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Business Model Innovation
Hi Everyone! 👋
This week’s piece is about business model innovation in consumer technology.
I’ll start by interviewing Jasmine Rice, a creator and an entrepreneur. Jasmine has 100,000 Twitter followers and is in the top 0.13% of earners on OnlyFans. Jasmine is also a co-founder of Fanhouse, one of the startups pioneering new internet business models.
After Jasmine’s interview, I’ll dig into why we’re seeing a shift away from advertising-based business models and how the next generation of companies will monetize.
An Interview with OnlyFans Creator & Fanhouse Co-Founder Jasmine Rice
Jasmine, thank you for taking the time to chat! Can you share how you became an online creator?
Thanks for having me! While I was in college, I started building a big following on Twitter. I now have about 100,000 followers.
What led you to start an OnlyFans?
I’d only ever made money as a creator by tweeting sponsored content. A brand might pay me $25 to tweet something. I realized that I was renting out space on my feed—I was getting paid for my distribution, not for who I am. I thought that there must be a better way for me to make money from my online following.
In March, I started seeing “OnlyFans” mentioned a lot on Twitter. I was a college student with $50 to my name. On Twitter, people would sometimes Venmo me out of nowhere and say, “I just love your content and want to support you.”
I decided to give OnlyFans a try and in my first week, I got over 100 subscribers and made over $1,000.
How does monetization work for a creator on OnlyFans?
There are three main ways that I make money on my OnlyFans:
Subscription: I paywalled my page for $5 per month, which is the lowest price that OnlyFans lets you set. Subscribers get access to my whole feed of content.
Tipping: People send me tips on messages and posts. I posted a selfie once and got over $100 in tips.
Locked Messages: OnlyFans lets you send a locked DM to every subscriber at once, setting a price for it. I usually set $10 or $15. Even if 5% of your subscribers open the message, you’ve earned thousands of dollars. People can’t tell if you sent the message to everyone or just to them, so it feels intimate and personal.
My income fluctuates a lot month-to-month. I’ve made everywhere from $1,000 in a month to $35,000 in a month.
Last year, you co-founded Fanhouse. What is Fanhouse and what led you to start it?
My co-founders and I realized that lots of creators have “finsta” accounts (fake Instagram accounts) where they’re less polished and curated than on their main account. Fans want access to the real person.
We ran a test where I created a new Twitter account set to private. I told my followers, “Venmo me $5 if you want access.” I made $2,000 in two weeks.
That gave us the idea for Fanhouse. Fanhouse is a place for creators to connect directly with their fans and to earn money by growing an exclusive and authentic community.
I had so many problems with OnlyFans—the platform isn’t built with creators in mind. They take 20% of creators’ income for very little value-add. At Fanhouse, we take 10% and give creators more tools and more support. Fanhouse is a better creator monetization platform built for every creator to deeply connect with fans.
On Fanhouse, I’m myself. People get to know the real me, and the authenticity and access is attractive to them. Fanhouse is like writing in my diary, putting that diary online, and people paying to read it.
What’s unique about Fanhouse as a creator platform?
There’s a lot of shame on OnlyFans. People’s usernames are things like “user4893”—there’s no sense of community. On Fanhouse, people use their real names and photos. Fans bond over being part of a creator’s fanbase.
One example is tipping. OnlyFans tips are private—only the creator sees them. On Fanhouse, we built tips to be public. There’s pride in the community around supporting a creator that everyone loves.
What’s your vision for Fanhouse?
We want Fanhouse to be the hub of the creator economy. I want to go on someone’s Twitter or Instagram and see a link in their bio to their Fanhouse. Fanhouse will be a place where creators and their communities congregate for authentic access and connection.
Business Model Innovation
Jasmine’s interview is an interesting jumping-off point. OnlyFans is a fascinating company: its business model captures much of what makes the internet so revolutionary.
While Jasmine doesn’t post nudity on her OnlyFans, most OnlyFans content is pornography (about 98%). Many OnlyFans creators used to earn a living through cam sites, which took as much as 80% of their earnings. OnlyFans cuts out the middleman: creators connect directly with fans, and the platform keeps a more palatable 20%. This concept—the internet obfuscating traditional gatekeepers—extends across industries.
In any analysis of OnlyFans, it’s important to note that the platform is more than an interesting case study: it’s the livelihood for millions of sex workers (especially during the pandemic), who have been historically stigmatized and exploited. Changes to OnlyFans’ business model have deep and lasting effects on human lives.
But the porn industry also has a history of being the vanguard of change. As one writer put it in 1994, “Sometimes the erotic has been a force driving technological innovation: from Stone Age sculpture to computer bulletin boards, it has been one of the first uses for a new medium.”
A year later, in 1995, the Senate was wringing its hands about cyberporn. One Senator remarked, “If nothing is done now, the pornographers may become the primary beneficiary of the information revolution.” Much of today’s legislation around internet governance was first put in place because of porn.
(Porn’s impact extends to today. One recent survey ranks PornHub as the 3rd-most-influential company of the 21st Century, ahead of companies like Apple, Amazon, Microsoft, and Netflix.)
With OnlyFans, the adult industry is once again pioneering. OnlyFans and Fanhouse are interesting case studies because they capture two tenets of next-generation consumer internet business models:
A shift away from advertising, and
A shift toward more diversified revenue streams.
