I americium an Investment Partner astatine Andreessen Horowitz focused connected the Consumer sector
Clayton Christensen's disruption mentation and what it means for the Passion Economy.
[Clayton Christensen’s penning has been hugely influential connected my thinking. So when Cliff Maxwell, Christensen’s erstwhile Chief of Staff and pupil astatine HBS, reached retired to sermon my enactment connected the Passion Economy, I jumped astatine the accidental to research the intersection of our ideas. He has been an invaluable thought partner, collaborator, and editor. -Li]
The process of disruption has overthrown galore existing marketplace leaders and upturned established industries, from alloy mills to video rental stores to idiosyncratic computers. Just arsenic erstwhile generations of disruptors person upturned incumbents, caller Passion Economy platforms besides show disruptive characteristics — and are frankincense poised to person monolithic impacts connected a fig of industries, from amusement to education.
My blog station past twelvemonth “The Passion Economy and the Future of Work” defined the Passion Economy arsenic follows:New integer platforms alteration radical to gain a livelihood successful a mode that highlights their individuality. These platforms springiness providers greater quality to physique lawsuit relationships, accrued enactment successful increasing their businesses, and amended tools for differentiating themselves from the competition. In the process, they’re fueling a caller exemplary of internet-powered entrepreneurship.
New tools marque it easier than ever for prospective workers to gain an income by tapping into one’s passions and unsocial skills. Examples see writers connected Substack publishing their ain subscription newsletters, nonrecreational video crippled streamers connected Twitch and Caffeine, video people creators connected Teachable and Podia, and online teachers connected K-12 learning platforms Outschool and Juni Learning.
By processing caller products and services that are cheaper, simpler, and much convenient, workers successful the Passion Economy tin pat into ample segments of consumers who antecedently could not entree oregon afford, oregon were over-served, by accepted offerings. In this way, Passion Economy businesses person the imaginable to disrupt incumbent companies.
Why Disruptive Innovations are so… Disruptive
A mentation developed by Harvard Business School prof Clayton
Christensen successful the 1990s, “disruption” has go ubiquitously referenced but wide misunderstood. Contrary to fashionable usage, disruptive innovations are not breakthrough innovations that marque bully products better. Instead, they are innovations that either participate astatine the bottommost of the marketplace and service a lower-profit segment, oregon that people consumers who antecedently could not entree oregon spend a product/service. This process is enabled by technological alteration and concern exemplary innovations.
Because disruptive innovations thin to beryllium seen initially arsenic inferior to existing solutions, they are often underrated by incumbents, who rationally
focus connected serving ample existing markets with greater profitability.
This asymmetry of information provides disruptors the breathing country to
transition from simply “good enough” for a fringe conception to serving customers successful the mainstream market. The effect is that the process of
disruption often causes well-managed incumbents to neglect arsenic disruptive
innovations bargain distant their markets.
Table source: The Innovator’s Solution by Clayton Christensen
There are 2 types of disruption:
1. New-market disruption: Targets under-served customers and competes with non-consumption
In each market, determination are “non-consumers,” individuals who don’t person the time, money, skill, access, oregon quality to devour existing offerings. A disruptive innovation introduces an affordable product/service that targets non-consumers—thus creating wholly caller consumers wrong an wholly caller worth network.
A canonical illustration of new-market disruption is Airbnb. By making airbeds and other bedrooms disposable for booking by guests, Airbnb enabled homeowners to monetize underutilized abstraction and expanded the marketplace for travel. While Airbnb listings lacked the attributes of hotels that mainstream customers valued—cleanliness, consistency, and comfort—they appealed to a antithetic acceptable of values: affordability and the tendency for local, authentic experiences. Over time, Airbnb expanded upmarket and captured much mainstream consumers.
2. Low-end disruption: Targets over-served customers
Because absorption practices rationally absorption connected serving existing customers and pursuing higher-margin products, firms germinate their products to a constituent wherever they connection acold much features oregon functionality than what astir radical really need. A low-end disruptive innovation meets the needs of over-served customers by providing capable functionality successful instrumentality for little prices. An illustration of low-end disruption would beryllium simple, lightweight photograph and video editing apps similar Kapwing, PicsArt, and Canva that propulsion casual users distant from premium bequest editing products.
How does the Passion Economy subordinate to Disruption Theory?
On the idiosyncratic side, the Passion Economy competes with non-production
While Christensen’s mentation of disruption was predicated connected competing against non-consumption, the Passion Economy is rooted successful workers, and enables radical who person non-commoditized skills to vie against non-production.
Participants successful the Passion Economy are individuals whose skills and abilities were antecedently under-monetized oregon under-utilized comparative to their potential. New technologies and concern models successful the Passion
Economy alteration much radical to unlock economical worth from their originative
skills and passions, wherever they had antecedently been hampered by accepted intermediaries and unfavorable concern models. The “enterprization of the consumer” tin beryllium a gradual process, starting with individuals exploring caller channels for broadside hustles, with immoderate yet graduating to afloat displacement of accepted employment.
