.”

Revenue almost doubled over the last year, and revenue is tied to creator earnings. If revenue growth is holding steady while creator growth is slowing, it implies Patreon is adding fewer small creators who don’t generate much income, but is still gaining strong traction among more established creators who do.

Creator churn tightly correlates to creator income on the platform. People don’t walk away from a meaningful source of income, but they will walk away if they have been trying to gain patrons for weeks and only have $10 to show for it. A large number of creators join Patreon before they have a fan base — they see successful creators on Patreon and mistakenly attribute that success to joining Patreon rather than bringing a pre-existing fan base to it. They churn after a few months of gaining little to no financial backing. 

From the data Patreon agreed to show me during my research, I can tell you that the annual churn rate of Patreon creators drops under 1 percent for those generating $500 per month in revenue through the platform. The greater the income, the lower the churn, and after $1,000 per month in particular, it is very rare for creators to leave the platform at all.

$1K Creators

Given those churn metrics, Patreon’s team now measures the company’s progress by two KPIs: 1) the number of creators earning $1,000+ per month and 2) the total amount of money those creators are earning through Patreon.

This focus on $1,000+ per month creators (which I’ll refer to as “$1K Creators”) likely derives from their stickiness as customers, the disproportionate contribution they make to Patreon’s revenue and the strategic decision to narrow the platform’s scope to building tools for creators with existing fan bases (not trying to help creators without fan bases get discovered).

These $1K Creators receive 70 percent of the patronage and so generate 70 percent of Patreon’s revenue (or ~$35 million in 2019). Given the extent to which content is a hits business, in which the superstars in each field capture a massively disproportionate percentage of the economics, Patreon is less top-heavy than one might otherwise expect. While it has many $50,000+ per month creators, and indeed its single highest-earning creator — earning roughly $400-500,000 per month by my estimate — accounts for nearly 1 percent of all money flowing through the platform, Patreon’s dominant revenue source is creators earning between $1,000 and $50,000 per month. This is the mid-tail of content creators that the company’s business thesis hinges on.

Patreon doesn’t disclose how many $1K Creators there are, but CEO Jack Conte said “It’s a tiny portion. Because it’s an open platform, we at one point had hundreds and hundreds of thousands of creators who were making $0.” By the estimates of Graphtreon creator Tom Boruta, there are currently more than 4,300 creators making at least $1,000 per month (and more than 9,200 creators making $500+ per month). That small subset — 4,300 out of 132,500 active creators or about 3.2 percent of its customers — is Patreon’s core focus nowadays.

Patrons

In 2018, creators used Patreon to generate income from more than 3 million active patrons. That is a 50 percent year-over-year increase from the 2 million patrons Patreon had processed payments from in 2017. Using data from Second Measure — a firm that tracks billions of anonymized debit and credit transactions from millions of U.S. consumers — Patreon appears to be retaining patrons at a healthy rate. Averaging across several cohorts, 62 percent of first-time patrons on Patreon are still sending payments six months later and 51 percent are still doing so after a year. For comparison, those retention rates are about 10 percent behind Netflix’s best-in-class 73 percent and 66 percent metrics, respectively, but on par with those of Hulu (61 percent at six months and 53 percent at 12 months).

Far from a uniquely San Francisco phenomenon, patrons are geographically distributed too. According to the same Second Measure data set, while New York City leads in (U.S.-based) patrons, San Antonio is the second most common city with 2.2 percent of U.S. transactions, with Austin, Chicago, Houston, Las Vegas, Dallas, Tucson, Colorado Springs and Atlanta all making appearances in the top 20 (a “city” here is a legal jurisdiction, not a metro area). Moreover, Patreon confirmed that 40 percent of all money flowing through Patreon since founding has come from patrons outside the U.S. 

Can Patreon become a powerful, multi-billion-dollar company at the heart of the global media and entertainment industry? It’s founders and investors certainly believe so.

