1/ In light of that garbage Amazon article I just posted and also my frustration with Patreon lately, let's talk about audiences, platforms, asymmetrical information, and rent-seeking this morning.

2/ As a small business owner and creator of all kinds of different (mostly digital) products, this is something I have a lot of experience with.

I've tried all kinds of revshare models (which is really what the standard platform model is).

3/ People tend to see platforms like Amazon, Patreon, OnlyFans, etc as exciting opportunities when starting out because "they scale with your earnings." An 8% fee looks negligible when you're making $100/month.

4/ And really it is. At that level, you're paying roughly what you'd pay for 2 cups of coffee per month to collect a check. Not a bad deal.

But as a business owner, you always have to be looking at value for services provided. Revshare breaks down quickly at scale.

5/ When your business is successful enough that you're doing $5,000 or $30,000 in revenue per month, you're now paying $400 or $2400 per month for basically the same level of service and tooling that you were getting for $8/month originally.

6/ Worse still, you're now locked in because it's VERY hard to transfer a customer base from one platform to another without substantial revenue loss (+30% if not much more). This is insidious, because it makes platforms very attractive to start on and difficult to leave.

7/ Back in the early 2000s when Amazon was still disrupting the publishing industry and online marketing was nascent, their flat 30% of book revenue was a GREAT deal compared to the ~90% that got eaten by the traditional publishing model, and 'zon was the OG selling platform.

8/ You can also argue that this model is a lot better than the traditional pay-to-play or gatekeeper models that make it much harder to get started or test a market cheaply without a big upfront investment, and this is true.

9/ Comparing trad publishing to indie publishing is apples and oranges, though, because trad pub (was supposed to) handle all the business and creative things that writers didn't necessarily have the skills to manage.

With Amazon you were paying 30% for access to an audience.

10/ Trad pub was no less of a bad deal for mega-authors, but you didn't really have another option to market your books back then. Online marketplaces weren't a thing. SMARTPHONES weren't a thing. Let that sink in for a minute. The world has changed A LOT in two decades.

11/ In the modern creator economy, even 8% revenue share is a pretty bad deal for access to an audience unless the site is REALLY helping. Amazon, having rolled forward from old business models, takes a LOT more than that for products that incrementally cost them nothing to sell.

12/ I don't know what the physical product fees look like, but Amazon keeps 30% of every eBook I sell, 40% of every print on demand book I sell, and _60%_ of every audiobook I sell. I also pay for all costs of production out of my cut and am incentivized to lock myself into them.

13/ They punish you for NOT being exclusive to their platform by reducing your visibility (for eBooks) and taking higher fees (75% of non-exclusive audiobook revenue), just for access to their audience. But it gets worse.

14/ They also use their scale to capture audiences via all-you-can-eat subscription models which wouldn't work without having the scale in the first place. This is EXTREMELY anti-competitive and fleeces creators to benefit their company.

15/ Don't want to play ball? Too bad that borrows count as a sale and it's a million times harder to rank and get visibility if you're not locked into their pennies-on-the-dollar lock-in model. They're the only game in town because they're very good at locking in both sides.

16/ I'm picking on Amazon here because their fees are egregious in the modern digital landscape and they can only get away with it because of these practices, but this is the destiny of ANY for-profit platform at sufficient scale.

Moloch in action.

17/ Any platform that operates off of a revshare model is flawed in that it's a terrible deal for both parties--usually. A great example of this is producing audiobooks on ACX.

When I first got started with audiobooks, revshare seemed very smart.

18/ I had already burned almost $4,000 producing a paid-per-finished hour audiobook that only made back about $150. That was a tough hit. I didn't want to take the risk again.

So when my romance biz started taking off, I opted to experiment with revshare for subsequent books.

19/ At first this seemed okay. We were both taking a risk, after all. You split the 40% cut from a sale with an audio recorder who finishes your book (so you each get 20%) and it's a 7-year contract.

