In a recent New York Times column, Farhad Manjoo celebrated the fact that more consumers seem to be paying for content, which A Good Thing. Patreon’s CEO Jack Conte says “I do think something has changed culturally. This new generation is more concerned with social impact. There’s a desire to vote with your dollars and your time and attention.” I agree but believe several other trends have converged/tipped at the same time to enable this increase in direct payment (vs ad supported). So in addition to millennial culture, in no particular order ->
Comfort With Online Payment: Amazon, the iOS App Store and ecommerce in general has made a critical mass of consumers comfortable with online payments. Additionally the friction of paying online has been reduced with one-click stored credentials, Touch ID and so on.
Paying Creators, Not Corporations: It’s never been easier to pay creators directly (or to feel like you’re supporting them personally) rather than having to transact through a middleman. Crowdfunding/support like Kickstarter, GoFundMe, Patreon, Indiegogo. Direct transaction via Stripe. Marketplaces like Etsy. Tipping mechanisms like Twitch. Ecommerce adjuncts like Ipsy and Michelle Phan. I’m thrilled to give Ben Thompson $100 for his newsletter. It feels very different than paying $100 to News Corp. This is another reason why brand and authenticity matter so much.
Niche Content Needs Higher $ Per Consumer Than Online Ads Can Traditionally Deliver: The internet enables niche content. The reality is that many creators have no choice but to ask directly for dollars from their audience because ad revenue alone wouldn’t be enough to support niche content. You make a few bucks at most annually off your MOST enthusiastic users if you’re just showing them ads. A few bucks more if you have affiliate deals that convert. Just one $10 payment, let alone, say $3/mth, has a much greater LTV.
Google & Facebook Aren’t About Transactions: Ok, here’s something that’s a bit subtle. Facebook and Google, as advertising networks, don’t really do transactions well and don’t want to make them a focus. They *much* rather convince content owners to monetize via ads. Why? Upside. They can increase the revenue from advertising solutions over time by creating more inventory, more advertiser demand and increased targeted effectiveness. These all happen without taxing the consumer and with minimal involvement from the content creator. Also, if they can increase ad effectiveness over time they’ll earn more budgets and attention from advertisers and publishers.
Now play the same game out in a transaction world. The only way to make more money there is to raise prices (bad for consumers) or raise conversion (which usually involves art and science of forcing someone through a conversion funnel — something that FB and Google doesn’t really have the DNA or stomach for). So the fact that Google and Facebook don’t do this well leaves all the transaction-related models open to startups which means creators get lots of experimentation and options, rather than the online advertising duopoly.