I am sharing here a piece which I received from a newsletter in full (see below). Essentially, Facebook wants to pay creators just as TikTok and YouTube do. It is a virtuoso circle which compounds due to network effects: if more people come to engage with the contents, the companies will make money on them and recoup their investments. More so, since Facebook is not prepaying anything, the risk is very minimal. In this playbook, there are many things we need to consider.
The first is that this could be a fish bait acquisition construct which may not really work out well; the media industry experienced that type of arrangement many years ago, and nothing promising came out of it.
The second is that the business model of the 21st century “media” is based on the construct that it is more statistically better to promise to pay thousands of people, and then use algorithms to peruse their contents, accelerate any that shows elements of virality, than hiring a few zen-masters who may not deliver virality.
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Yes, Facebook has a better business model in paying these creators over trying to recruit staff to deliver the same contents. This is the reason why TikTok is a better business than the failed Quibi: out of the tens of thousands of creators in TikTok, there is a higher probability to find viral contents, daily, by an AI, than experienced dozen creators who can create tens of contents yearly.
People, evaluate your business in this age of the internet. Many things compound when you have the right playbook.
Which is a better business model?
A: Have 10 great movie producers to produce 200 short videos for your digital platform over two years (Quibi like).
B: Allow tens of thousands of amateur creators, and use an AI to select the best videos daily and distribute them massively in your platform (Tiktok like).
In year 2000, Option A would have been a good business because the computing resources to run AI were not (commonly) available for Option B. But with cloud computing and the age of AI here, Option B wins. The probability of getting a hit video compounds in Option B while A is limited by the insights of just 10 people; virality is key for short movies.
That is why Tiktok will remain a better business than Quibi which is looking for a buyer despite being under the guidance of legendary Jeffrey Katzenberg.
People, as I have noted in the Grand Playbook of Business, your business model is more important than your ability to execute. Are you improving your business model?
People may open Facebook or Instagram every day to see what’s new with friends and family, but what keeps them scrolling for hours is the content.
Tech giants have realized that having a healthy ecosystem of content creators—the users who publish viral videos and Internet celebrities who record their entire lives—on their services makes users return and helps their businesses grow. There’s simply more for people to consume, more videos to put ads in front of, and more attention to monetize.
To encourage more of this content, Facebook will now offer $1 billion in rewards for those who create hit posts. Facebook will dole out cash to creators on its main app and on Instagram for using specific features, turning on ads that their audiences must watch, or achieving yet-unnamed milestones.
Facebook is following TikTok’s lead on this. The Chinese bite-sized video service had previously set up a $2 billion Creators Fund, which pays well-known creators a few cents for every thousand views on a video. When TikToks hit hundreds of millions of views, the cents add up.
But the undisputed master of the strategy is YouTube, which started its partner program all the way back in 2007 to incentivize high-quality videos. It paid off. YouTube’s 2 billion monthly users watch more than a billion hours of video daily, and the company has paid creators more than $30 billion in the last three years.
A billion dollars is a lot of cash, but the key difference between Facebook and TikTok’s strategy, as opposed to YouTube’s, is sustainability. Over the next few years, Facebook and TikTok will spend all that money with the hope of accelerating user growth, leading to more revenue. YouTube’s content acquisition and revenue strategy, in contrast, are already inextricably linked, meaning it’s much less of a gamble for creators long-term.
But creators should be wary of relying solely on Facebook cash, which is a promise of upfront rewards with no long-term commitment. Take that advice from journalists, whose industry pivoted heavily towards video and livestreaming because of lucrative contracts and the promise of growing viewership. That turned out to be far less sustainable than Facebook had promised, partly due to wildly inflated viewership metrics and contracts that Facebook didn’t renew, leading to a correction in which hundreds if not thousands of journalists lost their jobs.
Of course, creators arguably already have a better business model than journalists. They at least benefit from the competition between platforms to recruit them for making content. That may be why YouTube alone paid its creators the equivalent of 345,000 full-time salaries in 2019, at a time when the U.S. has only about 85,000 journalists. (Fortune newsletter)---
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