a16z Partner 4 Theories for the Development of the Creator Economy

a16z Partner's Theories for the Creator Economy Development

“I am more optimistic about start-ups that can charge $1,000 from a smaller user group than companies that charge $2 from everyone as a reward.”

Author: Andrew Chen, General Partner of a16z, Manager of Games Fund One

Translation: Luffy

In the past few years, with the gradual rise of social media platforms, content creators have become the focus of consumer participation, and start-ups in the creator economy have experienced a wave of explosive growth. These start-ups promise creators that they can help them better monetize their audience on social media as long as they promote their products. So we often see creators promoting new products of start-ups through links in their profiles, videos, and other means, and then attracting their fans to a login page that allows creators to use new interactions or features. Initially, these products almost all started with a “tip” model, but over the years, many creative products have emerged, from e-commerce to current affairs newsletters to Q&A platforms and so on. These products promise a win-win situation with creators, so when their fans make purchases, the company only takes a certain percentage of the revenue (usually around 10%), and the rest belongs to the creators.

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Some creator economy companies have achieved tremendous success, paying creators billions of dollars in revenue, while others have struggled. Successful start-ups have strong moats, making it difficult for newcomers to stand out. After a few years, what new insights do we have about this industry? Why have some creator economy start-ups succeeded while others have failed?

Here are some of my theoretical conclusions:

• Creator power law: A small number of creators have the majority of the audience, which leads to the potential vulnerability and dependence of creator economy start-ups.

• Bio link battle: Creator economy companies acquire audiences from larger social media platforms, which usually have only one position (bio link) to promote a company. This is a winner-takes-all zero-sum game.

• Graduation problem: Start-ups usually charge a certain percentage of fees, and if creators acquire their own customers, they will pressure you to lower costs. The biggest creators usually “graduate” from a platform and then build their own platforms.

• Algorithm feast: Creator traffic is driven by social feedback algorithms, which can cause traffic to peak and then disappear, contradicting the stable and lasting growth that start-ups seek.

All of the above are concepts I have learned from communicating with dozens of creator economy companies over the past few years. With the emergence of the next generation of creator economy start-ups, they must figure out how to deal with these dynamics. Let’s continue to delve into it.

The Power Law of Creators

Do you want to start a creator economy company? The greatest motivation you must grasp is the power law of the audience and income of the creator class itself.

The chart below shows the percentage of income that the top-ranked creators on platforms like LianGuaitron account for, while the income of the second, third, and fourth-ranked creators decreases all the way (source: Power Law in Culture).

Imagine if you plot all millions of creators on this coordinate axis, you will see that it eventually flattens and approaches 0%. There are many reasons for this phenomenon, firstly because these creator platforms are built on top of social media, which itself records the power law distribution of fans and content participants. In turn, due to algorithmic discovery, social media platforms exhibit power law curves, with the number of people known to a few social butterflies even exceeding the range of the power law curve.

Therefore, any creator economy product built on social platforms will inherit these power law curves. OnlyFans creators provide free content on many social platforms and then attract traffic to their login pages. The chart below shows creator income, displaying a similar curve distribution. While some creators earn as much as $100,000 per month, the median is only $180 per month.

While power law naturally occurs on social media platforms, it also appears in other creative work, including television, movies, music, and so on. The following is an example from television (source: Power Law in Culture):

A small number of popular shows attract all the viewers. The same phenomenon also occurs in video games, movies, novels, directors, writers, and so on:

Power law is universal, so a core question is that the distribution of creative skills in the world is not even. Top writers or film directors are indeed much better than the 100th.

So, what does this mean for creator economy companies?

• When a creator economy company is first launched, the long-tail creators they initially attract have little impact

• To scale, platforms need to attract top creators

• Even if there are a large number of creators on your platform, income usually concentrates on a small number of people – therefore, if top creators are lost, the finances may suffer significant negative impact

All these dynamics mean that the initial stages of a startup company can be full of crises. The best companies can gather a large number of small creators to the point where quantity starts to matter, or organically attract large/medium-sized creators. If a startup company acquires/controls many creators themselves, it indicates that the product may not be solving a large enough problem and cannot solve it on its own.

The Battle of Bio Links

Social media platforms like Instagram and TikTok have commercial advertising models, so they don’t want to give people “too much” organic traffic. Instead, they prefer you to pay for sponsored posts, creators, and ads. One way they achieve this is by providing a single link to drive organic traffic, known as the infamous “link in bio.”

For creator economy startups, bio links are significant. If you can convince creators to include your startup in this link, then organic traffic will follow. Combined with monetization mechanisms, startups can benefit from this. In the early stages of the creator economy cycle, startups were competing with non-commercial links—either links to other social media profiles or personal websites. But over time, people started filling their bios with high-profit links like LianGuaitreon, Substack, Twitch, intensifying the competition.