But I quickly realized this sucked for everyone.

20/ When the audiobook flops (as many of those early ones did because I hadn't built a brand yet or was experimenting with a new pen name), the recorder who put all that time in gets... nothing. This sucks hard for them considering how much work goes into production.

21/ But then I actually started having a few breakaway hits, and I realized how much the OTHER side of it sucks. If your audiobook is actually successful, that 20% ends up being anywhere from 5x-100x what you would have paid for just paying a fair rate up-front for the recording.

22/ What this means is that doing a revenue split ONLY makes sense as a creator if you don't expect your audiobook to be a commercial success. In which case you're grifting someone (the recorder) for a gamble. Savvy players on both sides see this for the bad deal it is.

23/ Now I just pay a (better-negotiated) rate up front for audiobook production and it's pretty affordable for a decent quality level. This way neither party loses. I pay a fair, pre-negotiated rate for services, and we both know exactly what the rates are and agree it's fair.

24/ Every single platform with a revshare model has this same problem of asymmetrical benefits. It's a bad deal for the platform until you reach a break-even point of fair value for services rendered, and a bad deal for you as a creator after that point.

25/ This actually seems pretty reasonable when you're dealing with two humans who are both putting effort into a risky product. Maybe it's the only way you can afford to GET an audiobook produced and get started. Often this is the case, and you both share in the success.

26/ But the problem with platforms using this model is that once the platform is built, the risk/cost associated with adding a new partner or creator quickly approaches zero. Modern tech has changed the game such that you can provide a valuable service at no incremental effort.

27/ It costs Patreon or Amazon or OnlyFans essentially nothing to add one additional creator. They have their costs of keeping on the lights, but at a certain level of scale (pretty low actually) this becomes negligible.

28/ Business isn't about COST of services, though. It's about VALUE provided to the customer. All this means at face value is that they have a good business model. Low costs, providing a valuable service to people who don't have access to the same service via other means.

29/ But the problem is that these platforms are incentivized to be anti-competitive. Rather than competing by being the best game in town, they compete by doing everything they can to be the ONLY game in town. This is doubly true if they're the industry leader for their segment.

30/ For all of the high-minded rhetoric about the invisible hand of the market, one of my beefs with classic armchair capitalist talking points is that they assume that strong players won't manipulate the market (and they always do).

31/ For publicly traded companies, they not only have the incentive but also the fiduciary OBLIGATION to do everything legally within their power to achieve this outcome, because it's easier to maximize profits that way.

32/ Getting back to my gripe with platforms in general, you have to look at them as either service providers or marketers that accelerate your business. Most platforms are predatory when they scale infinitely with your business, and especially if you're selling digital IP.

33/ At least for physical goods, the revshare cut makes sense because there's an ongoing relationship where services are provided to warehouse, package, ship, or otherwise act on your goods in some way on a recurring basis.

34/ But in a digital world, where you make your book/article/video/photos/game/music/whatever once and then sell it digitally as many times as you can (providing value to every customer!), this is an infinite tax on your business that continues far past any reasonable point.

35/ Let's pick on OnlyFans for a moment. I just checked their site and they take a 20% cut of all your earnings through their platform. They say this is to cover "referral payments, payment processing, hosting, support, and all other services."

36/ So when you enter into a business partnership with OnlyFans, you're paying them for all of those things PLUS access to a base of potential fans looking for your content, assuming they help you with customer discovery (I don't know how well they do this).

37/ If you're launching a fledgling camgirl business, this isn't bad. You may not know anything about marketing, or websites, or hosting, or whatever. You may not know HOW to collect money from people scalably or on a recurrent basis.

This is the value they provide to you.

38/ At least they cover the payment processing fees, which many platforms don't. But if you think about this for a minute, what's the actual value of those services in the modern attention/info economy?

Hosting is basically free these days. Payment processing is 3%.

