PATREON’S NEW BUSINESS MODEL AND THE COMPETITION IT FACES

While studying music at Stanford in 2006 Jack Conte already had an audience of 100,000 subscribers on his YouTube channel. Despite having a large-scale audience that creators usually dream of, why was he still unsatisfied?

 

How did a platform like Patreon which currently competes with the industry giants start? And how does it still maintain its place amidst competitors that try to have an upper hand now and then?

 

No doubt the need to bring your talent to a wider audience is ever more increasing. 

Especially during the current times, a lot of people are making their transition from a basic 9-5 to establish their online presence. 

 

In an industry where ads and revenue for the companies are valued more than the value creators have in store, what sets a platform like Patreon apart?

 

Quality content sure comes with the appraisal but a reliable stream of income is still something that gets creators puzzled. In this article, we talk about how Patreon gained more traction and popularity in very little time amongst the creators compared to others.

 

 

Back in the days with the common problem of receiving money only using ad revenue, Jack Conte along with roommate Sam Yam 2013 started Patreon to explore a broader realm for artists instead of earning peanuts for the content they offer. 

 

With his already up-and-running YouTube channel and a large audience, Conte uploads a video at the end of which he talks about Patreon that he and his friend created and persuades his followers to support him on Patreon. Going forward the plan was streamlined and put into practice by his former roommate and currently the co-founder of Patreon Sam Yam in about six weeks.

 

Compared to the little ad revenue generated income that he made on YouTube, Conte started earning $5000 for a video after the first couple of weeks of the announcement. Whereas with regards to his work history on YouTube, he made $100 per video with ad revenues. As Conte’s story about earning more money grew, so did the number of people who signed up. The platform could only grow more since Patreon was designed in a way that allowed the fans to pledge money to the creators directly without alarming cuts in the revenue for the creators.

 

The distinct business model attracted more and more artists in no time who were looking for a platform that connects them with their fans and also creates a steady source of income. 

 

 

After accumulating $2.1millon from Alexis Ohanian (Reddit co-founder) and other firms.

The platform was hosting 4000 artists by October 2013. Going forward in June 2014 the number grew to 25,000.

 

In terms of venture capital, the company was able to raise $100 million. With the payment being crossed to more than $500 million. Around December 2019, artists worldwide earned around $ 1 billion in earnings, on the platform.

 

 

The basic reason that Patreon exists is that there is an ever more increased need for a structure where creators have the power to navigate their careers according to their own will and make way for stable earnings. Also, the surge of an ad-centric economy has led to the creators only being seen as a medium of profit and not of value or talent. Moreover, Patreon helps leverage the fan-artist relationship with the help of posts and direct messages like email compared to completely profit-driven companies. Hence, the audiences do not remain mere fans but are active participants in the artist’s work which makes it more like a community.

 

Thus it can be said that Patreon, compared to its other competitors is more flexible not only in terms of money but in terms of its framework as well.

 

The need an advanced, as well as less troublesome platform, is needed to monetize the content in a way that helps the artists add more value to the audience. 

 

 

Since Patreon is a crowdfunding platform the amount of money that Patreon makes depends upon the fan base the creators have and how much the artist makes.

Initially, Patreon charged a fee of 10%, from which 5% was deducted for Patreon and the rest 5% as transactional charges. Compared to the other alternatives, Patreon still turns out to be a beneficial platform, that lets the creators make more money and is not advertisement-driven nor favors middlemen or gatekeepers.

 

May 2019 is when Patreon decides to tweak its business model on the monetizing front for memberships leading to the three-tier model. So that the model doesn’t hit all the creators with the same intensity, the rules for the new implementations were applied only to the new creators. Moreover, the three-tier model has enabled the platform and the revenue options to be more fluid and suitable for all audiences of every rank.

 

The three-tier model includes Lite, Pro, and Premium membership plans.

 

Lite is the basic 5% payment cut that comes with the basic features. While, the Pro payment option comes in with the 8% structure but offers additional tools offering special promos, priority-driven customer support, endless app integrations, creator-led workshops, etc.

Whereas, the Premium structure comes with a 12% cut in revenue, but includes rewards like team accounts, Partner manager, etc.

 

The premium structure also includes a monthly fee of a minimum of $300. This comes in with features for the creator like a partner manager and team access to the account.

The different tiers come in with specific advantages depending on the payment structure you choose, benefits of which include early access content, private discussion forum, exclusive content, and more.

 

The downside to this is whether the users want to pay a higher amount for access. Freedom of choice that comes in from the user's side might lead to choosing the low-cost option. 

At times due to recession when users decide on cutting down expenses on factors like entertainment, the plunge in the companies’ revenue might affect the company further.

 

Needless to say, what the bulk users select will directly impact Patreon’s total revenue. Hence making it unclear to estimate the annual turnover.

 

Apart from a monthly option, the creator is also given the option to charge an upfront fee, which after being chosen cannot be changed to the monthly option back again.

 

 

 

Small competitors like Indiegogo and Kickstart as well as giant competitors like Facebook and YouTube are currently focusing on bringing together monetary gains, better revenue for those on the network, and improved plans for a good accessibility option all under one roof.

 

Facebook a strong competitor offers fan subscriptions following which the fans pay a monthly fee to access the content. But for this Facebook takes away 30% of the share which sure seems to be a considerable percentage and has the rights to the content of the creators. In comparison to other platforms, especially when compared to Patreon, charging a higher fee and reorienting the content according to its will makes Facebook a tighter and more barricaded option. 

 

For example, Facebook has not only banned game developers but banished video content makers as well. For Facebook to outgrow its competitors, it's high time that it not only requires a proper business structure but also needs to hand over more power to the creators.

Therefore, it’s up to the creators to consider whether they want their content to be made accessible to 2.3 billion people or whether they still feel the vulnerability of opting for a risky platform where they can’t control things.

 

On the other hand, Patreon comes with the assurance that the platform won’t misuse the right to access its content. Facebook having the rights to all the creator's content is what creates a rift between Facebook and Patreon's business models.

 

Along with this Facebook also has the right to hand out free trials to the subscribers that wouldn’t eventually benefit the artists financially. Despite that Facebook continues to make amends to its fan subscription plans.

 

Yet another strongest competitor turns out to be YouTube which also happens to be a platform to share video content. What sets Patreon and YouTube apart is their business model and payment structure.

 

In 2018, YouTube started with the “Channel membership” feature. A newly introduced feature of a “Join button” is initiated next to the “Subscribe” button on YouTube channels. These features also bring with them add-on features like Superchat, for live comments during live streams, and merchandising are some recently introduced features.

Where Patreon and YouTube offer almost similar structures, YouTube also offers benefits like Bonus content, Behind-the-scenes, Early viewing, Unlisted Video access, Live hangouts, etc.

 

 

Like Facebook, YouTube also charges a 30% cut on revenue shares. Whereas, similar alternatives like Twitch hosts gamers take a 50% cut from the creator's revenue share.

Though as the competition increases, it is speculated that YouTube might stop allowing external links to Patreon.

 

 

Along with various other companies like PayPal, Facebook, and Twitter that banned extremist content, Patreon has instances of banning extremist and adult content as well.

 

Examples of this include, the famous Carl Benjamin aka Sargon of Akkad was banned from Patreon. Another such name was the right-wing activist Milo Yiannopoulos. The same goes for anyone who advocates or participates in hate speeches or associates with hate groups.

 

Another example of controversies includes those that occurred on the payment front as the platform denied payments from the patron’s side.