A significant wave of Creator Economy startups has emerged in recent years, driven by the rise of social media platforms that position content creators as central to consumer engagement. These startups initially promised creators enhanced audience monetization through product promotion, often via a link in their bio, video mentions, or direct links. While starting as simple “tip jars,” these offerings have evolved to include diverse products from e-commerce to newsletters and Q&A services. The model typically involves companies taking a percentage of earnings, usually around 10%, when fans spend money.
Some Creator Economy companies have achieved substantial success, paying billions to creators, while others have struggled. Successful creator startups have proven more defensible than initially anticipated, with new entrants, even those with celebrity backing, facing difficulties. After several years, key dynamics within this sector have become clearer, explaining why some ventures thrive while others lag.
Several dynamics influence the Creator Economy:
- The creator power law: A small, concentrated group of creators commands the majority of the audience, making Creator Economy startups potentially vulnerable and dependent.
- Battle for the bio link: Creator economy companies acquire audiences from larger social media platforms, which often provide only one prominent spot—the link in bio—to promote a single company. This creates a zero-sum competition.
- The graduation problem: Startups often charge a take rate (a percentage of bookings). If creators acquire their own customers and perform the core work, they may seek to reduce costs. The largest creators frequently “graduate” from a platform, building their own infrastructure and taking their revenue with them.
- Algorithmic feast and famine: Creator traffic is heavily influenced by social feed algorithms, leading to unpredictable spikes and declines in traffic, which contrasts with the steady, durable growth sought by startups.
These concepts have been observed through interactions with numerous creator companies over the past few years. As the next generation of Creator Economy startups emerges, navigating these dynamics will be crucial.
The creator power law
For those building a Creator Economy company, understanding the power law of audience and earnings among creators is paramount.
A graph illustrating the percentage earned by the top creator on a platform like Patreon, compared to subsequent creators, reveals a significant drop-off (credit: Power Laws in Culture):
Extending this graph to encompass millions of creators on these platforms would show earnings eventually flattening just above 0%. This phenomenon stems from several factors, including that these creator platforms build upon social media, which itself exhibits well-documented power law distributions for followers and content engagement. Social media platforms, in turn, display power law curves due to algorithmic discovery, where a small number of highly connected individuals reach significantly more people.
Consequently, any creator economy product built on a social platform inherits these power law curves. For instance, OnlyFans creators offer free content on various social platforms to drive traffic to their private landing pages. A graph of creator earnings, derived from API scraping in the essay The Economics of OnlyFans, shows a similar curve: while some creators earn up to $100,000/month, the median is closer to $180/month. A familiar distribution emerges:
While power laws naturally appear in social media, this is not the sole explanation. Creative work—including TV, films, music, and more—generally follows a power law pattern. An example from TV, also from the essay Power Laws in Culture, illustrates this:
A few hit shows capture the vast majority of viewers. This pattern is consistent across video games, movies, fiction, directors, authors, and other creative fields:
Many factors contribute to the universality of this phenomenon, but a core issue is the uneven distribution of creative skills. A top writer or film director is often significantly more effective than the 100th. Similar power laws can be observed in research output, the distribution of highly productive engineers, and patent filings.
For Creator Economy companies, this implies several key points:
- Upon launch, the long-tail creators initially attracted are often too small to generate meaningful impact.
- To achieve scale, companies must attract the largest creators, who are also the most likely to be engaged with numerous other projects and products.
- Even with large creators on a platform, revenue is often highly concentrated within a small group, meaning their departure can have a substantial negative financial impact.
These dynamics make the initial launch phase of a startup particularly challenging. The most successful companies can aggregate a large number of small creators to achieve critical mass, or organically attract large and mid-sized players. If a startup finds itself manually engaging, acquiring, and supporting many creators (indicating high acquisition and service costs), it may suggest the product does not solve a sufficiently large problem to drive organic adoption.
The battle for the bio link
Social media platforms like Instagram and TikTok operate on advertising business models, and as such, they limit organic traffic to encourage paid promotion. One method for this is offering a single link for organic traffic—the prominent “link in bio”—located at the top of a profile.
This is incredibly valuable real estate for Creator Economy startups. Convincing a creator to place a startup’s link here can drive organic traffic to the product. With monetization mechanics in place, the startup takes its share. This strategy initially worked well, as early Creator Economy startups competed with non-monetizing links, such as those to other social media profiles or personal websites. However, over time, bio links became filled with highly monetizing options like Patreon, Substack, and Twitch, intensifying the competition.
It is now a zero-sum battle to displace an existing startup’s link in bio. Gaining organic traffic from creator profiles requires offering significantly better monetization than established, proven competitors. Simply matching an incumbent’s earnings potential is often insufficient; the new offering must provide a substantial advantage. Alternatively, startups must find different promotional real estate, such as within the creator’s content itself—be it video, text, or other formats. Regardless, new entrants face a major barrier, and while initial investor-backed subsidies might be tempting, they may not be enough to achieve meaningful scale.
