28 Feb 2017

Crowdfunding internet-content

Wietse writes*

On the internet most things appear to be free. If you for instance look at the 50 most frequently visited websites, the majority can be enjoyed without paying a single penny. Of course, the internet is not really free. The servers that keep the internet up and running alone cost a fortune. Amazon’s server rental service (AWS) for instance (which controls about 30% of the cloud service market), made more money in 2016 than the GDP of entire countries like Congo or Armenia. It is often said that if something is free for you, you are the product, and this is certainly the case for the internet. Advertising on the internet is a massive industry, with ad-revenues on the internet in America being almost 60 billion US dollars in 2015 alone [pdf]!

However, the dominance of advertisement based revenue model does not mean that that is the only model. Netflix shows us that subscription models can work, and occasionally one-off payments are used, but the model that I personally find most interesting is relying on the generosity of internet users.

My favourite example of this is Patreon. This service allows content creators (both online as well as offline) to ask their fans for voluntary donations**, either per month or for certain output like short stories or videos. This is absolutely fascinating to me: It’s essentially public goods being crowd-funded by nothing more than the goodwill of enough people. This can be clearly illustrated using what’s becoming my pet-topic on aquanomics: YouTube.

YouTube videos can be seen as a public good, since they are not excludable to anyone with an internet connection (and a reasonable government or VPN), and me watching the video doesn’t prevent anyone else from watching it, making it non-rival. A frequent problem for public goods is of course obtaining enough funding to provide the public good. Making good YouTube videos takes time (writing scripts, shooting the video, editing), and we can’t expect people to do this for free. YouTube’s solution to this was the partner program, which is still in place, and which gives the creators more than half of the advertising revenues, which is still a unique model on any of the large social media platforms. However, the advertising model is quite terrible for a lot of creators, especially for those relying on quality over quantity. Some of these people have turned to Patreon to be able to keep on creating videos, sometimes with remarkable success. There are multiple channels which are earning tens of thousands of dollars per month through donations, and many more who are making hundreds or thousands of euros per month or video.

How do they do this? The traditional solutions are either having central enforcement or a small community which can self-enforce, but neither of those are the case for YouTube video-makers. Instead, they rely solely on the generosity of passionate fans. This shows that occasionally, all you need to (at least partially) overcome the collective action problem is get enough people enthusiastic enough. There is definitely potential here: Patreon is currently distributing about 8 million dollars each month . However, that’s just a very small drop in the enormous internet bucket, and I’d argue that there is likely much more potential. Aren’t there people who are at least as passionate about for instance independent journalism, science or poetry as the Patreon supporters are about their favourite YouTubers? Maybe, just maybe, services like patreon can be expanded to fund many more online creations. This would free them from the obligation to do everything for clicks, free them from the obligation to mine as much data as possible, and maybe make the internet just a slightly better place.

Bottom Line Patreon shows that, occasionally, collective action problems can be solved using nothing more than people’s passion and generosity, which might be an interesting funding model for more places on the internet.

* Please comment on these posts from my environmental economics students, to help them with unclear analysis, alternative perspectives, better data, etc.
** They do usually offer some perks like exclusive behind the scenes footage, but those seem to almost always be of relatively little value, certainly less than the donations.