What Is The Creator Economy?
While the term "creator economy" has gained significant attention in recent years, the space is also rife with misunderstanding. As a concept tied to social media, it’s constantly evolving at a mind-bendingly rapid pace.
Despite the eye-rolling the creator economy often engenders, there’s no denying that it’s poised to become a major economic force.
At the very least, it's clear that the creator economy is more than just a buzzword. Let’s dive into what the creator economy actually is — and what entrepreneurs and investors need to know about it.
The Creator Economy: A Growth Phenomenon
The creator economy refers to the ecosystem built around individuals who have developed their brands and online audiences. It represents one of the most significant developments of the digital age.
Several factors have fueled its growth:
Increased Digital Media Consumption: With more people spending time online, there's a growing demand for digital content and entertainment.
Lowered Barriers to Content Creation: Technological advancements have made it easier for individuals to create and share content across various platforms.
Emergence of New Platforms: Platforms like TikTok, in addition to established ones like Facebook and YouTube, have introduced new formats for sharing content, such as short-form videos and live streaming.
According to Goldman Sachs Research, the total addressable market of the creator economy is expected to double in size over the next five years, reaching an estimated $480 billion by 2027, up from $250 billion today. This growth mirrors the trajectory of global digital advertising spend, with influencer marketing and platform payouts as the primary drivers.
The Creator Economy Landscape
Creators primarily generate income through:
Branding Deals: They partner with brands to promote products as influencers.
Advertising Revenues: They earn a share of advertising revenue generated on their chosen platforms.
Subscriptions and Donations: They receive direct payments from followers through subscriptions, donations, and other forms of engagement.
While the creator economy is expansive, only about 4% of global creators earn more than $100,000 annually. This group is considered "professionals." Goldman Sachs Research anticipates their share of the creator universe to remain stable even as the ecosystem grows.
Key Enablers of Growth
To create a "flywheel effect" and foster further growth in the creator economy, six key enablers are identified:
Scale: Platforms with a large, global user base covering diverse interests.
Capital: Access to substantial capital for funding monetization and expansion efforts.
AI-powered Recommendation Engines: Leveraging AI for content discovery and matching creators with interested users.
Effective Monetization Tools: Offering diverse product offerings and payout structures to creators for diversified income streams.
Robust Data and Analytics: Providing transparency on engagement, retention, conversion, and other performance metrics.
E-commerce Integration: Seamlessly incorporating shopping into the user experience.
The Future of the Creator Economy: Platform Competition
At the moment, incumbent platforms hold a dominant position within the creator economy.
Creators tend to prioritize stability, scale, and monetization potential, leading them to opt for these established platforms. Competition is heating up for creators' content and audiences, especially as macroeconomic factors like brand spending and rising interest rates impact emerging platforms. Consequently, creators often gravitate toward platforms with a track record of success.
Venture Capitalists' Perspective
In terms of the viability of the creator economy, several venture capitalists shared valuable insights with TechCrunch recently. The future of the space is being shaped on a number of fronts worth considering:
Competition Spurs Growth: Competition among platforms benefits creators by creating bidding wars and driving monetization opportunities.
Slowdown in Funding: While the creator space saw rapid growth during COVID and e-commerce booms, a recent slowdown in venture funding was expected as life returned to normal.
Differentiated Business Models: Successful business models in this space cater to either the largest creators or the long-tail, requiring minimal human intervention.
Future Economic Outlook: While this year poses challenges due to reduced ad budgets and economic uncertainty, the creator economy may experience a more confident period in 2024 if trends reverse.
Platform-Creator Economics: The economic split between platforms and creators will depend on competition and scale. While TikTok still gets most of the attention, YouTube's model remains the most powerful platform when it comes to reach and attribution.
You can’t appreciate the creator economy without respecting its unique formats and the issues that impact a successful collaboration among brands, entrepreneurs, investors, and the creators themselves:
Influence of Short-Form Video
Short-form video platforms like TikTok have a significant impact on the creator economy. They provide opportunities for creators to engage with their audiences in innovative ways. The economic success of these platforms hinges on competition and the development of effective monetization strategies.
Protecting Creators
Companies interested in protecting creators may choose to merge or sell rather than shutting down. Such actions can benefit investors and customers while preserving the creator's work.
Consumer Spend on Creator Products
The consumer spend on creator products is influenced by factors like demand, product price, and economic conditions. Lower-cost creator products are likely to maintain demand, while higher-priced items may see a slowdown as consumers' savings from COVID-era excesses diminish.
Influencer Marketing's Evolution
Influencer marketing remains influential, particularly with micro-influencers providing high ROI for advertisers. CMOs and ad buyers are increasingly focused on ROI when approaching creators and influencer campaigns. This trend is reshaping the marketing landscape compared to traditional avenues.
Measuring the Success of Creator Programs
The success of creator programs hinges on predictability and consistency of monetization. Metrics that provide insights into these factors are crucial for evaluating program effectiveness.
Rumors of the “death” of the creator economy appears very premature (something I’ll be discussing at VidCon on Friday, Sept. 29).
There are still enormous opportunities for creators, entrepreneurs, and investors within the creator economy. To navigate this landscape successfully, businesses should focus on access to capital, predictable monetization, and leveraging technology to maximize their reach and impact in the creator economy. As the creator economy continues to evolve, it will be intriguing to observe how it shapes the future of digital content and marketing.
Note: ETX Explainers: Answers & Insights is a new content feature by By Greg Kahn and Emerging Tech Experts. Want a topic addressed? Want to contribute your thoughts or an article? Reach out.
Greg Kahn
Emerging Tech Exchange
Founder & CEO