Across aggregate verticals, caller platforms alteration workers to vie against non-production:
- Online people platforms similar Teachable, Podia, Thinkific, and Mighty Networks let experts to productize and monetize their cognition online. Previously, galore of these instructors were reliant connected in-person classes, coaching sessions, and retreats to make income—challenging, expensive, and unscalable paths to monetization that often caused galore instructors to question antithetic types of enactment altogether.
- Patreon and Buy Me A Coffee let much autarkic creators similar podcasters, video creators, and artists to gain a surviving from fans’ rank payments. While these creators often amassed ample followings connected advertising-based societal platforms, the concern exemplary of those platforms made it challenging for creators to gain a viable income, starring galore to driblet retired of their originative pursuits and to stay non-producers.
- VIPKid and Outschool let radical to go online teachers, enabling much radical to gain a surviving from teaching than if they had to thatch astatine carnal schools.
- New podcast tools similar Anchor, Supercast, and Glow marque it casual for creators to record, distribute, and monetize podcasts. Previously, successful bid to make an audio show, scope an audience, and monetize, these creators had to beryllium employed astatine accepted media companies, thereby barring galore from entering the industry.
- Programs similar Github Sponsors alteration developers to person backing from the assemblage straight connected the level and to marque a surviving from contributing to unfastened root projects. Open root developers historically worked connected these projects arsenic idiosyncratic passions without fiscal gain, supporting themselves done different jobs.
Many palmy marketplace companies successful the past fewer decades tapped into this thought of converting non-producers into producers, successful presumption of making carnal assets productive: Uber, for instance, unlocked the economical worth of people’s idle cars, and Airbnb converted excess carnal spaces into invaluable assets. New sources of supply, successful tandem with a latent, ample excavation of under-served demand, created monolithic economical value. While these marketplaces started by amassing proviso successful bid to pull demand, creators often person the other problem: they person already aggregated request connected ample societal platforms, but conflict with monetization. This is wherever galore caller platforms are entering, enabling creators to flooded non-production by offering worth that fans would beryllium consenting to wage for.
On the user side, Passion Economy products and services tin vie with non-consumption
The astir powerful, extremist manufacture alteration happens erstwhile non-production is matched with non-consumption. Through this combination, the Passion Economy creates the imaginable to springiness emergence to some new-market and low-end disruptions.
Because caller producers enabled by Passion Economy platforms participate the market, erstwhile non-consumers and over-served consumers successful assorted sectors person a wider scope of choices than ever before. Consumers person the quality to take a creator-led offering that is cheaper, much convenient, and much aligned to their preferences.
For example, a pupil of exertion concern strategy whitethorn find it prohibitively costly to subscribe to The Wall Street Journal, Financial Times, and The Economist (non-consumption), oregon conflict to peruse each of their contented (they were over-served). But $12 per period to Ben Thompson’s Stratechery for in-depth tech investigation straight to one’s email inbox is some much affordable and convenient than the bundled, broader alternatives.
Another illustration of competing against non-consumption tin beryllium recovered successful Run the World, an online events level that allows anyone to acceptable up and big an online event, from accepted conferences to influencer meetups. Run the World events aren’t conscionable targeted to radical who can't spend to
regularly be real-world conferences (low-end disruption), but are besides pulling successful attendees who would different ne'er see going to a league (new-market disruption). Because of the easiness of usage and debased outgo connected the creator side, events tin beryllium organized that are much niche and aligned to users’ interests—expanding the marketplace to caller events that would person been infeasible oregon unprofitable to run offline.
The ground of contention changes successful the Passion Economy: not arsenic bully successful immoderate ways, but amended successful others
A cardinal diagnostic of disruptive exertion is that it heralds a alteration successful the ground of competition.
At archetypal glance, virtual events whitethorn look inferior vs. accepted offline
conferences—the prime whitethorn beryllium hit-or-miss, and opportunities to conscionable
other attendees are much limited. But on a antithetic ground of competition, online events are superior: they are cheaper and much convenient to be than offline events, and caller features made imaginable lone done bundle similar elaborate idiosyncratic profiles and instant 1:1 video chats alteration much targeted networking. These features whitethorn not entreaty to a accepted conference-goer, but they are highly valued by those who can’t entree overmuch of the league circuit oregon for those who person ne'er attended ample nonrecreational events.
The ground of contention tin besides displacement from breadth and measurement of contented among incumbent offerings, to extent and worth for Passion Economy products and services. For instance, millions of users crook to ad-driven societal media platforms similar Twitter and Reddit to enactment informed astir quality and to find absorbing content. The worth proposition to consumers is the breadth of topics and the outgo (free). But increasingly, creators with loyal followings are creating their ain autarkic offerings — ranging from paid courses to niche communities to vertical societal networks — with the ground of contention shifting to curated contented and community, spot successful a peculiar creator, and alignment to circumstantial topics.
Similarly, portion the TV manufacture offered wide contented for wide appeal, caller types of specialized amusement networks similar Twitch connection contented that is much aligned to circumstantial idiosyncratic interests. Twitch enables anyone to easy commencement streaming (converting non-producers into producers) and to gain income from a niche, supportive assemblage who was antecedently over-served by accepted amusement (low-end disruption).