In this Extra Crunch EC-1, I dove into Patreon’s founding story, product, business model, and competition. Now I want to dissect the foundational thesis of where Patreon could unlock massive economic value. If it turns out they got the thesis wrong, tactical and product details won’t save it.

As I see it, Patreon’s thesis includes four hypotheses:

1. There’s a ton of untapped economic value in getting the mid-tail creator market to adopt membership business models.
2. Creators will adopt membership business models once they become exposed to the idea.
3. Creators need a dedicated “membership” service independent of the platforms they use for most of their content distribution and social interaction.
4. By owning membership, Patreon will be able to expand into providing numerous other products and services to creators.

I agree there is substantial untapped opportunity for mid-tail creators to leverage memberships, that Patreon can secure meaningful market share even amid competition by the largest content distribution platforms, and that being the dominant infrastructure provider for creator memberships is a highly strategic position from which to expand into numerous other products and services for creators. Where I’m more cautious is regarding the pace by which creators will adopt this and the percent of mid-tail creators for which this is a good fit. Let’s dig in.

Reading time for this article is about 11 minutes. Feature illustration by Bryce Durbin / TechCrunch.

1. There’s a lot of untapped economic value in getting the mid-tail creator market to adopt membership business models.

Creators produce media content for others to consume online and are independent (and not employees) of large media companies. The “mid-tail” creator is an individual who has a dedicated base of “true fans” probably numbering in the hundreds or low thousands. From my research, there are no good metrics for how many such creators exist.

Patreon wants to be the platform for mid-tail creators, which it defines as creators who can earn $1,000-500,000 per month through its platform. Currently, the platform has about 133,000 creators earning at least $1.00 but only 4,300 of them fit into that category. Those 4,300 drive most of the $500 million in payments it expects to process this year, however. Conte said of the number of creators who could fit in this range, “it’s hundreds and hundreds of thousands of those creators, and we have a very small proportion of them now.”

These creators are underserved small businesses

Whether they’re sole proprietors hustling for side income or full-time production teams shooting videos in a studio, mid-tier creators are businesses. However, as I explained in my analysis of Patreon’s product, these are customers not typically thought of as small businesses, and even if they are, they’re usually seen as too complicated, low ROI, and volatile. These mid-tail creators are not being chased by top talent managers, agents, record labels, etc. because they don’t command enough earning potential (in the eyes of the traditional industry). Creators are entrepreneurs, but unlike other types of small businesses, they need to stay focused on creating their product and interacting with fans, not managing a business.

Without time to handle business, these mid-tail creators are then left with advertising as a reasonably simple revenue model. Having thousands of passionate fans, though, may generate enough ad revenue to cover lunch, if they’re lucky. Plus, they often are not even creating content to appeal to a massive global audience anyway. Instead, they want to provide a lot of value to a more targeted audience than advertising allows.

If you remove advertising from the picture, then every potential revenue stream comes back to the same subgroup of fans: superfans who care enough that they will buy merch, event tickets, albums, art prints, and basically anything that a creator produces. The superfan-creator dynamic isn’t just transactional, like buying a pair of shoes from a store with good reviews. Rather, it’s quite emotional. Superfans don’t just value the final output, but also the process of creation and the person doing it. They want access to the whole thing.

If a product targeted mid-tail creators, however, it could address their particular needs, and this is where Patreon steps in. SVP of Product Wyatt Jenkins described the challenge of serving this customer: “There’s a tension between capitalism and art that exists in the world that we can’t untangle, we just have to do our best. So all the language in all the product is like teaching artists business. That’s the challenge we face everyday.”

Membership unlocks value

A membership business model is like a subscription to a community. Membership is about fans paying dues (on a recurring basis) to be part of a creator’s inner circle, receiving a mix of perks like exclusive content, access to discussion groups, members-only merchandise, first dibs on event tickets, video calls with the creator, etc. There can be different tiers of membership that provide better perks. Beyond the tangible benefits, it also provides deeper emotional value to fans: being (formally) part of a tribe.

