Audience and Wealth, Part I

In today’s analysis, we begin Part I of a series on Audience and Wealth. Over two issues we’ll cover the following topics:

  1. The problems creators solve for consumers

  2. The business models creators use to build wealth

  3. The roles creators, audience, and advertisers play

  4. Why creators should solve for co-creation, shared status, and shared wealth

  5. The emergence of new roles and new models

This piece focuses on 1 and 2. We’ll tackle the rest next week. Thank you for spending a few minutes of your day with me.

~

Roscoe Conkling Arbuckle was a man of unusual talents, of contradictions.

Known to the world as “Fatty” because of his prodigious size, Arbuckle was remarkably light on his feet. One director described him “skipp[ing] up the stairs as lightly as Fred Astaire” before breaking into an impromptu tumbling routine.

Despite winning fame as a star of silent cinema, beloved for his comedic timing, he reportedly had a lustrous singing voice. When operatic sensation Enrico Caruso heard him one night, he urged him to “give up this nonsense you do for a living.” He continued to say that with training “[Arbuckle] could become the second greatest singer in the world.”

Fatty Arbuckle, ThoughtCo

Perhaps it was this unlikely blend of skill that convinced Hollywood publicist Maynard Nottage to make Arbuckle (arguably) the first recorded celebrity spokesman. In 1905, Fatty Arbuckle became the face of Murad Cigarettes, “the natural preference for cultivated men.”

In the process, Nottage and Arbuckle started a trend of attaching personality to product that carried through the rise of Hollywood and is visible in today’s creator economy.

Of course, much has changed in the intervening 115 years. Rather than buying from idols, consumers are increasingly buying from “friends,” creators with whom close relationships are formed and maintained. As the creator has become the locus of influence, new infrastructure has been built to support them, allowing for new business models that capture upside unavailable to stars in Arbuckle’s era.

Abundance and commoditization

Why do consumers buy from creators?

What can a single business analyst provide that the Wall Street Journal can’t?

There is no single answer, and if we wanted, we could alight on a range of topics: the manipulation of social media platforms, our declining trust in institutions, or the human urge for mimesis. But today, I would like to focus on two possible explanations: abundance and commoditization.

It is well understood that the internet has created extraordinary abundance in information and products. Whereas once, consumers might have been restricted to their town paper for information and local mall for apparel, they can now find functionally unlimited amounts of both online.

If abundance is the cause, commoditization is the effect.

Whether you want to learn about SaaS businesses, photosynthesis, or The Plantagenets, a wealth of options are available — Wikipedia, The Encyclopedia Britannica, any number of blogs and news sites. There are differences in tone, style, and presentation depending on which site you visit, but, by and large, the information itself is commoditized, available for free in multiple locations. Some outlets — those that reaffirm our identity and beliefs — may still hold sway for us, but for much of the information, providence is irrelevant.

The same can be said of many products. Sites like Amazon expose a vast range of similar items, many of which are not discernibly different. Whereas once a home-maker might have reaffirmed identity with a choice of detergent, today, a flood of new options complicates the matter.

Abundance solves problems for humans, but via commoditization, it creates others. In a state of abundance, ownership conveys no status. In a world of commoditized products, little personality is expressed through purchasing.

The rise of the creator is, in some respects, a response to commoditization. Celebrity endorsements like that of Fatty Arbuckle succeeded in casting a famous glow over the product, but for the consumer, they were passive experiences. The internet has altered that dynamic — rather than passively watching a commercial on TV, we actively follow the lives of different creators, ask questions of them, and peek behind the curtain. The result is greater intimacy, greater connection, and greater trust. Idols became friends.

It means nothing to buy face cream. But to buy face cream from Gwyneth Paltrow?

When these individuals try to sell us something, our perception of the object changes. It is no longer a faceless commodity, but a reliable recommendation. In the act of purchasing through this channel, we restore the status and sense of identity that has been lost elsewhere.

This view of the world brings to mind a piece of sales advice posted on Hacker News that became canon. Among other advice, the poster notes:

“All things being equal, people buy from their friends. So make everything else equal, then go make a lot of friends.”

Abundance has made all things equal. Creators are simply aggregating friends to sell products.