39/ Support is mostly support for THEIR site, which fine, that's a reasonable cost. Let's call that $50/month out of your pocket compared to getting some rando to help you with your website (which if you're a hot girl, come on, you can get for free).

40/ But let's be generous and assume the value of all of this to you as a creator is equivalent to... $200/month? That still seems really steep over a 1-year timeframe but whatever. The value provided by them for the remaining cut is really only marketing and discovery.

41/ It's attention. They have the audience who wants this type of content. Fans know to go there to get it. This would be brilliant if you could just post your pics and watch the $$$ roll in. It might even be fair.

But as every content creator knows, this is not the case.

42/ Because it's so cheap to add a new creator to a platform (essentially nil), their best interest is in promoting THE PLATFORM rather than any individual creator, and they rely on the creators to do the heavy lifting of their own marketing.

43/ Creators are incentivized to do this anyway because they wanna get paid, and you'll notice that all of the top creative earners also tend to be good marketers (or have good marketing done for them).

44/ So what exactly is this magical marketing and discovery you're paying 20% for? Platforms that offer exceptional matching and discovery services might be worth the fee, and Amazon is one of the companies that does this. But they CHARGE you for it ON TOP of the fees.

45/ I'm talking about their ad platform, of course. If you're not paying for ads (handling your own marketing), discovery is much harder because the cost of producing content is so low and there are many market entrants.

46/ One of the dirty secrets of producing creative content is that all of it satisfies emotional needs.

With a very few exceptions, products of the same class tend to satisfy the same needs. There's no way to differentiate most quality creative content except marketing.

47/ So platforms REALLY don't care if your content resonates with customer X as well as possible to create a customer for life for you. It only needs to be good enough to get customer X to open their wallet. Your product Y's success is as good as product Z for them.

48/ The idea that modern platforms provide anyone with marketing help in today's economy is frankly hilarious. If all of the weight of marketing is on you anyway, really the ONLY benefit of most platforms is streamlining getting the customer to enter a credit card.

49/ Amazon, eBooks, and Audiobooks are somewhat unique here in that they actually probably do help you with marketing and distribution because there's not an easy way to get eBooks and Audiobooks onto a device for consumption and the network offers also-boughts.

50/ But platforms like Patreon, Onlyfans, Substack, etc--don't really do this at all. So picking up my earlier thread about OnlyFans, you may recall that @Aella_Girl was doing something like $100k/month in revenue last time she mentioned it.

51/ At that level, she's paying them roughly $20k/month for... what? Hosting? Being willing to process her payments? Definitely not marketing, especially if we look at @CathyReisenwitz's comment here. https://twitter.com/CathyReisenwitz/status/1341811194101866496?s=20

52/ I'm not picking on @Aella_Girl here. This is the platform model. And at this point, switching to a private platform would require a SUBSTANTIAL investment and risk a LOT in terms of existing subscribers just not cutting over. A poorly executed move could ruin the biz.

53/ But $20k/month is a LOT of money to throw at those problems. Even assuming chargeback risk is shifted to her and it's substantial let's call that $10k/month. That could easily fund two full-timer marketers to grow her business if she could decouple from OnlyFans.

54/ She's probably making enough money that she could pull this off and be better in the long run for it. But @Aella_Girl is an exception here. There's a trap space that most creators run into where it's too expensive to switch UNTIL they get to that level. Most never do.

55/ Because if you're in the $5k/month range, you're still making pretty good money, but you aren't going to have enough excess capital to break away from the platform and fund your own marketing game without risking destroying your business.

56/ This is where platforms get you. It's the same problem as with my ACX revshare situation. It LOOKS like a great deal when you're broke and don't know what you're doing, and by the time you figure it out, you're locked in because switching costs are high.

57/ Why are switching costs high? Because platforms do anti-competitive bullshit to lock in creators (like I just described) and customers (via smoothing payment processing) so that the initial market leader tends to remain the market leader. It's completely anti-market.