Membership is a business model that can be distinctly applied to the circumstances of content creators. Creators make for natural recurring revenue businesses, since loyal fans want to both continuously consume content and also want an ongoing relationship with the creator. People will pay to be your friend. It is not about trying to change who is popular or how popular they are — it’s about helping them make more money through deeper engagement with their core fans. It makes the mid-tail of creators fatter.

Patreon talks about membership as a fit for the 1-3% of a creator’s online fan base most passionate about them. For some niche creators, it could be much higher.

On the flip side for creators, membership offers reliable, recurring revenue. They can choose to go full-time, make capital expenditures and hire employees based on forecasted income. As a result, mid-tail creators who are part-time or full-time but scraping by can evolve into a landscape of stable small and mid-size businesses managing customer churn and happiness. Especially if there are tools to understand those tactics and take action without having technical savvy or traditional business experience.

In December, Patreon CEO Jack Conte shared a list on Twitter predicting what being an independent content creator will be like in 10 years. One of his predictions was that there will be fierce competition between distribution platforms to get creators paid.

That competition has already begun, which is good for creators, but is it good for Patreon?

Patreon holds a strategic position in the creator toolset, particularly around building membership businesses — the recurring income from superfans that allows for creator sustainability. Among its competitors are some of the richest tech companies in the world who own content distribution platforms, like Facebook and YouTube. A crop of vertical-specific subscription infrastructure companies could push back on Patreon’s early market share by offering creators better features for specific use cases. A range of B2B software companies, blockchain projects, or even Hollywood agencies could decide to target Patreon’s core creator customer.

This article is an analysis of each of those challenges to Patreon, and how the company can navigate them to come out ahead.

• Fending off the content platforms
• Infrastructure competitors
• Next-generation talent representation
• Affinity group-specific solutions
• The future for Patreon

Reading time for this article is about 16 minutes. Feature illustration by Bryce Durbin / TechCrunch.

Fending off the content platforms

Creators heavily use content distribution sites like Facebook, YouTube, Twitch and others to publish their work and engage with their fans. Given the amount of effort expended on these platforms, it seems inevitable that they would find value in running their membership businesses through them as well.

Indeed, these platforms — particularly Facebook and YouTube — are investing significant resources into building out full-featured tools for creators to generate revenue directly from their fans.

Facebook is the top threat to Patreon, although others are also certainly important to watch.

The top distribution platforms have three advantages against Patreon. First, they have enormous budgets, plain and simple. Second, they already count most of the world’s creators and fans as users. YouTube, for example, may not be a hub for podcasts or for poetry, but the vast majority of podcasters and poets already have YouTube accounts … as do most of their fans. These platforms don’t need to do customer acquisition in the traditional sense, they just need existing users to test out new features.

Third, they have a major advantage with user convenience. It’s easier to convert a fan who is wavering on the idea of becoming a patron when the button to do so is right there in front of them. That fan is probably already logged into their YouTube account so that one click could be all that’s needed — no new account creation on Patreon.com.

Facebook and YouTube want fan-creator revenue

Content platforms see new revenue streams in the fan-creator relationship now. More of them are testing ways for creators to directly monetize fans rather than solely operate off ad revenue. This is driven by 1) increasing saturation in the digital ad market, 2) greater awareness of best business practices from the gaming sector, such as enabling superfans to spend money on extra perks, and 3) deeper understanding of China’s dominant social platforms which have long had features like tipping as revenue streams.

Facebook has been building out dedicated functionality for creators. Its Creator App is a unified inbox of Facebook comments, Instagram comments, and Messenger chats, plus a unified analytics dashboard to help creators understand who their fans are. This app could quickly evolve into the type of business infrastructure that Patreon is building to help creators manage their superfan relationships and get them to spend more.

