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In January 1996, Bill Gates published what would go on to become one of the classic essays of the early internet. In it, he describes the very characteristics of the internet that would lay the foundation for the Creator Economy. “One of the exciting things about the internet is that anyone with a PC and a modem can publish whatever content they create,” he writes.
While Gates’s essay is remembered for its prescience about the direction the internet would take, what’s less well-remembered is that he also sounded a warning: “For the internet to thrive, content providers must be paid for their work,” he writes. “The long-term prospects are good, but I expect a lot of disappointment in the short-term.”
Gates’s analysis was ahead of its time. While it’s true that the internet has made it possible for virtually anyone to publish content online, it’s also true that, a quarter of century after “Content is King” was published, earning meaningful income as a content creator has proven elusive.
The lived experiences of creators tell the story: 90% of streaming royalties on Spotify go to the top 1.4% of musicians. The top 1% of all streamers earn more than half of all revenue on Twitch. 1% of podcasters claim the majority of podcast ad revenue. “To me, we’re not in a period of expansion,” one musician told The New York Times, speaking about earnings from streams on Spotify. “From an individual perspective of musicians, it has just been a downward trend of the rewards for our labor.” This isn’t inevitable, and it’s not unique to fledgling artists—it affects 99% of all creators, including famous names with millions of fans. When even they struggle to make a basic living online, something is artificially holding them back.
The internet was supposed to usher in a Golden Age of media—a world of infinite abundance where anyone can create whatever they want, and everyone can find whatever they’re interested in. But while Gates’ prediction that there was money to be made online through content has proven true, much of that money has bypassed the creators that produce the content, landing instead in the pockets of the platforms that aggregate it.
This is the story of how the web2 internet broke the business model of media, and how the advent of web3 signals a disruption to that business model that tilts the scales in favor of creators. Without native monetization methods built into the web2 internet, the predominant business models were opaque, advertising-based, and dependent on closed-garden networks, which gave an outsized advantage to platforms. On the horizon, new business models and technologies hold promise to unlock the kind of economic opportunity and control that will lead to a true creative Golden Age for artists and creators.
At the heart of the story of how the internet broke the media business model is the simple fact that the internet was not built to facilitate the flow of money. Payments weren’t built into the internet’s infrastructure—it was considered too risky. Marc Andreessen called this “the original sin of the internet.”
The lack of payment infrastructure is the reason why so much of the internet is monetized via advertising. Rather than requiring users to pull out a credit card and type their information into a website, users could be monetized frictionlessly and indirectly, paying not with their money but with a different asset: their attention. That precipitated a shift in power from the old gatekeepers of media who controlled content creation and distribution—the publishers, record labels, and movie studios—to those who amassed consumer attention at scale.
Ben Thompson of Stratechery has written extensively about how the platforms, which he calls “aggregators,” have won the battle for consumer attention and achieve outsized revenue—and outsized power—by aggregating demand. YouTube has more than 2 billion monthly active users. Facebook has almost 3 billion. Spotify has 365 million. With those mega-sized audience numbers come mega-sized ad revenues. In fact, Google and Facebook alone accounted for more than half of the digital ad revenue generated in 2020.
The business model of advertising has profoundly shaped how platforms design their products. Views are funneled to content and creators that are already popular, creating a power law in success. Data about user preferences and behavior is the platforms’ most valuable asset, so they close off their ecosystems and lock users into their networks to amass the largest corpus of proprietary data.
The ad-based revenue model has enormous implications for content creators, as well. Creators are compelled to seek the broadest possible audiences and to create content that attracts advertisers. This business model—or lack thereof—has a profound impact on which creators can make a living and what they create (incentivizing viral, attention-grabbing, and aspirational content, while disincentivizing niche, in-depth content). The biggest impact of the web2 internet may be the creators who don’t exist and the creations that were never made because they have no viable business model.
The platform-centric, advertising-powered economy may have won the web2 era, but its victory is not inevitable or final. We’ve written before that creators’ patience with the platforms is wearing thin in a burgeoning legitimacy crisis—they are starting to question the platforms’ right to exert such outsized control over their work, their relationship with fans, and how they’re rewarded for it.
Meanwhile, a new generation of technologies is emerging with the promise to change the balance of power in the creator economy. If the pre-internet/web1 era favored publishers, and the web2 era favored the platforms, the next generation of innovations—collectively known as web3—is all about tilting the scales of power and ownership back toward creators and users.
There are four main ways that that will happen: