The Beginning of the End for Patreon

The Beginning of the End for Patreon Crowd-Funding

There comes a time in the life of many companies when the owners (or investors, or vulture stockholders) decide that they want to extract more profit than is healthy for the company to survive. This is one of the things killing American newspapers, and it's even impacting B&N, and now it's about to kill Patreon.

Patreon is fairly healthy, but apparently not profitable enough for its capital investors.

From CNBC:

The number of active patrons supporting artists on the platform in 2019 has seen significant growth, up 1 million over the last year, the company said. The company is also on track to pay out $500 million to content creators in 2019, pushing the company to surpass $1 billion in payouts since its inception in 2013.

Under the company's current business model, 90 percent of funds are paid directly to content creators. Patreon takes 5 percent, and the remaining 5 percent covers transaction fees.

Patreon CEO Jack Conte said in an interview with CNBC that the platform will soon be facing the challenge of maintaining a profitable model as the company continues its growth.

"The reality is Patreon needs to build new businesses and new services and new revenue lines in order to build a sustainable business," Conte said.

The company does not currently provide contracts, which allows users to retain 100 percent ownership of their work and full control of their brand.

The company plans to provide creators with new "value services," like options for merchandising, to generate new revenue. Creators will be given the opportunity to participate in these services, and it could ultimately reduce Patreon's generous 90 percent pay-out model.

What this means is that Patreon's investors want the company to be more profitable, and if necessary they're going to force the company to pay its users less.

Dan Olson summed it up Patreon's near future nicely:

I do not currently use Patreon; I closed my account when they tried to jack up costs in late 2017. But I had been thinking about going back to Patreon in order to fund the blog through donations and pledges.

Now I think I'll just still with Paypal (not exactly a nice company either, but beggars can't be choosers).

The thing about Patreon not being profitable enough is that Paypal has a very similar model and they turn a profit on a smaller cut of the funds they transfer. Paypal only collects payment processing fees (the 5% transaction fees mentioned above) and yet Paypal is so profitable that they spun off Ebay as not being worth the hassle.

Of course, Paypal had a unique advantage when they were starting out; they were acquired by Ebay, which then forced buyers and sellers to use the service (when you're growing your business, there's nothing like having a captive audience who can't say no).

Paypal didn't have to squeeze their customers because their parent company had other ways to grow the business as well as a vision for handling payment processing for all types of businesses.

Folks, Patreon's attempts to increase its profitability are doomed not because this is going to drive away users but because their niche is too damn small. Patreon only handles one small segment of payment processing (what are essentially charitable fundraising campaigns); in comparison, Paypal covers dozens of segments.

Patreon either needs to find a new niche, or find someone to buy them.

Squarespace might be a good bet, or possibly Automattic, or Wix. No, I am not throwing names out there; Patreon would need to be bought by a company whose goals complement Patreon's abilities (think Square and Weebly, for example).

I hope someone does buy Patreon, because otherwise the company is going to be flogged to death by its investors.

Nate Hoffelder

View posts by Nate Hoffelder
Nate Hoffelder is the founder and editor of The Digital Reader. He has been blogging about indie authors since 2010 while learning new tech skills weekly. He fixes author sites, and shares what he learns on The Digital Reader's blog. In his spare time, he fosters dogs for A Forever Home, a local rescue group.

17 Comments

  1. The Rodent7 February, 2019

    I don’t know if you’ve tried https://ko-fi.com/ but as a user who reads blogs, I like ko-fi and use if occasionally to “tip” bloggers, etc.

    Reply
    1. Nate Hoffelder7 February, 2019

      I have heard of it, but never tried it. Thanks!

      Reply
    2. Nate Hoffelder7 February, 2019

      WHAT! It’s only $6 per month!

      Reply
      1. Olivier8 February, 2019

        The problem of the tip jar model is that it is not conducive to regular payments, which is what creators need.

        About Patreon, yes that’s a shame but just from their zip code you always knew that was the deal. A company really dedicated to helping creators would have a far smaller staff and would not have set up shop in a super-expensive coastal city. It would probably have a non-profit status, too.

        The chutzpah of Silicon Valley, where all the hipsters pretend to be working for the betterment of the world when it’s all about the money — if only because of their cost base — is truly mind-boggling. It makes you long for sharks like Travis Kalanick: at least with him there are no faux-semblants.