Ominously, Facebook has been aggressively testing a variety of monetization options for creators. Among them:

• Creator Memberships: users who join a creator’s $4.99 per month membership tier get exclusive content and a supporter badge next to their name.
• Subscription Groups: creators can set a price of $4.99 through $29.99 per month for fans to join a private Facebook Group, which already has a Group Insights tool to get analytics on the most active participants, the most engaged posts, and the demographics of group members.
• Facebook Stars: a virtual currency for tipping creators on gaming live streams. Fans buy a pack of Stars, and Facebook takes a 5-30% cut depending on how much they spend, while creators get $0.01 for each Star fans send them.
• A marketplace for matching creators with businesses for branded content campaigns and sponsorship deals, similar to the Niche marketplace that Twitter acquired.

Facebook isn’t alone in attempting to leverage its platform to help monetize creators. YouTube has been hard at work as well.

In June 2018, it rolled out “Channel Memberships.” Creators with at least 50,000 subscribers to their channel can offer a $4.99 per month membership to their fans that provides access to exclusive live streams, members-only posts in the creator’s Community tab, custom emojis to use in YouTube comments, and a badge that appears next to the user’s name to mark them as a member. YouTube keeps 30% ($1.50 each) of the revenue from Channel Memberships, which includes payment processing costs.

Other fan monetization features on YouTube now include:

• Super Chat: when there is a live comments feed next to the video during Live Streams and Premieres, fans can pay to have their comments highlighted and temporarily pinned to the top so more people read them.
• Merchandise: creators with at least 10,000 subscribers can create custom merchandise to offer their fans through an integration with Teespring. Featured merchandise then appears underneath the creator’s YouTube videos. Teespring pays YouTube a commission on all the sales this generates for them and YouTube shares a portion of that commission back with creators.
• Ticketing: through integrations with Eventbrite and Ticketmaster, creators can promote and sell tickets to their live events directly from the YouTube pages where fans are watching their videos.

Beyond Facebook and YouTube, there are a bunch of other content platforms with fan-creator revenue models that could undermine Patreon’s ambitions. Amazon-owned Twitch has subscriptions similar to YouTube’s Channel Memberships, while Medium has a freemium model where creators can paywall their writing and then get a cut of the overall revenue based on the amount of “applause” their posts received. So far, Twitter and Snap seem to be non-players in this market.

Patreon faces two major risks from the rise of fan-creator monetization features on content platforms, beyond just company-to-company competition. Even if Facebook, YouTube, and other platforms release a fairly weak set of features, Patreon could face a “death by a thousand cuts” scenario. In aggregate, those features could reduce pressure on creators to find an independent platform to drive their superfans to. It also means that those platforms have the credit card info of a creator’s superfans as well, reducing the switching costs of leaving Patreon.

Second, Patreon envisions itself as the nucleus of a creator’s membership business, plugging into all the other platforms where they post content and engage fans using the Patreon API. But such integrations require collaborations with the distribution platforms. They now integrate with Reddit, but if other platforms are developing monetization tools of their own (even if not in direct competition), they may view a Patreon API integration as competitive with their own offering and refuse to collaborate. If Patreon doesn’t connect to the platforms creators use most often, it makes its service a much less compelling option.

Both companies could hit Patreon hard if they wanted to. Facebook in particular is such a powerful potential competitor because if it built its own robust version of a creator CRM it could provide creators unrivaled data on who their superfans are and how best to engage them. Plus, consumers actually read their Messenger, Instagram, and WhatsApp messages (unlike messages sent to subscribers to a YouTuber’s channel).

At nearly six years old, Patreon has gone from startup to king of membership. Now an established leader in an industry that’s been flipped on its head, Patreon’s path has been anything but predictable — peppered with its share of milestones, mishaps, pivots, champions, and critics — and offers invaluable insights for founders, investors, creatives, or those looking to make sense of the new media landscape.