Just arsenic vertical-specific services similar Craigslist and Redfin chipped distant astatine
the advertizing revenues of newspapers, caller subscription contented platforms similar Substack and Ghost are present chipping distant astatine the editorial contented of accepted media companies. Paid media platforms person tapped into a increasing marketplace of users who privation greater power implicit their accusation diets (i.e. they were over-served), and are consenting to wage for high-quality, curated content. Though paid newsletters whitethorn beryllium “not arsenic good” arsenic accepted media/journalism connected the dimensions of comprehensiveness oregon marque trust, the ground of contention shifts to
quality, curation, and spot successful a peculiar writer. Over time, 1 could ideate these offerings capturing much mainstream audiences by offering much contented types and creating bundles spanning antithetic subjects and authors—all underpinned by a importantly little outgo operation than accepted publications.
To beryllium clear, not each Passion Economy level is disruptive. Disruptive innovations person low-end oregon new-market footholds; creator-led offerings that people the high-end of a marketplace are, per Christensen’s definition, not disruptive. For instance, immoderate quality influencers are making premium tutorials and courses that are more costly than pre-existing contented disposable connected YouTube and are targeting high-end customers who are consenting to wage for much well-produced, oregon possibly much personalized, content. These are sustaining innovations comparative to escaped contented and people high-end customers with amended show than what was antecedently available.
And enactment that disruption is ever relative to thing else: for instance, portion YouTube whitethorn beryllium disruptive to accepted TV networks, it itself whitethorn beryllium disrupted by creator-specific content.
What is the “Why now?” for the Passion Economy, and however does coronavirus interaction it?
Christensen wrote, “The question is whether determination is simply a caller exertion oregon concern exemplary that allows caller entrants to determination upmarket without emulating the incumbents’ precocious costs—that is, to travel a disruptive path.”
For the Passion Economy, the catalyst is some technological alteration and caller concern models. The Passion Economy has existed successful bits and pieces arsenic the net has developed, but societal platforms that person reached
worldwide standard and enabled fans to link with creators, and
advancements successful exertion including reliable video conferencing and mobile payments are yet unleashing the Passion Economy’s disruptive
On the concern exemplary side, individuals tin much easy motorboat their ain businesses by growing, nurturing, and monetizing an assemblage via caller integer tools and platforms, with their ventures entailing importantly little outgo structures than incumbents for whom endowment was conscionable 1 of galore costs (just comparison the outgo structures of a work built connected Substack vs. a accepted media company). There are secular tailwinds too: automation is driving a displacement towards much empathetic, originative work; spot is shifting to individuals versus institutions; and users are much acquainted with subscription concern models and progressively consenting to wage straight (rather than done their attraction connected ads) for unsocial entree and expertise.
And then, there’s the circumstantial infinitesimal of past we are surviving done now: since the coronavirus hit, the US unemployment complaint has surged to 14.7% successful April (conservatively). Beyond the millions of radical who are recently
unemployed, determination are millions much who are moving from home, acrophobic astir their jobs, and exploring ways to diversify their earnings. This economical uncertainty creates greater urgency than ever for innovative
paths to gain income online—to crook non-producers into producers.
On the user side, the conception of non-consumption that underpins
disruption mentation is present manifesting successful aggregate ways: radical without
work volition progressively “non-consume” arsenic they chopped discretionary budgets.
And galore categories of products/services that consumers antecedently
purchased are present non-consumable and necessitate alternatives: online learning is picking up steam due to the fact that in-person acquisition is not available; online fittingness is accelerating due to the fact that boutique fittingness studios and gyms are temporarily closed.
This creates a monolithic accidental for caller companies to assistance service some the immense contingent of non-producers and a increasing basal of non-consumers.
If you’re gathering thing here, I’d emotion to chat.
To summarize: Innovations successful the Passion Economy correspond caller businesses that let workers to vie against non-production. In turn, these workers tin make caller products/services that service erstwhile non-consumers and over-served consumers. This means that crossed antithetic industries, caller Passion Economy platforms person the imaginable to disrupt incumbents.
In the adjacent post, I’ll delve into 4 large implications of disruption mentation for the Passion Economy. Stay tuned adjacent week and subscribe to my newsletter to get it first!
Related speechmaking connected The Passion Economy:
- The Passion Economy and the Future of Work. The archetypal blog station that defines the Passion Economy and outlines 5 characteristics of caller integer platforms successful this space.
- 1,000 True Fans? Try 100. A refresh of Kevin Kelly’s “1,000 True Fans” idea, I suggest a caller exemplary for creator monetization that involves monetizing a smaller instrumentality basal astatine higher dollar amounts.
- 16 Metrics for the Passion Economy.
When the concern exemplary shifts from being attention/advertising-based
to nonstop idiosyncratic payment, the metrics that substance besides change.
- a16z Podcast: How the Passion Economy Is Redefining Work. A speech betwixt me, Patreon co-founder Sam Yam, and a16z user exertion Lauren Murrow.
Originally published arsenic “How the Passion Economy volition disrupt media, education, and countless different industries (Part 1)"
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