        Reply
  2. Lyn7 February, 2019

    Well, this is very interesting, coming on the heels of the Sargon of Akkad debacle. I closed my patreon and PayPal accounts–then relented and went back to Patreon because I felt bad about all the artists I’d abandoned.

    Scott Adams, the Dilbert cartoonist who also runs a daily Periscope about politics, has a new startup and is talking about taking over some of the Patreon space. I’d like to see it. Meanwhile, I’m still on Patreon (as a supporter, not as a creator) and have also bought tokens from Whenhub.com (Adams’ company).

    As “consumers” of artistic and technical creations, I–like many, many others–want to support creators. It’s just hard, given the ugly characters running the money show.

    Reply
  3. David B Huber7 February, 2019

    The Millicent protocol was conceived to allow pay-per-view pricing of a URL. The method was decentralized, practical, painless and anonymous. Which doomed it.

    Reply
  4. realjj8 February, 2019

    The world is better off without that site.
    They practically provide a paywall for Youtubers so the quality of the Youtube content decreases as more and more is shifted behind this paywall. It just corrupts creators (greed always wins) and makes the internet less. Maybe not everybody uses it that way but that’s its core purpose, all else is spin.

    Reply
    1. Olivier8 February, 2019

      You are such a troll… YouTube was always a cesspool and it is normal for creators to want to earn a living.

      Reply
  5. Will Entrekin8 February, 2019

    “Creators will be given the opportunity to participate in these services, and it could ultimately reduce Patreon’s generous 90 percent pay-out model.”

    That really does seem generous. Amazon and Apple pay 70% to creators.

    Reply
    1. Nate Hoffelder8 February, 2019

      Both Amazon and Apple do a heck of a lot more for their money. Patreon doesn’t do much more than Gumroad (and they only charge for payment processing).

      Reply
      1. Will Entrekin8 February, 2019

        “Both Amazon and Apple do a heck of a lot more”

        Can you elaborate?

        It’s seemed to me that it’s mostly a difference in product. Through Amazon and Apple, indie authors can sell their ebooks. Through Patreon, they can sell engagement with their brand (blogs, podcasts, etc.)

        PS — I hadn’t noticed before but “whose goals compliment ” should be “complement.” (Unless, of course, those goals are telling Patreon how handsome Patreon is. Blue Steel! ha!)

        Reply
    2. Mike Cane8 February, 2019

      >Amazon and Apple pay 70% to creators.

      Even more to Big Guys; like 85%.

      And that 30% is really unconscionable since all they do is provide what’s basically a classified ad (a listing) for an app or book. They generally don’t market or promote for the money they make.

      And Patreon screwed itself when it got involved in the politics of things. Even Jordan Peterson has left it.

      Reply
  6. Olivier8 February, 2019

    Patreon offers a space where creators can engage with their patrons. That’s more than Gumroad and about the same as what Amazon offers authors: a page somewhere in its vast web site.

    Reply
    1. Nate Hoffelder8 February, 2019

      The engagement aspects of Patreon could be replaced by a $10 a month website service. There really isn’t anything much to it that you can’t find elsewhere.

      Reply
      1. Olivier8 February, 2019

        I only follow comics authors on Patreon, so I can’t speak for other kinds of creators, but _all_ the authors I follow have their own web site, so it’s not the lack of a web site that drove them to Patreon.

        Patreon is where they engage readers willing to pay extra for premium content, which would be quite a hassle to arrange by themselves on their own site whereas Patreon offers a ready-made platform where all the tiering already taken care of: authors just need to tag their posts correctly.Think also of how unlikely most readers would be to create an account on each comic site they follow. Patreon reduces the friction by letting them use a single account.

        I am not crazy about Patreon-the-company, as I wrote above, but I think you are much too dismissive of the concept. Name a single other platform that has collected as much money (not for one-offs like KS, Indiegogo, etc) for creators as Patreon.

        Reply
  7. […] Link to the rest at The Digital Reader […]

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  8. […] prints money, but instead they’ve gotten themselves in a situation where they need to target an ever-expanding exponential growth curve, which is simply not sustainable. How long will it be before they start increasing their cut, […]

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