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.

The attention economy and the internet’s original sin 

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. Platforms funnel traffic to content they already know will be successful in holding user attention, creating a power law in creator 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.

From the attention economy to the ownership economy 

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:

1. By introducing digital scarcity and restoring pricing power to creators
2. By making supporting creators an act of investment, not just altruism
3. By introducing new programmable economic models that spread wealth across the creator landscape
4. Most importantly, by creating pathways for creators to own not just the content they produce, but the platforms themselves

Taken together, these four shifts are converging to produce a new era, one where new incentives reward new behaviors, giving the internet the opportunity to collectively hit the “reset” button and move towards a more just distribution of value.

Let’s cover each in turn.

1. NFTs and the introduction of digital scarcity 

Scarcity gets a bad rap, but it is about more than just lack of consumer choice: it’s about producer power—in this case, the ability of creators to derive meaningful income from their creations. In our current world of infinite, platform-mediated content, scarcity does not exist. On social platforms, content is endlessly commoditized—one video is more or less the same as the next video, one song is the same as the next song, and content can be easily duplicated across the internet. Scarcity is sometimes approximated by creators via memberships or digital purchases (e.g. selling e-books, albums, or content subscriptions), but the underlying content can be endlessly reproduced and replicated. That lack of scarcity leads to issues with creators’ content being illegally reproduced and distributed — undermining attempts at direct monetization.

One reason NFTs (non-fungible tokens) are exciting as a technology is that they give creators the ability to regain control over their own content and re-introduce scarcity dynamics that contribute to monetization. In tokenizing their work as an NFT, creators create a verifiable on-chain record of a piece of media’s ownership and provenance. The end result is a unique digital asset that traces back to the artist. Fans who are passionate about the creator’s work are willing to pay more for this canonical piece of media, enabling creators to better capture fans’ full willingness to pay. The end impact cannot be understated: content creators no longer need millions of fans to make a living, but can survive on the contributions of a passionate few.

The burgeoning music NFT market showcases this effect in action. On streaming platforms,  each stream of a song contributes the same amount of revenue (approximately $0.004 per stream on Spotify), regardless of that fan’s particular intensity of affinity towards the artist. In contrast, on platforms like Catalog or Sound, superfans are purchasing NFT music for thousands of dollars each, with creators earning what previously would have required tens of millions of plays. Brett Shear, an NFT collector who owns 45 songs from Catalog, told Time magazine: “In the same way that you buy art that you want to put in your apartment, I want to listen to this music and enjoy it—and it’s a different feeling to own it.”

Purchasing an NFT is akin to collecting real-world merchandise, enabling fans to feel closer to the artist and own something rare, akin to a “non-fungible super-like.” Digital scarcity and uniqueness—which had been missing from the web2 internet—is enabled by the blockchain, leading to a new business model for creators that lessens the economic control of platforms.

Excitingly, the introduction of scarcity through NFTs doesn’t mean that access to the underlying media is limited, as it would be with paywalls or paid digital downloads. The actual media underpinning NFTs can remain public goods, available to be consumed by anyone at no cost. Those who think this undermines the scarcity of NFTs (“right-click and save”) fundamentally miss the point.

2. Patronage+: supporting creators becomes an investment, not just an act of altruism

In 100 True Fans, I described that creators could tap into fans’ self-interest to monetize at higher price points. By delivering substantive value and results, creators could more effectively monetize and make a living from fewer fans:

This represents a move away from the traditional donation model—in which users pay to benefit the creator—to a value model, in which users are willing to pay more for something that benefits themselves.

Web3 takes this idea to the next level, because all tokens are investments that not only fund the creator, but also could benefit the holder if the value appreciates. Jesse Walden defines “patronage+” as patronage with the possibility of profit, a phenomenon that is introduced through tokenized ownership. That investment element was an impossibility in web2 without an on-chain record of ownership like an NFT or a social token (imagine trying to resell a TikTok video that was downloaded from the app).

What’s an example of patronage+ in action? Earlier this year, Mario Gabriele of The Generalist crowdfunded 20 ETH for a group of analysts to create a deep-dive on Coinbase, as well as to commission artwork to accompany the essay. Crowdfunders received proportional stakes in the briefing and artwork, all of which were minted as NFTs. In total, the NFT sales earned 28.6 ETH, leading to a return of 43% to crowdfunders in just a few weeks.

Another benefit beyond patronage and investment is membership to a like-minded group of individuals. Many successful crowdfunds and NFT sales in the crypto space have been driven by users’ desire to belong to a community, which are gated by ownership of tokens. This echoes a phenomenon I wrote about in 100 True Fans: “People are willing to pay high prices for exclusive, differentiated content and access to a network of like-minded individuals.”