Now, the battle of bio links is a zero-sum game, replacing another startup’s bio link. The only way to gain organic traffic from creator profiles is to monetize better than older, more established competitors. Simply matching what incumbents can offer is not enough. You have to find something different, whether it’s within the creator content itself, be it videos, texts, or other forms. In any case, new entrants will encounter a major obstacle. Although they might initially think of using investor funds to subsidize revenue for growth, this may not be enough to achieve meaningful scale.

The Graduation Problem

The graduation problem refers to what happens when your best creators scale up and eventually “graduate”—they and their fans leave your platform. Why does this happen? Creators provide obvious value to startups by driving traffic, creating content, and generating revenue through users. But as creators’ influence grows, they often start to feel “too” attractive. They start to question why they should share profits with you when they’ve done all the work. This problem is particularly severe due to the power law effect, where a small number of whales often dominate revenue. If these whales start asking whether they can replicate your product by hiring agencies to build their own platforms, they’ll eventually want to “graduate” from your platform and establish their own.

The creator economy is often compared to marketplace startups. In this field, companies like Airbnb or Uber independently aggregate both sides of the network. These marketplaces work best when both sides are highly fragmented, which is why the biggest successes are C2C or consumer-to-small-business markets, rather than B2B. In the initial formation process, creator economy startups looked more like B2B networks, or even SaaS platforms—their customer base (creators) was highly concentrated, bringing in consumers.

In order to solve the graduation problem, creator economy startups must provide much higher value than payment and other commercialization technologies. They need to have a moat, not only for external companies, but also for creators who want to graduate over time. The best way is to create network effects themselves and bring them to every creator, forming a two-way network with all the usual advantages. The best additional features created by startups should ideally be proprietary. If a creator economy company supporting artificial intelligence develops a very good basic model that allows creators to commercialize themselves 10 times more than before, creators are unlikely to leave.

Algorithm Feast

Creator economy startups often find themselves highly reliant on the viral content of social media platforms. If a video goes viral on TikTok, the user acquisition for creator economy platforms can increase significantly. However, startups are always trying to achieve stable growth, which is difficult to sustain at a 20% month-on-month growth rate, unlike SEO, recommendation programs, or paid marketing. In contrast, marketplace startups increase value by aggregating market participants—often spending billions of dollars to build buyer and seller systems. During Uber’s years of rapid growth, the annual marketing budget for acquiring passengers was $1 billion, while for drivers it was close to $2 billion. In addition, diversification was achieved through SEO, brand marketing, paid programs, recommendation programs, and partnerships. This added a lot of value and connected buyers and sellers.

What sets creator economy startups apart is that they use creators to find consumers, but in doing so, they are highly dependent on a single channel. Relying on a single marketing channel is always risky, as we have seen in recent years with SEO algorithm changes that have wiped out many SEO-dependent content websites. Dependence on social media is even more fragile because the content is naturally more transient and subtle. I believe this is also one of the reasons why subscription has become the dominant business model for successful creator economy companies—it allows creators to have long-term, sustainable income from each fan.

Algorithmic recommendations are also a competitive factor. In recent years, we have seen YouTube, Twitch, Twitter, and other underlying platforms attempting to pay creators directly and play a more vertically integrated role in the creator economy.

Of course, the best solution is to establish additional marketing channels to increase predictability. Combining social media channels with traffic from recommendations, search engine optimization, mobile installations, etc., will make the growth curve more sustainable. However, in the early stages of creator economy startups, they often focus entirely on the social sphere, and only after succeeding can they choose to invest in other channels.

Advantages and Future of Creator Economy Companies

The creator economy has evolved into its second and third generations. The barriers to entry have become higher, and startups no longer offer flashy tipping features but instead build mature products that support multiple platforms, new forms of interaction, and provide creators with new ways to engage with their fans. Startups are no longer launching products endorsed by celebrities and hoping for success; they are building real technology and combining it with extensive market strategies.

The advantage of the creator economy lies in the use of mobile devices and the continued rapid growth of social media platforms, which have reduced the time people spend watching TV:

Of course, this movement is largely driven by the younger generation:

By the way, can you believe that most people over 18 still watch 4-5 hours of TV every day?

The key is that social media continues to play a huge role, and creators are becoming new participants in the economy, gaining power in both cultural and economic aspects. The products and tools they use to achieve their goals will continue to be attractive. Because ultimately, creators themselves don’t want to rely on a single social platform. If they are strong in video, they will want to create podcasts and have a large Instagram following. Startups will always be more creator-friendly compared to large social platforms.

Therefore, I believe the future of the creator economy is still full of hope, but the path has clearly changed, and the standards have been raised. Startups need to provide new features, create new monetization models, and adopt new technologies to better withstand competition. Personally, I am more interested in AI or video-first creator economy startups that behave more like a marketplace, offering highly managed solutions for both parties. I am more optimistic about startups that can charge $1000 from a smaller user base rather than companies that rely on $2 tips from everyone. In the coming years, we will see more viable changes, and considering potential consumer trends, I believe the creator economy will continue to be the cradle of high-value startups.

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