Models of Wealth Building

More than ever, we buy the person, then the product. But what products do we buy?

That depends on the focus of the creator, of course, but also the model leveraged. As the creator economy has developed, new approaches to monetization have emerged. The framework below outlines the three primary ways creators leverage audience to build wealth: promoting other people’s products, selling their own products, and investing in their audience or alongside them.

Promote

Like traditional media businesses, creators have profited from ad dollars. Platforms that solve distribution like Instagram and YouTube have made this particularly viable, as creators are able to capture attention and monetize it in the same place.

The straightforwardness of this model allows it to succeed across mediums. Newsletters like Morning Brew, The Hustle, and Not Boring ensure no cost is directly borne by consumers by making space for sponsors. Podcasts like Revisionist History and My Favorite Murder earn their millions plugging Casper mattresses, without requiring customer payment.

Because of how little they’ve been leveraged, and the differentiated format they take, affiliate advertisements are worth separating from more traditional forms. The success of Wirecutter and The Strategist demonstrate the revenue potential of a model that more easily allows for continuous monetization (write a single piece, monetize it many times over, passively). Few tools help creators take this type of revenue to the next level. Kit, which allows creators to profit from the products they recommend, raised just $2.5 million before being acquired. At present, most affiliate ads appear as a solitary link at the bottom of a profile.

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Sell

Better infrastructure has enabled creators to sell their own products, both digital and physical. This changes how creators interact with the first wave platforms described above, using them as lead-generation to monetize elsewhere. It also allows for greater imagination — instead of spending time courting advertisers and pondering how to best sell a pair of jeans, creators can devote time to improving or expanding upon the content fans enjoy. Platforms like Patreon, Gumroad, Substack, OnlyFans, Shopify, Teachable, and others facilitate this new behavior.

Digitally, creators might monetize through a paid newsletter on Substack, a course on Teachable, an ebook on Gumroad, or any number of other experiences or tools. Though less common, creators may also choose to sell a software product. In his post, “The Billion Dollar Blog,” Nathan Barry shares a few examples of creators that have jumped into software, including passive-income evangelist Pat Flynn. Based on his experience, Flynn created Fusebox, a conversion tool for podcast creators. Going forward, we may see more making such a move, particularly as creators achieve a level of wealth that allows for larger outlays.

Physically, creators have found success selling consumer packaged goods, including supplements, beauty products, and apparel. Emily Weiss transformed her blog, “Into the Gloss,” into a billion-dollar cosmetics empire. Along with Fleshlight salesman Aubrey Marcus, Joe Rogan has taken nutritional business Onnit to $28 million in sales.

Physical “products” can take forms, beyond CPG. Twitter personalities like satirist Titania McGrath monetize through books, while Girlboss founder Sophia Amoruso hosts in-person “rallies.”

As infrastructure has caught up, creators can directly sell their own products to their audience, removing the need for advertisers.

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Invest

At first glance, it’s hard to conjure a creator that monetizes by investing — building ownership in businesses aided by their audience. But squint and hundreds appear.

To win deals, venture capital firms must first win attention. Much like creators, they need an audience to thrive — in their case, entrepreneurs. Partners and other in-firm personalities take on the role of the “creator,” building strong social media followings and extensive readerships for a blog or newsletter. (Hence the importance of “referent power.”) Rather than advertise or sell products via these channels, VCs hope to build deal flow. Monetization is achieved through ownership — stakes in a company that hopefully appreciate.

In their bundled state as an organization, firms more closely resemble traditional media organizations right now. But as excellently chronicled by Nikhil Basu-Trivedi, “solocapitalist” — essentially, investors as creators — are on the rise. Harry Stebbings leveraged the listenership of his Twenty Minute VC podcast to create an eponymous investment vehicle, Sahil Lavingia drew on his Twitter following to raise a rolling fund, as did Anthony Pompliano. Li Jin, previously an investor at Andreessen Horowitz, writes about the creator economy and invests in it via a new fund.