For fans, the possibility of profit amplifies their incentive to support a creator. Interestingly, it also introduces an entirely new segment into the creator’s orbit that had never existed before in web2: speculators. Importantly, all of these users—by virtue of becoming owners of an asset that is aligned with the creator’s success—have an incentive to help amplify the creator’s work.

3. New programmable economic models

A truth of the creator economy is that creation is often a collaborative act. YouTube creators star in each others’ videos. Musicians sample from and are inspired by each other’s work. A TikTok video is, more often than not, made up of the (often unseen) work of multiple creators: a soundtrack from one creator, choreography from another.

Unfortunately, web2 systems are not set up to reward or track this collaborativity. In the winner-take-all world of algorithmic platforms, too often the value only flows to the creators that go viral, leaving out everyone else involved in the creation of the work. This has led to strikes and discontent among creators who feel that their contributions go unrecognized and uncredited.

In web3, the promise of tokenization means that it’s possible to build in royalties such that the entire chain of attribution is able to profit from a collaborative work. Early examples of this include Mirror and Foundation’s splits functionality, which automatically routes earnings to various Ethereum addresses that contributed to a project.

Down the line, it’s conceivable that any digital work could utilize elements from a universal media library, with revenue splits and attribution automatically accounted for. Nir Kabessa wrote about the “meme economy,” in which ideas that get remixed and propagated on the internet could become the basis of value creation:

“The famous meme GIF is linked to the address of the NFT so when someone shares the original NFT in their article, they can pull the on-chain address. This is powerful for memes because it allows them to maintain attribution and context in every platform. So any action on a meme NFT is accessible, readable, and usable on almost all platforms. Every bid, swap, and transaction is added to the metadata of that specific NFT.”

Beyond memes, if every piece of creative work is linked to an on-chain record of its provenance, it becomes possible to trace that work across the internet and for creators to monetize subsequent use of their work.

4. DAOs and community ownership

We’ve argued in this essay that a root cause of inequality in the creator landscape is the outsized control that platforms exert over creators and their work through the ownership of the means of production and distribution of content. The most direct way to challenge that control is to change who owns the means of production.

DAOs (decentralized autonomous organizations) and other mechanisms of collective ownership create a pathway to disrupt the centralized hold that the platforms have over the creator landscape by making it possible for creators to work collaboratively without an external mediator dictating the terms of engagement. In a DAO, governance systems are decided by the members, and there are no external shareholders pressuring for profit extraction. Instead, in a creator DAO, the owners are the participants: those who make the content, distribute it, and consume and value it.

An early example of a creator platform that progressively decentralized is SuperRare, an NFT marketplace that distributed tokens to its artists and collectors, who will govern curation, the DAO treasury, and future product direction. Other organizations start community- and token-first: ElektraDAO is a community of 42 musicians, visual artists, developers and strategists, who developed an interactive choose-your-own-adventure web3 game with music at its core. ObscuraDAO provides photographers with commissions to produce their envisioned projects, a community, grant opportunities, and educational resources to help them explore NFT photography.

The promise of DAOs is alignment of incentives through stakeholder primacy and a removal of the need to extract value. The result: a democratized, disintermediated content landscape where creators have control over their work, how it’s distributed—and how it’s valued.

Beyond DAOs, the inherent interoperability of web3 makes platform lock-in likely to be a much less pernicious problem than it is in web2. The atomic unit of web3 is the account, which users control with their key pair and can be used across any app or protocol. Because all smart contracts are transparent and publicly inspectable, opaque and arbitrary back-room deals are harder to pull off. Though in its infancy, the web3 world is evolving towards a more open and standards-based philosophy, which benefits creators and users.

Power—and ownership—to the creators 

For as long as the internet has existed, thinkers and philosophers have painted utopian visions of what it would make possible—particularly in media. That utopian vision has not come to pass. At least, not yet.

In the past, I’ve called ownership the original system condition from which all else flows. Ownership determines incentives. It determines opportunities. It determines how wealth is created—and for whom. For the last decade, we’ve lived in a period in which ownership has been concentrated among a few centralized technology platforms, which owned the data, end-user relationships, and the means of distributing and monetizing content. While user-generated content creation exploded during this period, it also caused reliance on a handful of new gatekeepers, widespread burnout, and economic unsustainability for the vast majority of creators.

Fortunately, there are new developments on the horizon that represent a shift in the balance of power towards creators. With key new capabilities enabled by web3—digital scarcity, patronage that doubles as investment, programmable business models, and community ownership—we are on the cusp of a new creative renaissance on the internet. I believe web3 has the potential to unlock incredible opportunities for everyone who contributes and creates on the internet: a true Golden Age of content that we’ve all been looking forward to.

If you’re looking to jump into web3 in your career, Variant’s portfolio companies are hiring for a variety of roles. Fill out our talent form to get connected.

This essay is minted as an NFT on Mirror, which you can collect here!