Patreon is about to eat itself
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Sustainable business model means that you can pay your bills from your income (not from investments, since those want payback). It means happy customers and good products. It means that you grow in a reasonable pace, with costs that you'll be able to cover. Investors are a liability, not a feature.
actually, it does. If you want to keep the same revenue, you need to grow because everything around you keeps becoming more and more expensive - taxes, etc
You'll still want a bit of a rainy-day fund to cover unexpected losses and you'll want sufficient growth to cover inflation. Not growing beyond that is not necessarily a bad sign, it may be a conscious decision. Growth brings its own kinds of problems, stability has its own appeal.
Economic profit, which factors in opportunity cost, does tend toward zero. A sustainable business can exist with no economic profit or loss, but the accounting profits would be in line with standard market rates of return.
Of course, if the business's investors are also its employees (as is often the case for small, privately-held businesses) then any accounting profits can be distributed in the form of salaries... but in that case the investor-employees will expect higher salaries than they would receive as mere employees elsewhere.
Keeping up with inflation does not count as growth. Growth or decline should be calculated in terms of purchasing power (inflation-adjusted dollars), not raw currency.
Is that necessarily so? They can just as well decide that being in control of their work justifies a lower wage than market rate. After all, it’s their business.
The same goes for non-employee investors, of course; one might hold shares in a company (or more commonly, a co-op) not for any direct financial benefit but rather as a way to influence how the organization is run.
but that's what I'm saying : at equal amount of work, expenses keep increasing in time.
Stuff doesn't naturally get more expensive in constant dollars. In fact, except for labor, and very limited resources, it usually gets cheaper over time.
For a venture capital firm investing $60m into a company and hoping for small sustainable profits isn't a sustainable business model - it's tying your money up in low growth long term investments when that's literally the opposite of what they invested for.
This may not be good for the people who use Patreon, but what you're describing isn't sustainable for Patreon.
A startup is not necessarily guided by sustainability. Amazon lost money for decades. FB never bothered to make money until their IPO. They were not pursuing sustainability at those points. They were betting on growth.
Good things often take a while to take root. VCs aren't interested in that noise.
It's rational only in the same way that Vulcans are always logical (as Star Trek writers would have you believe).
Rationality is a tool to help you achieve your goals and realize your values better. Any particular method can only ever be rational relative to some goal one is seeking.
But Star Trek writers wouldn't generally have you believe that (they'd have you believe that some Vulcans themselves would believe that and/or have others believe that and/or seek that.)
> Rationality is a tool to help you achieve your goals and realize your values better.
Rationality isn't a tool, it is perfectly optimal goal seeking.
> Any particular method can only ever be rational relative to some goal one is seeking.
Well, no, it's relative to the utility-weighted combination of all of your goals; that is, rational behavior is whatever behavior optimizes your complete utility function, not just addresses one of your goals in isolation.
I think you just agreed with the comment you're trying to disagree with. To paraphrase your comment: "rationality is a tool for achieving one or more goals".
If not a tool, what would you describe it as? Animal instincts - the kind we're hard-wired with - aren't "rational" in the context of human society so being rational is in some sense a choice. The only way to define this away is to extend the definition such that all human behaviour is "rational" because it's meant to fulfill some conscious or unconscious goal. But this definition is useless!
You are wrong.
> To paraphrase your comment: "rationality is a tool for achieving one or more goals".
No, “rationality is a tool...” is not a correct paraphrase of “rationality is not a tool...”.
Rationality isn't a tool for optimization, it is simply a label for perfect optimization of the utility function.
Rationality is, by definition, perfectly optimal, though you describe succinctly why it cannot actually exist, only at best be approximated.
The thing about investing is that you can take advantage of maximizing short-term gains and get out before the investment would crater. So taking advantage of a non-sustainable business model is fine if you can get out before the bill comes due. This is rational, but not sustainable.
If you're running the company, and you care about it, and its employees, then you want something sustainable in the long-term.
> there are probably millions of retirees who'll get stuck with all those losses
These statements don't seem to fit together. Dumping losses on retirees doesn't seem rational, it seems sociopathic.