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1️⃣ A Shift Away from Ads
The largest companies in the Web 1.0 and 2.0 eras relied on ad-based business models: Yahoo!, Google, Myspace, Facebook. The internet was new and people weren’t yet comfortable transacting online; ads let the major internet sites remain free and accessible to anyone.
The rise of the internet also coincided with a post-9/11 erosion of privacy. We’re seeing the effects of this today in the invasiveness of ad-based platforms like Google and Facebook. A recent piece by Dr. Shoshana Zuboff in The New York Times called this “surveillance capitalism”, positing that the profit-driven algorithms of Big Tech “splinter shared reality, poison social discourse, paralyze democratic politics and sometimes instigate violence and death.” After September 11th, Dr. Zuboff argues, the U.S. government “[granted] new internet companies a license to steal human experience and render it as proprietary data.”
A renewed focus on privacy is in part fueling a backlash to ad-based models. But the power of today’s tech giants also demands business model innovation among up-and-coming consumer technology startups.
Google and Facebook operate a duopoly: 77 cents of every dollar spent on digital advertising flow to those two giants.
The companies that have pursued ad-based models have largely struggled. Companies like Vice and Buzzfeed were forced to emphasize quantity over quality in a race for eyeballs to serve ads to:
These compounding forces—a focus on privacy and the might of the Google-Facebook duopoly—have forced consumer companies to come up with new ways to make money.
In our portfolio at Index, we’ve seen Discord, Patreon, and Roblox pioneer innovative new business models.
Discord, for its part, might be the first major consumer social company to forgo ads.
From the beginning, Discord’s founders—Jason Citron and Stan Vishnevskiy—have been adamant that they won’t sell ads. Instead, Discord uses a “freemium” model: the product is free to use, with a subset of users paying to access premium features.
Discord was founded in mid-2015, but waited to launch Discord Nitro until January 2017. Nitro charges $10 a month or $100 a year for features like customized usernames, custom emojis, and higher-quality streaming and download capabilities.
Over the past few years, Discord has morphed from a place for gamers to a place for all forms of online interaction. Last summer, the company changed its tagline from “Chat for Gamers” to “Your Place to Talk”.
Today, everyone from companies like Adobe to musicians like Wiz Khalifa have dedicated Discord servers for their fans and communities. Discord’s monetization has scaled with usage, growing from an estimated $10M in 2017 revenue to $120M in 2020 revenue.
Massively-multiplayer online games (MMOs) have also pushed the boundaries of consumer business models. MMOs like Roblox and Fortnite are largely ad-free, instead making money through microtransactions using in-game virtual currencies.
In Virtual Worlds and Virtual Economies, I wrote about how Fortnite charges for “skins”—clothing and equipment for avatars. A common insult on Fortnite is to call someone “Default”, which means that the person is using free skins. The cool players, meanwhile, pay for exclusive, sought-after skins; buying skins is a way of buying status in the game world.
Fortnite’s currency is called V-Bucks and can be purchased using real-world money. For reference, the Travis Scott skin launched alongside Scott’s Fortnite concert costs 1,500 V-Bucks, or about $15. The average paying Fortnite player spends about $20 a month on digital items. Roblox uses Robux as its in-game currency, while Minecraft has Minecraft Coins.
This concept is already moving beyond games. Gucci recently released digital clothing, including a $10,000 virtual dress, and Instagram influencers are using digital clothing to mix up their wardrobes and promote brands. Platforms like Dress-X aim to be “the Farfetch of digital fashion”:
The concept of virtual currencies has also moved beyond gaming. The dating app Bumble, which IPOs next week, also uses a freemium business model with an in-app currency. With Bumble Coins, users can buy premium features.
The next wave of consumer businesses will look more like these: ad-free products that stitch together paid subscriptions, microtransactions, and virtual currencies to capture value from power users.
2️⃣ A Shift to Multimodal Business Models
In the U.S., consumer tech giants have been somewhat monolithic in how they monetize. Netflix makes all its money from subscription. Activision Blizzard makes all its money from game sales. As even U.S. senators now (belatedly) understand, Facebook makes it money through ads.
Facebook is a good example here: its market cap stands at $765 billion today, and 99% of its revenue comes from a single source.
Contrast Facebook with Tencent, one of China’s internet giants. Tencent makes a good portion of its revenue from ads, but it also monetizes through other channels like gaming and payments.
We’re starting to see more diversified business models in the West. Twitch, for example, stitches together ads and subscriptions and tipping. A more recent example—and perhaps the most interesting example to watch right now—is Clubhouse. In a blog post last week, Clubhouse’s founders suggested that there will be a range of ways for creators to make money on the platform:
By eschewing advertising, Clubhouse can avoid the mistakes of past social networks. Privacy can remain paramount. The platform can protect against algorithmic echo chambers. Creators can earn more income from fans directly, rather than receiving only a share of ad revenue.
Over the next decade, we’ll see emerging internet companies follow this playbook. In the early days of the internet, the internet reflected culture; today, the inverse is just as true. Our society is a reflection of technology, and business model choices made by tech entrepreneurs have significant social repercussions. The next generation of business models will (hopefully) be more creative and more diverse, built for users and for creators rather than for advertisers. Decisions made by founders today will determine how people and technology intersect in the next era of the internet.
Sources & Additional Reading
Thank you to Jasmine Rice for letting me interview you for this week’s piece!
The Coup We Are Not Talking About | Shoshana Zuboff, NYTimes
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