Since we’ve probably read almost every word written on Patreon as part for our “under-the-hood” exploration in this EC-1, we’ve compiled a supplemental list of resources and readings we believe are particularly helpful for learning the Patreon story.

Reading time for this article is about 8 minutes. Feature illustration by Bryce Durbin / TechCrunch.

I. Background: The Story of Patreon

Pedals Music Video (Announcement Video) & Behind the Scenes Video | May 2013 | In May of 2013, Co-founder and CEO Jack Conte first announced the creation of Patreon alongside the release of a stunning music video that had smoke machines, light shows, and robots on beat machines. Conte also added a neat behind-the-scenes video showing just how much groundwork and hustle went into the production.

Jack Conte’s Patreon Explanation | May 2013 | In a separate video, Conte went into a bit more depth on the original site’s purpose, vision, and functionality.

Pomplamoose’s Jack Conte Creates A Subscription-Based Funding Site For Artists and Patreon Is a Recurring Tip Jar for Fans Who Love Everything You Make | May 2013 | TechCrunch’s and AllThingsD’s coverage of Patreon’s launch. In context, revisiting the pieces offers an interesting look back at the initial excitement around Patreon’s offering and the pervasiveness of the problem it was tackling.

Jack Conte Presentation @ XOXO Festival | September 2013 | At the XOXO Festival, a festival and conference for independent internet-based creators, Conte explains how his own experience as a YouTube artist led to the creation of Patreon.

1,000 True Fans | March 2008 | Wired founding editor Kevin Kelly’s widely read 1,000 True Fans essay is essentially the philosophical underpinning of Patreon. The principal idea here is that one can be a successful creator if they are able to consistently monetize even a small, dedicated fan base. Kelly walks through independent artist economics to explain how just one thousand true fans who will consistently support or purchase a creator’s work can be enough to make a comfortable living.

Digital Medici: How This Musician-Turned-Entrepreneur Plans To Save Creators From Advertising | February 2018 | In a 2018 profile, Kathleen Chaykowski contextualizes Conte’s motivation and aspirations for Patreon, outlining his path from childhood music fanatic to struggling artist to founder.

Inside Patreon, The Economic Engine of Internet Culture | August 2017 | Verge senior reporter Adi Robertson outlines in-depth how the Patreon model has changed from the creator perspective overtime, including creator anecdotes, success stories and concerns.

TechCrunch is known for helping startups get to the next level by providing a platform for them to showcase their work at a demo table. Startup demo tables for TechCrunch Sessions: Robotics + AI on April 18 are still available for any early-stage robotics or AI startup with $3M or less in funding. This is your chance to get your robotics or AI startup the exposure it needs to make connections and grow.

Startup demo tables get your company in front of over 1,000 people who are specifically interested in robotics and AI – including some heavy-hitter investors and TechCrunch writers. Each demo table not only comes with its own dedicated space but also includes 3 tickets for your entire startup crew to enjoy the show. The event attracts a flock of students from schools like UC Berkeley and Stanford, making it a great opportunity for you to find your next engineer or intern.

When you book your $1,500 startup demo table you’ll be networking with the industry’s doers, movers and shakers that can potentially give you the leg up you need to grow. This event provides an exceptional opportunity to demo your product in front of a very smart, very large and very targeted audience. This year’s lineup (a work in progress) will not disappoint with speakers such as Arnaud Thiercellin (DJI), Melonee Wise (Fetch Robotics), and Peter Barrett (Playground Global).

Here’s what else you can expect at TC Sessions: Robotics + AI. TechCrunch editors will host a full day of interviews and demos (like this one) on the main stage. And we’ll have workshops and other demos running in parallel. Want to know more? Check out the full coverage from last year. And, as always, there will be plenty of opportunity for world-class networking.

Don’t miss a spectacular day-long event focused exclusively on robotics and AI. Come learn, teach, demo and network. And buy your tickets and a demo table now before it’s too late. We can’t wait to see you there!