That sounds like a great plan if you're not going to be a retiree in a few decades. Maybe you plan on dying early?
> It's possible to seek evil ends in a rational way.
Teaching people how to kick someone when they're down isn't rational. It just means that you're going to get kicked when you're down, too.
No, I'm saying investing while things are hot, and selling before it cools down is a way to maximize profits. It doesn't require sustainability. There are a ton of millionaires from the Dot Com boom in the early 2000s that got theirs and got out before the bubble broke. It works; it just leaves a _lot_ of collateral damage, so it's not a moral thing to do. But it works. That was my point.
> Teaching people how to kick someone when they're down isn't rational. It just means that you're going to get kicked when you're down, too.
There are a lot of rich people that would laugh at this. I'm not saying it's good, I'm saying it's rational.
And there's a lot of not-millionaires who tried that and missed the window by that much.
> But it works. That was my point.
It works sometimes. But it's unreliable. Maybe you get lucky, and maybe you don't. That's not being rational, that's just plain old gambling. Some people became millionaires from scratch-off tickets, too.
Many of them have been perfectly rational and have had very good impulse control.
Acquirers are few and far between and rapidly diminish once you cross the $50M mark. Going public is even more difficult. And after all that, once you add in dilution and liquidation preferences, founders can still end up with nothing.
Meanwhile many of these companies can build great sustainable businesses that meet customer needs while making plenty of margin and owning their own destiny. It's a SV cultish attitude to think that VC is the way to get things done, and I've seen way too many founders whose first thought is to raise money before they even have a serious plan for a business.
It isn't fair to make a post identifying a misused phrase, but then turn around and call investors a liability. Investors are a key part of the process.
While I personally agree with you on what a sustainable business model should mean, investors hold the opinion that actually matters (much like a judge's opinion of what is reasonable is more important than the average armchair expert). Someone has to decide what "sustainable" means, and it is best that the person who decides is the one who stumped up the money.
What process?
If you have no investor and the company has grown organically from the initial founding, the only people that stumped up money are the owners or, in a more cooperatively organized company, the people that took less wage to allow for investment in growth. Taking on investment relinquishes control over various features of your company, for example on the desired definition of "sustainable". In that regard, investors are a liability.
Given how often we hear about founders being replaced as operators, I think it's prudent to not assume the intentions of any investors, and to reassess their likely goals based on their actions on a regular basis.
You see the marketplace does not have the same ideology as Patreon.
> More than $1 billion will be paid out to creators since the company's inception in 2013.
Patreon does not pay out (it's own money) to creators, although they act like they do. They are merely a middle man. That's it. However, Patreon sees themselves as some sort of moral compass policing the internet and choosing whether or not to payout to a creator whether or not they have broken their terms of service.
Now that other competitors like bitPatreon and SubscribeStar have come into view and actively taking payments on-behalf of creators that would otherwise not be allowed to under Patreon. This will be seen as the start of a shift for creators overall.
One last thing. Last I heard, Patreon has over 140 employees. Seriously, for what. Fraud should be down to Stripe. Paying out, again to Stripe. Their platform could be built over a week using Vue.
Oh right, those 140 employees. It's for policing the content creators... I gotcha.
Needless to say. I'm not happy about this situation. Maybe I'll do something about it.
Jokes aside, once you become such a big company it is not as easy as we might think, these are investors money, not your company, and you do what they say...
100% agreed.
This caused a backlash; some believed the account closure was politically motivated (Sargon is an anti-feminist, pro gamergate commentator). Some have also found it alarming that Patreon has essentially decided to police their speech in general (e.g. comments made in a youtube video, in a tweet etc.), rather than just on their own site. A number of prominent content creators have closed down their accounts in response, stating they can't trust Patreon to not deplatform them in the future for some perceived infraction. Sam Harris and Jordan Peterson are probably the most prominent of these (13th and 16th highest patron counts respectively). Here's what Sam Harris said:
"As many of you know, the crowdfunding site Patreon has banned several prominent content creators from its platform. While the company insists that each was in violation of its terms of service, these recent expulsions seem more readily explained by political bias. Although I don’t share the politics of the banned members, I consider it no longer tenable to expose any part of my podcast funding to the whims of Patreon’s 'Trust and Safety' committee."