58/ When we talk about rent-seeking, unless you're into economics you probably think about ACTUAL landlords. But it's actually the process of staking out a claim of some valuable piece of property and charging people just to access it. In a competitive landscape this is fine.

59/ What platforms attempt to do is stake a claim on ENTIRE MARKETS. Do you know what we call that? We call that a monopoly. And as you may recall, monopolies tend to be great for the owners and terrible for the people who are stuck paying whatever value the owners extract.

60/ Competing against a market leader of a PLATFORM SEGMENT is even harder than competing against a traditional monopoly when the product is digital. It's extremely cheap to bring you in and incentives are structured to keep you there.

61/ Remember when Google tried to make Google+ a thing? They were going to be the new social media hotness. They launched in a flurry of marketing and buzz. Then they died a rapid and embarrassing death.

Why? Because switching costs were too high without entire networks moving.

62/ Every platform faces these same issues, and in fact savvy platforms (like Amazon) actively encourage lock-in. One thing I will say about Valve/Steam and Spotify is that it's admirable that they don't do this. Steam could, for sure, at least for indie titles.

63/ So hopefully by now I've convinced you that the vast majority of revshare platforms are predatory, rent-seeking, and generally bad deals for creators.

If hosting is free, payment processing is cheap, and you're doing all your own marketing anyway, you're being grifted.

64/ And you're being grifted in a way that specifically exploits you at the beginning of your creator career when you don't know any better and leaves you in a place where it's very, very hard to move when you do know better.

65/ So how can we make this slightly less bad for actual people who are trying to make a living and don't want to hand over 10-70% of their profits for a service that they would NEVER pay that much for once they're actually making enough money to know what they're doing?

66/ The very first thing I'd suggest is to think carefully about which platforms you choose to start creating on in the first place. The nature of the modern game is that you're going to be locked in if your biz is built around one, so it's almost ALWAYS better to avoid it.

67/ I would go so far as to say that if you can afford to give away your content for free to build a brand from your own website or launching point, you're better off doing that in 90% of cases and then selling direct to customers.

68/ If you don't know how to do this, you're probably still better off trying to build something with a company that has a flat monthly payment model (if you can afford it and their services are worth it to you).

69/ If you're not sure if it's worth the cost, it's probably not yet. Do it for free and build your own relationship with customers external to a platform. If you're serious about the biz, this will be worth FAR more to you in the long run and you can charge less when you do.

70/ But this won't be an option for lots of people who have no clue how to get started.

What I would suggest is if you MUST get started on a platform, learn your business and break away from it AS SOON AS YOU CAN. It's much harder to stomach a 40% hit at $10k/month than $1k.

71/ Even aside from the lock-in issues that make platforms suck, it gets even grimmer when the platform decides to start competing with you itself (as Amazon does with Amazon basics in that article I linked) because you're giving them ALL OF YOUR SALES DATA.

72/ People almost never realize how valuable this is when they're first getting started in business, but one of the reasons you don't disclose how you make your money is that it invites competition in the same segments.

73/ You never, ever want to be competing with your business partners. Partnerships should be a win-win arrangement. Platforms should NEVER be allowed to compete with their sellers. Why? Because they have asymmetric information.

74/ Amazon is notorious for both having some of the most sophisticated metrics instruments in the world AND being very bad about sharing that data with the merchants who sell on their platform. You have very little data on why your products are or aren't selling.

75/ But they have ALL of that data. On the customers, on you, on your products. They not only keep it close to the vest, but they deploy it internally to launch competitors for winning products with a high profit margin and knock you off the platform.

76/ It's their platform, after all. Of course they're going to prioritize products that offer them a better cut of the revenue. The best cut of revenue is sourcing the product internally, via vertical integration.

But then they don't have to compete with you.

77/ Because of the lock-in practices we discussed earlier, they're the only game in town, they have all the information you don't, and they can literally PRESS A BUTTON to make sure that their product always ranks above your product in search results.