IBM today announced that it is freeing its Watson-branded AI services like the Watson Assistant for building conversational interfaces and Watson OpenScale for managing the AI lifecycle from its own cloud and allowing enterprises to take its platform and running it their own data centers. In a way, you can think of this as Watson as a managed service.

“Clients are really struggling with infusing AI into their applications because the data is distributed in multiple places,” IBM Watson’s CTO and chief architects Ruchir Puri told me when I asked him for IBM’s reasoning behind this move. “It’s in these hybrid environments, they’ve got multiple cloud implementations, they have data in their private cloud as well. They have been struggling because the providers of AI have been trying to lock them into a particular implementation that is not suitable to this hybrid cloud environment.”

So with this decision of bringing Watson to any cloud, IBM wants to give these businesses the option to bring AI to their data, which is significantly harder and costlier to move, after all. Purir also stressed that many enterprises have long wanted to use AI to make their operations more efficient, but they needed to run their AI tools in an environment that they control and feel comfortable with.

At the core of the technical specifications for running Watson in their public or private cloud is IBM Cloud Private, the company’s private cloud platform that uses open source technologies for running tools and services like Kubernetes and Cloud Foundry. That’s the platform that allows enterprises to then run Watson, too (which itself runs on containers, too).

Right now, the focus of this fire launch is on Watson Assistant and Watson OpenScale. “The capabilities we are releasing right now are based on our two flagship products. That addresses a very large domain of use cases that we come across,” said Puri. “In the remaining part of the year, we will being the rest of the capabilities [to the platform]. For example, Watson Knowledge Studio will come along with it as well, as well as Watson’s natural language understanding capabilities that we currently have available in our public cloud environment will be ported on to it as well.”

With that, Puri argues, IBM will offer enterprises a full spectrum of tools for developing and running AI models using structured and unstructured data, as well as a full monitoring and lifecycle management suite.

In addition to this, IBM also today announced that it is launching a new version of its Watson Machine Learning Accelerator that brings high-performance GPU clustering to Power Systems and X86 systems and which promises to accelerate AI performance up to 10x.

The company also today announced IBM Business Automation Intelligence with Watson, though it didn’t quite delve into the details. This new service, the company says, will give business leaders the ability “to apply AI directly to applications, strengthening the workforce, from clerical to knowledge workers, to intelligently automate work from the mundane to the complex.” I’m not really sure what that means, but I’m sure the business leaders who will buy this service will figure it out.

I’ve been podcasting in various forms for about a dozen years now. Sometimes it has been within the corporate confines of the various publications I’ve worked for and sometimes it has just been for myself. That’s the beauty of podcasting — there’s no overhead.

It can be recorded on a terrible Skype line or meticulously crafted by an army of producers. You can do it for five listeners or five million. Do a five-episode miniseries or suddenly look at the calendar one day and realize you’ve been putting up an episode a week for five years.

My current podcast, RiYL, falls into the latter category. Episode 322 just posted this weekend. That’s a lifetime in podcast years, and I’m not exaggerating when I say there’s no way the show would have lasted this long had I not assembled the proper gear.

It’s true that doing the show has been an ongoing process of refining my setup, both in terms of recording hardware and the software workflow, but the core components have been in place for a while. A number of my more successful friends have invested thousands to build home studios that sound as professional as any NPR affiliate.

For me, however, the key has always been mobility. I’ve fine-tuned a podcasting rig that sounds good, but is small enough to slip into a laptop sleeve. Leave no trace, as the saying goes.

The motivation dates back to the show’s humble beginnings (though, for the record, the first few episodes were done over Skype as I was still figuring things out). I realized pretty early on that getting touring artists and musicians to come to my place in Queens (with a few exceptions) was going to be a non-starter.

Piecing together a lightweight rig has given me the flexibility to meet people where they are, be it a hotel room, bar or their PR rep’s conference room. And now that I travel pretty regularly for work, it means I can easily slip the setup into a carry-on, so I can meet guests in their hometowns.