And here's a NYT article on the issue: https://www.nytimes.com/2018/12/24/technology/patreon-hate-s...
(FTR, I'm mildly certain that many artists on Patreon might even find the policing of the Patreon platform to be a positive, because it means their name isn't associated with the names of people they find reprehensible. I'm concerned that alternatives such as bitPatreon and SubscribeStar will quickly gain the reputation of being a platform for people whose beliefs are considered reprehensible elsewhere, which automatically makes it difficult to market those alternatives.)
No cartel in mankinds history has enjoyed this type of competitive advantage, good job SV :)
I don't know how many will leave, but I don't like the idea of a company choosing morality and so I won't support anyone on patreon. If an artists wants my support they won't get it on Patreon (fair notice, so far I have not supported any artists in other ways - who knwos if this will change)
In my opinion, Patreon is more akin to a newspaper deciding which ads to show next to their articles or to a shopping mall deciding which shops to rent space to. And of course every newspaper will reject ads that would infuriate their readers (or journalists) and shopping malls will not rent to businesses that might damage their reputation (depending on how "upscale" it is this might be everything from soup kitchens over gambling outfits and payday lenders to brothels).
Now, you might disagree with them whether they have drawn the right line there and consequently take your business elsewhere (just as you might not want to visit a shopping mall with the wrong mix of shops), but I find it a bit of a stretch to frame this as a "free speech" issue.
Which is exactly the kind of useless functionality that they don't need. Most of the creators I've seen either migrate away from Patreon or diversify themselves end up using payment processing services like Stripe or Paypal.
So says you, yet the vast majority of people I subscribe to on Patreon use it as a delivery platform for advance content to subscribers. One of the major ways it promotes higher donation amounts is by letting those people have gated access to content. How else would this be easily accomplished except for this "useless" functionality? A single password that is handed out? A large list of passwords that the artist needs to manage?
It quickly becomes obvious that this useless functionality has a very real use case, and I think it's in fact one of the drivers of high donation rates in some cases.
Things like this are in fact happening. From people who've used a bitcoin exchange connected to their Chase bank account to people that are a bit too right leaning for those at Patreon, regardless of where those opinions are expressed. While they allow similar language with a different bent on their actual platform.
When the gatekeepers of money start acting as censors, is that really not as bad or worse than the telephone company doing the same?
They won't have to when Patreon actively tries to shove them away themselves.
Impossible to tell since it's decided on a case by case basis, not a set of hard rules that are simply equally applied.
edit: gotta love how this is instantly downvoted, but not challenged.
Same thing for creators on Patreon.
You can't really do that in the US so Patreon has to exist. Like the only alternative is mailing a check. And god only knows when a world wide banking system will be realized.
- Donations can come from all over the world.
- It's easier to simply subscribe on Patreon while you are already logged in, than doing the 4-5 steps necessaries to do a bank transfer (there's a reason Amazon invested so much into 1 click ordering, the least friction you get, the more transactions you get).
- A subscription is also recurrent, which represent much more money (I'm sure most bank allow recurrent transfer, but it's a choice and not the default one).
- Patreon allow "private" publication to the one that donate, which allow them to offer incentive to donate (mostly it's early access or exclusive content).
Of course as developers we think that a lot of those other positions are unnecessary :)
>The new capital will go towards hiring to expand its 80 person team and scaling up growth by recruiting more creators including videographers, political pundits, game developers, illustrators, musicians, and comedians.
Patreon was doing a Netflix. Patreon is a platform and it needs content on it's platform to draw people in. So it used the $60m to bribe creators to sign up. Without that $60m someone else could very easily have created the same platform, bought all the big content creators and squished Patreon over night. It was about establishing their network effect.