78/ This is the logical endpoint for any platform that gets big enough, but you don't even have to do this really. Amazon is just insane about squeezing every dollar possible out of their supply chain.

You can also do this just by keeping creators in the lock-in valley.

79/ One of the things we dealt with ages ago when I worked on Kindle was that there were a few big-name authors who didn't have to play by Amazon's rules. JK Rowling was one of them. She dictated terms to Amazon, which she could do because her content was uber-popular.

80/ Every single revshare platform has an incentive to do this as well, and it's surprisingly easy to do when you can control discovery. You don't want any particular creator striking it mega big, because then they'll either leave or negotiate better terms that cost you money.

81/ As a platform, you want a HUGE sea of content creators all doing moderately well, but not so well that they can pay to build an apparatus where they don't need you anymore. Celebrity successes are a failure from their perspective. You want a bunch of semi-nobodies.

82/ If I were a profit-driven product manager who recognized this at one of these companies, it would very quickly become obvious to me that you should down-rank the discovery of creators who are taking off and elevate others: basically keeping everyone in competition.

83/ This might sound fair and even ethical from some lenses, until you step back and think about who this actually benefits. If breakaway winners leave the platform, that leaves more room for you to be the next breakaway winner on the basis of your content quality.

84/ If the platform rotates discovery to keep anyone from getting too big, especially across a large enough pool of creators, they get to keep ALL of the content in-house and dictate terms to everyone.

85/ While I have no direct evidence of this, I have LONG suspected that Amazon's algorithms do just this with enough noise injected to keep it obscured and defensible. It's legal (right now), and it would be nearly impossible to detect.

86/ And of course, like a casino, you have to let ONE person break through now and again, and you have to keep earnings growing for creators at a steady, metered clip to keep them on the hook. But at a market leader scale, this is easy. You don't even have to be that smart.

87/ But all of these things are tools of monopoly, control, and anti-competitive behavior that are a scourge on small business and individual creators. It's predatory rent-seeking in its purest form, powered by market capture and asymmetric information.

88/ This whole business model and the speed of communication and information in general has advanced to the point where laws just can't keep up with it. Regulation is slow by design, but regulation can't fix this anyway.

We need tools to break out of the traps of rent-seekers.

89/ The only reason you pay rent on your apartment is that you don't have a method to put that money toward a house instead and you need a place to live. The only reason you pay platforms (or sell your labor at a discount) is that you're locked in and you need to eat.

90/ What we REALLY need to fix this problem is an open-source marketplace where all transactions are handled peer to peer with a sufficiently big social push to use it for both customers and creators and no central authority controlling it.

91/ If you really believe in the spirit of pure capitalism, this is the glorious vision of the future you should be working toward because it eliminates most forms of rent-seeking (and can to some degree address the issues of the marketing arms race, though that's harder).

92/ As a few people have pointed out in my mentions, blockchain technology has actually brought us closer to this reality than ever before. I didn't really appreciate the value of blockchain tech until I started seeing how it could be deployed in open-source software like this.

93/ Peer to peer technology for value exchange brings us closer to an anarchist/pure capitalist state of the market than probably any other invention in the last 2000 years. The internet is the other contender.

94/ You can't really free yourself until you understand the game and can see the bars around your cell. Gatekeeping impositions and rent-seeking are everywhere around you.

This is why blockchain is revolutionary. This is what most people still haven't grokked about it yet.

95/ Screw rent-seeking. It's a garbage, predatory model that doesn't actually provide a fair exchange of value and hits the people least equipped to deal with it the hardest.

Do you really believe in egalitarianism? Freedom?

Build tools to help people escape these cages.

/fin

(This is normally where I'd do a link to a longform write-up on my Patreon blog but in light of this thread, I think I'm going to put my money where my mouth is and go find a different way to host my own content. I'm also kind of inspired to try to start decoupling from Amazon.)