Here’s a photo of upcoming guest Hannibal Buress, recorded in my hotel room in Lagos, Nigeria. My setup is placed gingerly atop my overturned suitcase on a coffee table. He’s clearly impressed.

The other thing the setup has helped me realize is that people’s expectations for professionalism has shifted considerably in recent decades. My rig is small and simple, but various guests have commented over the years that they’re impressed. The last person who interviewed them had them speak into their iPhone.

At the very least, this is certainly better than that.

It’s not the end-all, be-all, by any stretch of the imagination. This is just what has worked for me. Over the years, I’ve had plenty of people — guests and otherwise — ask me what I use. Also, in the wake of last week’s Spotify acquisition of Anchor and Gimlet, podcasts are, once again, the hot newness. So now seemed like as good a time as any to get this all down on paper.

TASCAM DR-40 4-Track Portable Digital Recorder ($170): This was my first acquisition and the one piece of hardware I’ve held onto through the duration of the show (though for the record, I’ve purchased it twice after an unfortunate incident with a lost backpack).

Zoom and Roland also make solid multi-track recorders that will probably be interchangeable for most. The key is finding a system you like that sports dual XLR mic inputs that you can monitor on the fly. They pretty much all have built-in mics, but you’re not going to want to rely on room mics for a podcast. It sounds like crap and it’s a nightmare to edit if you’ve got more than one speaker.

Recording works like a charm. The system records each mic to a left and right channel, which it saves as a WAV file on an SD card. Just make sure the mics are placed at a sufficient distance, so you don’t pick up too much cross talk.

Of course, here you’re limited to two mics. That’s been an issue at points when entire bands have wanted to join in on the fun. The aforementioned companies do make recorders with more inputs. Those are generally larger and a lot pricier, though.

Honorable mention here goes to the Rodecaster. The board is really great at what it does. We recorded an episode of TechCrunch Original Content on the thing, with it doing guest duties and producing in real time. The recent addition of multi-track recording makes this thing an absolute killer.

It has eight channels, including multiple mic inputs, triggerable sound pads and the ability to beam someone in via phone. If I was setting up a home studio on the cheap, I would shell out for one of these, no questions asked. That said, it’s just way too large for my current needs.

Weymic New Wm57 ($10): Okay, true story. Right after I bought the TASCAM, I invested in a pair of super-cheap mics. They sounded… OK, but the presentation was lacking. One afternoon, I went to Reggie Watts’ Brooklyn apartment to record an episode. I handed him a mic. He looked it over, moved it around in his hand a bit, then slyly unplugged it and reached into a drawer behind him, grabbed a mic and popped it on.

The guy knows from microphones.

My takeaway here is that presentation is important. Looks matter, as does weight. A microphone should have some heft to it. People’s expectations have lowered with regards to what an audio setup looks like, but you need good mics if pros are going to take you seriously.

I’ve since been through various mics, and lately I’ve settled on these things. For the record, they’re a wholesale knock-off of the Shure SM57 Cardioid Dynamic Microphone — the go-to microphone for podcasters. The SM57 is the thing I assume Marc Maron and Terry Gross would talk about if they had to share an Uber Pool to Silver Lake.

The Weymic looks nearly identical and sounds great for one-tenth the price. Don’t ask me how. And hey, I’m not exactly swimming in Casper ad revenue here. Also do yourself a favor and invest in a couple of foam windscreens to cut down on sibilance. You can get a bunch in a pack for cheap.

Universal Adjustable Desk Microphone Stand Portable Foldable Tripod (Two for $15): I’m embarrassed to admit how long it took me to add these to the repertoire. Guests jostle mics a lot during long interviews, and that stuff picks up. I’ve also had a number of older guests on the show, and asking them to hold a microphone for 45 minutes to an hour is just cruel.