Now they've effectively done that, they're the defacto place for this. So now they need to extract value from the position they're in. It makes perfect sense to me. It's not great for consumers - it's basically buying a network effect driven monopoly, but isn't that basically 80% of what silicon valley is doing today?
I haven't seen Patreon do this. Can you link to stories where Patreon has paid for original content creation similar to how Netflix/Amazon/HBO funds original content?
$60 million would be a very tiny warchest to pay for producing original content.
I think the $60 million (~$100 million total) is being used to expand the platform's services for creators' such as backoffice and ecommerce. I wrote in more detail about that strategy in my other comment.
(I like Patreon, but I kind of agree with this)
And people leaving patreon entirely is often even worse because they often do so over a boycott by a well known account, in the process depriving lower tier creators they previously supported on there of revenue.
Maybe they're looking 'solve' this by offering to be the content creators distribution platform as well. I Imagine they could structure it like they'll take a lower commission if you also use their platform.
If they had bootstrapped, they'd be totally sustainable on a hundredth of the revenue.
I get it though. When Patreon started it was not clear whether the model would work AT ALL. It could have easily just eaten Jack Conte's savings and he would've been a 30 year old eating ramen for years and then end up with nothing.
In retrospect the time was right, and YouTube was the perfect ally, and it could've been easily bootstrapped. It would've been hard to know that up front.
Still, $100 Million over 5 years seems like a lot of cash burnt for what they offer. I guess we'll find out where it went when they release their "value services".
Is it mostly the social media side of the business that's eating up the money (i.e., the services for allowing the creator to interact with their patrons)?
How is Librepay doing? As they are a non-profit organisation, I suppose that probably means they are boot-strapped (barring a sugar daddy somewhere). I've barely ever heard of anyone using them, so I guess growth is slow, but are they able to fund themselves without volunteers yet?
It seems weird to me that this is not a more open playing field -- especially since these guys aren't even doing payment processing internally.
Edit: As usual, I can answer some of my own questions right after I post. Here is a statement of the progress of LibrePay: https://liberapay.com/about/stats They are distributing about 1400 Euros per week now. Interestingly as of the middle of last year, they were distributing up to 4000 Euros a week, but then it precipitously dropped off (presumably because they blocks donations from certain donors... I seem to remember hearing something about that). So, it's not big enough yet to pay anybody a salary.
I don't think they do that for all creators - there's a bunch who work on an "$N per item" basis and I'm assuming those are charged at the end of the month once those items have been distributed to patrons (otherwise how would you know what to charge?)
If I have your ear, I'll ask you a quick question if you don't mind. I notice that you only allow donations rather than payment for some service. I'm wondering if that's due to regulatory issues for you or something else.
Quick background: I want to explore the idea of people paying for software/services in the same way that they might do with an unattended farm box in the country side. In other words, farmers often put produce in a box on the side of the road and people can freely take the produce, putting the money in a slot. There is nothing at all stopping people from just taking the produce and not paying (literally nobody but the unpaid farmer would notice), but there is a social stigma to doing so. I think there is a general understanding in the public that if you take the produce and don't leave the money that eventually the farmer will stop offering the produce. If you were starving, though, I don't think anyone would hesitate from grabbing some carrots or fruit at the side of the road (nor do I think anyone would mind overly much if it only happened occasionally).
Anyway, I want to try to recreate that idea of a farm produce box for software. The idea is that I would write some software (probably a game in my case) and make a web page. On the web page you would have 2 links: pay for software and download software. The two are not connected in any way except that the link would say "Download super game (costs $2)" or whatever.
The idea is to explicitly assign a price to the software and then just not enforce it if people don't pay. I might also have an option in the software that says something like "Pay for super game (costs $2)" which just opens the web browser to the box page. I wish to write free (as in freedom) software, so people might download the software from a different location.
I suspect that this would run afoul of your rules, so it might not be possible to use your service. Any ideas?
Edit: I should point out that in the case of LibrePay, it's a recurring weekly cost, but the idea is that the user is paying $X for a year's worth of my development, potentially paid weekly.