Jason Calacanis is perhaps the clearest exponent of this strategy. More than an angel investor, Calacanis is a media empire, wrapped around a personhood, monetizing through ownership. A blog, book, podcast, YouTube, and newsletter all serve the same purpose: win deals and allocation. (Even more cleverly, Calacanis taps his audience to invest alongside him in a syndicate, increasing intimacy, growing his allocation, and unlocking deal-by-deal carry).

To date, this trend is isolated to tech and venture capital. There are established communication channels between entrepreneurs and investors and norms around valuation and terms, making investment a less fraught proposal for both sides.

We should expect this model to appear in other sections of the creator economy. In the short term, creators outside of tech may dabble in startup investing. Could TikTok star Charli D’Amelio raise a $10 million early-stage fund to invest in consumer apps? Probably. Could streamer Tfue regularly fill a gaming syndicate? Ditto. Even though their audiences are young, both scale and devotion compensate. New models could emerge here, too. We’ve seen Defector Media take a decentralized approach to building a media company — could newsletter writers take a similar approach to a fund?

In the long run, we may see creators invest in their own space, too. At the moment, investing in podcasters or OnlyFans’ celebrities is tricky — what outcomes can an investor expect? But as winners emerge, creator businesses will formalize into an asset class that can be rationalized. When that happens, ownership as a monetization strategy may flourish.

~

With hindsight, Nottage would not have chosen Arbuckle’s downy, cherubic visage as the face for Murad cigarettes. For all his talent, the majority of Fatty’s career would be marked by controversy, accused of raping and murdering fellow performer Virginia Rappe. Though he was exonerated after three trials, his reputation never recovered. It’s fair to say Arbuckle’s image was far from that of the “cultivated” man Murad Cigarettes sought to entice.

But in his role as spokesman, Arbuckle nevertheless contributed to the creation of a norm: the celebrity endorsement.

Today, as social media has allowed for more active engagement, the locus of influence has shifted from celebrities to creators, from idols to friends. By purchasing from these individuals, a consumer problem is solved: what was once commoditized is imbued with status and self-expression.

Infrastructure not available in Arbuckle’s day has facilitated the emergence of new models. Rather than using influence to sell other people’s products, creators easily sell their own, both in the digital and physical realm. That’s allowed them to capture significantly greater upside, powering personality-driven brands like Glossier to unicorn status.

Though less developed, some creators are finding success monetizing through investment. “Solocapitalists,” the managers of syndicates, and the GPs of rolling funds all leverage this model, using their audience to win deals. This is considerably less common in other spaces, posing an opportunity.

Next week, we’ll dive a layer deeper, unpacking the relationship between creators, audience, and advertisers. With that in mind, we’ll analyze the new models being minted and think through what changes this brings. Finally, we’ll think through which new content types creators should prioritize, with the concepts of co-creation, shared status, and shared wealth in mind.

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Other news

Another active week for the markets meant more IPO coverage. On Wednesday, Marker announced a new column I’m writing for them called “The Ticker.” I’ll focus on companies pre and post IPO, drawing on the research of The S1 Club.

Demystifying Palantir

In this piece, I analyze Peter Thiel’s data business with reference to the company’s controversies, business model, and remarkable ownership structure.

​More here​

Demystifying Asana

The task-management business originated at Facebook. This piece unpacks Asana’s famously “mindful” culture, the bottoms-up sales approach, and stiff sectoral competition.

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Puzzler

As always, clues given to those curious enough to message. All efforts welcomed, no matter how speculative.

I might come through your window, And I’m often at the bar. Sometimes I’m used to send you, To fight in lands afar.

There was no shortage of riddlers ready to sink their teeth into last week’s riddle. First to flash their pearly-whites was SEV, followed by Kaitlyn R, Ankur C, Jeb B, James B, and Violette Z. They all showed considerable adeptness to pin down the answer to the cryptic clue below.

Lose me once, and I'll come back stronger. Lose me twice, and I'm gone forever.

The answer? A tooth. Some entertaining answers from OBG (“scurvy”), NMT (“virginity”), and Michael F (“my faith in men on Tinder”) were also much appreciated.

Thank you very much for reading. It’s my favorite kind of weather in Brooklyn today. A bit cold, a bit windy, and some sun. Wishing you an equally appealing Sunday.

Until next time,

Mario