These, picked up from Amazon, are super-cheap and fold up into nothing, making them perfect for my laptop-sleeve constraints. The only issues are: 1) They’re not great for super-tall guests. I recently had a member of the band Health on the show and ended up sticking the stand precariously atop a pile of several books; and 2) The screws loosen themselves like crazy for some reason, so I just purchased a pair of keychain screw drivers to keep them in check.

I pair all of that with a couple of six-foot XLR mic cables ($7 a piece for Amazon basics) and some velcro ties. Those fit nicely in the outside pocket of the laptop sleeve, along with backup batteries.

Audacity/Garage Band: Sometimes you just stick with the workflow you’ve got. I should probably upgrade to Adobe Audition (maybe this article will be what motivates me) one of these days, but I’ve been using Audacity for like 10 years at this point. It’s simple and it works fine for chopping up a show. That’s my biggest complaint with a number of the free apps like Anchor — they mostly suck when it comes to editing a show.

And editing is important. It’s true that another one of the wonderful things about podcasts is they can be as long or as short as you want, but everything can benefit from a little tightening up. I also spend a lot of time adjusting levels (often on the subway ride home). And make sure to record a little room tone to get rid of ambient noise in post.

After the show is edited, I export it as a single track and import it into my show template in Garage Band. That’s where I add the music beds, outros and the like.

Podbean: A couple of friends are launching a podcast soon. They asked me who I use for hosting. Podbean is something I found early on. I’m not sure I’d recommend the service, but I’m 300+ episodes deep at this point. There are a lot of options out there, so shop around a bit. Anchor is compelling for novices, including its built-in ad-servicing (though I’m a little wary of how the Spotify acquisition will play out) and a lot of my friends swear by Libsyn for more popular shows. Heck, even SoundCloud has a decent option.

Everyone has an embedded player and the means with which to syndicate to iTunes, Google Play, Spotify, et al.

I’ve found Podbean to be a bit clunky and the service has experienced a handful of outages. That said, recent additions have streamlined the program, and they’ve added some pretty decent analytics to the backend, so it’s definitely headed in the right direction. Once uploaded, I embed that into a Tumblr post.

Headliner: I’ve tried a number of speech visualizers for promoting the show. I found Anchor’s clunky. Wavve’s was decent, but they start charging you after your first 30-second clip. I only just started using Headliner this week, and it’s terrific. Easy to use, highly customizable and, best of all, free.

The transcriptions are okay for a free service (you’re going to have to clean them up) and the online editing tools are great. I think I’m sticking with this one for a while.

Additional shout-outs to Google Drive. The first thing I do after transferring files from my desktop is back them up here. It’s the one place where I’ve got all my files and has helped quite a bit with scheduling episodes.

YouTube is another recent experiment for me. I’ve been syndicating the show to all of the usual places, as mentioned above, but it recently occurred to me that people use the video platform to listen to audio programs. I asked a bunch of folks on Facebook and found it to be surprisingly popular. This will become increasingly important as more people purchase screen-sporting assistants like Google Home Hub and the Amazon Show. It’s a new thing for me and I’ve only got a handful of subscribers at the moment, but I’ll let you know how that goes.

I do still find myself recording remotely from time to time. Auto podcaster extraordinaire Kirsten recently introduced me to Zencastr, which is great for this purpose, recording each caller remotely and backing up those files to a server. If I’m using Skype, I go with the old standby, Ecamm’s Call Recorder, to record locally.

I’ve also become attached to Blue’s Raspberry USB mic for this purpose. It’s adorable and tiny, so you can stash it in a backpack for travel. It’s not the best-sounding mic, but it’s good for its size and it sounds a hell of a lot better than the company’s Yeti Nano. Rode’s got a company of models with optional windscreens I’ve been meaning to check out as well, but I’ve heard good things.

If you’re hip to any new tools you think I should check out, hit me up on Twitter at @bheater. I’m always looking for ways to step up my game.