[0] https://liberapay.com/SirCmpwn
[1] https://github.com/ddevault/fosspay
Anyone who is in a similar boat should feel free to reach out to me and I'll happily provide free hosting for a fosspay instance. A model whose incentives align with the people who depend on it and the people who support them is crucial, and it probably isn't a business model. If necessary and useful, I'd be happy to build this into a general purpose service.
In any case: the Patreon model seems doomed in the long run, regardless. At some point content hosters themselves (YouTube, Instagram, etc.) will introduce a similar payment support system. Just like Instagram ate Vine’s lunch and entire raison d’être. At that point, exactly what benefits or advantages does Patreon offer?
That, and blogs are so last-month maaaaaan. Medium's dead, long live twitter.
This post wouldn't get a fraction of the visibility if it had been posted on some Gitgub pages blog with an RSS button.
The first and last parts of that quote say it all. It's basically saying, "what you have doesn't satisfy us so go do more things."
"It's not going to die overnight, Patreon will still be here in 2020, it'll just be, you know, worse to actually use."
Of course it will be "worse", users tend to complain about every single product change that ever happened. No objective criteria of the worsening are provided. This is the author backtracking: "oh, contrary to what I said in the first tweet, it's not like it would die or anything, but it'll be like "worse", y'know?".
On liberapay, you have to manually fund your account in advance. If your account runs out of money, you have to log back in and top it up again.
See our recent blog post “The third year of Liberapay” for more details: https://medium.com/liberapay-blog/the-third-year-of-liberapa...
At the same time, $60M? How can a platform like Patreon even begin to spend that much money? On what? I didn't understand it when Medium raised so much and I didn't understand it when Patreon did.
Basically my gist is that while this is a fun rant to read against getting VC funding, there's also a middle ground: raise reasonable amounts of VC funding. This might not always fit VC incentives perfectly, after all their business model depends on funding dozens of companies hoping that one is the next Facebook, but in the end it's your call. And hey, if you grow half speed you'll just be the next Facebook 5 years later, no man overboard.
VCs can usually veto new sources of funding but if they can force you to raise followon rounds then you've been negotiating wrong.
What is sustainability for Toyota? It's some combination of sales volume at profit margin such that they can afford to pay for their fixed costs, factories and such. IE, earn more by selling cars than it takes to make cars.
The financial definition is derived from the business one, because debt. Car companies borrow money to build/tool factories. Toyota would need to earn a return greater than interest to be sustainable.
For a facebook (or a patreon), what does sustainability mean?
Facebook don't have factories. Costs are what the CEO decides they should be and the CEO decides based on how much revenue is coming in.
Currently, FB is on about $60bn pa. If you look at their current cost structure, even critically, you'll probably conclude that facebook needs tens of billions to be sustainable.
Except.... You obviously don't need $50bn pa to make a social networking site. If the ass fell out of online advertising (not likely), fb might collapse, but social betworking would continue to exist.
If you told patreon toda that: "your revenue is $15m forever, no matter what you do," would they conclude that patreon is unsustainable and must be shut? Toyota would. I suspect Patreon would find a way to sustain the service.
The CEO can decide how much to put into new features, and what those features are. Not putting enough into R&D is a path to disaster long term.
It would make sense that someone like PayPal would add a monthly subscription option. They already have much of the infrastructure in place. You might not need Patreon for your subscribers to support you, but you probably wouldn't have subscribers under this model if Patreon hadn't established this as a norm.
It seems to me that they have a good thing going, although I disagree with their policy of policing the content and speech of the projects they support.
However, there should be room in the market for competition and hopefully a competitor will arise who doesn't try to enforce his morality and/or politics (good or bad) on the fund-raising projects he facilitates.
That is all.
If they were strictly a pay-creators platform that took a percentage, it would be sustainable, they could run more efficiently, not spend money on content policing, etc.
If they still wanted to deny certain types of customers on their platform- that is their right, but their decision to also host content adds a level of complexity that when scaled, can become a problem, and probably a pretty costly one.