The graduation problem
The graduation problem occurs when a platform’s most successful customers grow large enough to eventually “graduate,” moving themselves and their customers off the platform. This happens because creators provide clear value to startups—driving traffic, creating content, and monetizing users—making the Creator Economy model appealing. However, over time, creators may question the platform’s take rate, wondering why they pay a percentage instead of a flat subscription fee, especially when they are doing the majority of the work. This issue is particularly pronounced due to power law curves, where a small number of high-earning creators often dominate top-line revenue. If a major creator considers replicating the product by hiring an agency to build a custom website, there is strong pressure to reduce take rates to retain them. They are eventually tempted to “graduate” from the platform, having reached sufficient scale to build their own.
This contrasts with marketplace startups and the on-demand sector, to which the Creator Economy is often compared. In marketplaces, companies like Airbnb or Uber independently aggregate both supply and demand. These two-sided marketplaces are most effective when each side is highly fragmented, leading to the biggest successes in consumer-to-consumer or consumer-to-SMB marketplaces, rather than B2B. (Further details on this can be found in a previous essay, What’s Next in Marketplaces). In their initial stages, Creator Economy startups often resemble B2B networks or even SaaS platforms, as their customer bases (the creators) are highly concentrated, and creators bring their own consumers. This structure naturally leads to creator frustration.
To overcome the graduation problem, Creator Economy startups must offer significantly more value than basic payments and commoditized technology. They need to establish a moat, not only against external competitors but also against their own customers who may be tempted to graduate. The ideal solution involves creating proprietary network effects by acquiring and cross-pollinating customers, bringing them to each creator. This forms a two-sided network with its inherent advantages. (These dynamics are explored further in the book, The Cold Start Problem). Any additional functionality created by the startup should ideally be proprietary. For example, if an AI-enabled creator economy company develops a superior foundational model that allows creators to monetize 10x more effectively, creators are unlikely to leave.
Algorithmic feast and famine
Creator economy startups often find themselves heavily reliant on the unpredictable nature of social media platforms and the hits-driven cycle of viral content. A video going viral on TikTok might lead to a significant spike in user acquisition. However, startups typically aim for steady month-over-month growth, and unlike SEO, referral programs, or paid marketing, achieving a consistent 20% MoM growth is challenging through viral content alone. This contrasts with marketplace startups, which add value by actively aggregating both sides of the market, often investing billions to build buyer and seller bases. For instance, during Uber’s hypergrowth years, the annual performance marketing budget for acquiring riders was a billion dollars, and for drivers, it was close to $2 billion, diversified across SEO, brand marketing, paid campaigns, referral programs, partnerships, and other channels. This extensive investment added substantial value by connecting two otherwise disconnected sides of the market.
Creator economy startups differ in that they leverage creators to find customers, which makes them highly dependent on a single channel. Relying on a single marketing channel is always risky, as demonstrated in the past when changes to SEO algorithms decimated generations of SEO-dependent content sites. Dependence on social media is even more fragile, given the ephemeral and delicate nature of its content. This is likely a reason why subscription models (with upgrades) have become the dominant business model for successful Creator Economy companies; enabling creators to build a long-term, durable revenue stream from each follower is far more stable than a transactional model, making it easier to accumulate revenue over time.
Algorithmic feeds also introduce a competitive factor. In recent years, platforms like YouTube, Twitch, and Twitter have increasingly attempted to directly pay creators and play a more vertically integrated role in the Creator Economy. This trend could lead to various platform maneuvers designed to hoard creator relationships at the expense of new startups.
The optimal solution involves layering on additional marketing channels to enhance predictability. Combining a volatile social media channel with steady retention, and an inflow of traffic from referrals, SEO, mobile installs, and other sources, results in a much more durable growth curve. However, in their early stages, Creator Economy startups often go all-in on social media, and only with success can they afford to invest in other channels.
The upside and the future
Creator Economy companies are now in their second and third generations of startups, and the bar for success has risen. Instead of offering basic functionality akin to tip jars, startups are building comprehensive products that support multiple platforms, facilitate new forms of interaction, and provide innovative tools for creators to engage with their followers. These products will develop their own network effects, sometimes becoming destinations in themselves. Rather than launching a product anchored by a single celebrity and expecting success, startups are now building genuine technology—often incorporating AI—combined with a broad go-to-market strategy.
The sector’s upside is bolstered by the continued rapid growth of mobile use and social media platforms, which are increasingly capturing time previously spent on traditional TV:
Much of this shift is driven by younger generations:
Social media continues to play a massive role, and creators represent a new class of economic participants who are gaining increasing power culturally and economically. The products and tools they use to achieve their goals will remain attractive. This is particularly true because creators ultimately seek independence from any single social platform; if they excel in video, they also want to succeed in podcasting and have a strong Instagram presence. Startups can always strive to be more creator-friendly than the mega-social platforms.
Therefore, the future of the Creator Economy remains promising, but the approach has significantly evolved, and expectations have been raised. Startups will need to provide novel functionality, create new monetization methods, and adopt new technologies that make them more defensible against competition and creators’ in-house efforts to replace them. There is particular interest in Creator Economy startups that are AI- or video-first and function more like marketplaces, offering highly managed solutions to both sides. Startups that can collect $1000 from a smaller niche of users—thereby creating more value—are seen as more promising than those relying on a tip jar model that collects $2 from everyone. In the coming years, many more successful variations will emerge, and given the underlying consumer trends, this sector is expected to remain a source of highly valuable startups.
