The Beginning of the End for Patreon
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.
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:
Like you'll sign in and there'll be six popups asking if you've tried Patreon Mega and extolling how it can help you mega-engage with your audience, while you're just like "can I have a commission button so people can make one-time payments?" and they're like "no."
— Dan Olson (@FoldableHuman) February 5, 2019
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.