Now, I still don't know for sure that this makes the level of funding make more sense. Going the investing route is going to introduce a lot of expectations and changes in the way the business handles itself that could doom it- that could have been avoidable
I'll just say here what I said there: "You lost the plot. No one outside your VCs are asking why you struggle to scale. Everyone wants to know why you're scaling before getting the fundamentals right. You can't even manage feature #1: paying creators reliably."
> "We don't allow hate speech, which other platforms say they don't as well and Patreon really means it," Conte said. "You can't just say anything you want in the world and we don't want to build that platform."
> The company also revised its content policy in 2017 to eliminate the site's use for the exchange of adult-themed photos, videos and content.
You can't have your cake and eat it too.
However, a better story that Dan Olson linked to (scroll down his twitter feed) is the September 2017 announcement of the $60 million round by Jack Conte himself[0]. In that blog, JC laid out in more detail the new products Patreon was trying to build to increase revenue. Excerpt of the bullet points:
1. Business Infrastructure - Think of this as the back office — the tools, workflows, dashboards, and information that you need to get your business cranking. [...] analytics [...] financials [...]
2. Rewards to Energize Patrons This is everything you need to entice and keep your patrons, [...] Actual goods, whether digital or physical, like a signed poster or an extra episode [...]
Patreon doesn't want to be just a simple "paypal/stripe" payment middleman that takes a 5% cut of subscribers payments. As a rough analogy, they also want to be a "SalesforceCRM/QuickenAccounting" backoffice and a "Amazon/WooCommerce" for merchandise -- for their creators. JC is hoping that creators will give up more than 5% (e.g. maybe 30% cut) to pay for those services.
So when people ask "what does Patreon need all that VC money for?", JC basically told you. The question remains if the creators are willing to pay for those extra "value-added" services to manage the creators' backoffice + storefront. (Examples of those "new features".[1])
I think we can assume that the bullet points laid out in JC's blog post roughly match the Powerpoint slides he showed to the VCs to convince them to invest more money. In fact, if you look at their Crunchbase profile[2], you'll notice that in the 3 rounds A & B & C, he had the same VCs repeatedly investing more money: Thrive Captial and Index Ventures in 3 of the rounds. And StartX and Accomplice in 2 out of 3 rounds.
Not only did JC convince a VC to invest more money, he convinced the same VCs multiple times.
Both JC and the investors did not think of Patreon's business as a "simply take 5% cut of payments and that's all we do forever". Maybe they will be proven wrong in expanding the Patreon platform ambitions but I think we can at least see why the $100 million investment doesn't look "illogical" to them.
[0] https://patreonhq.com/new-round-funding-816d5a592477
[1] https://blog.patreon.com/new-membership-features
[2] https://www.crunchbase.com/organization/patreon#section-fund...
The first is content. If they want to do business in Germany, they need to make sure there's no Nazi content coming from Germans. They need to make sure there's no child porn. They need to respond to DMCA notices and other types of disputes. They need to keep an eye open to ensure they're not hosting content that violates SESTA/FOSTA.
They need to be sure that creators aren't saying they're providing therapeutic ASMR audio but actually selling synthetic marijuana behind the scenes. They need to handle folks doing obviously risky (or regulated) things, like recommending pharmaceuticals or helping addicts doctor shop.
They need to comply with regional KYC/CDD requirements and verify the identities of the folks on their service. They need to do this in many languages and with local identity documents from around the world.
All of these things cost money to do, even if it's outsourced. And in many cases, the cost grows faster than user acquisition. Patreon could be criticized for censoring content, but they still need to avoid being dragged into court or even shut down. And it seems that they're learning quickly that being compliant and managing risk is not an inexpensive thing to do at scale.
Does Visa have that same problem? If I understand Patreon, they aren't producing or distributing content. They are just acting as a middleman between fans and producers.
This imposes a large moderation/liability burden that Visa doesn't have.
(Maybe HN isn't that sympathetic to those type of people, so I might get downvoted to oblivion - but you still can't generalize them as average Twitter users...)