@mjgardner Oh yeah, that's why I told them to. As the inestimable folks running r/Historians once put it, "Concision is not our brand".

@KevinMarks Ooh, thanks!

P.S. I would be remiss if I didn't also mention a fifth thing that Patreon did which was part of its secret sauce, the feature nobody realized Patreon was giving us until they tried to take it away and broke everything: charge bundling.

In December 2017, Patreon announced that they were changing the rules of the game, in a way they tried to pass off as advantageous to creators, but was something very else under the hood. What that was, well, nobody's quite sure because of how much lying Patreon did and because of how they swore parties they told things to to secrecy.

So where previously a patron who pledged three creators each a dollar a month would have had a total of 39 cents deducted in payment processor fees, leaving the creators to split $2.61 three ways, under the new system there would be a total of 99 cents deducted, leaving the creators to split $2.01 three ways.

Put another way, for a patron who supports three creators each for a dollar, the payment processing fee is 13%. Patreon was proposing making it 33%.

Only, no, what they actually proposed to do was even worse than that.

What Patreon had been doing up to that point was if a patron pledged more than one creator, then Patreon would submit a single charge to the payment processor for the total amount that patron owed all of the creators they had pledged for that month.

What they proposed to do instead was run a charge for each creator a patron supported. A patron who pledged three creators would be charged three times in a month.

That doesn't sound like a big deal, but it is. Because the fee structure of the payment processors includes, in addition to a percentage rate, a per transaction flat fee of $0.30.

And because the average patron pledge across Patreon is less than $2.

So there you go: four crucial aspects of what Patreon is ACTUALLY up to – what its value proposition is to the creators that choose to use it – that you're not going to be able to compete with Patreon unless you implement, and ideally improve upon.

Edit: turns out I wasn't done, there's a number 5: https://universeodon.com/@siderea/111124515211951131

Part of what made Patreon explosively successful, in the first place, was that Patreon had apparently cracked the code on one of the hardest problems on the internet: micropayments.

By the time Patreon had come along people had been discussing the problem of micropayments on the internet for at least two decades. The problem with micropayments was that there was a huge amount of things that people buy for very small amounts of money, and a huge amount of what people wanted to buy on the internet where things that could not reasonably be priced more than a few bucks – one track on an album, for instance – but the transaction costs for very small purchases were such a large percentage of such purchases that they weren't economical. The payment processing fees put so much friction on small purchases that they pretty much killed them dead.

The internet, understandably, lost its goddamn mind.

Now, Patreon did back down – temporarily. They ultimately grandfathered all of the extant creators as continuing to enjoy payment bundling, but I understand that after a certain flag day, new creator accounts work in the new unbundled way they wanted to roll out all along.

But the important thing to realize here, as a whole lot of us suddenly realized back in 2017, was that the numbers didn't work without bundling.

Patreon tried to play a shell game with how fees were charged. The system they had deducted fees out of whatever patrons pledged, as I described in the above example: if a patron pledges a dollar, the payment processor fee would be deducted from that dollar, along with Patreon own fee, with the creator receiving the difference.

In addition to unbundling the charges, such that there would be dramatically higher payment processor fees, Patreon explains that their plan was not to deduct it from what was pledged, but to add it. No longer would the amount that a patron pledged be the amount that their credit card would be charged. The amount a patron will be charged would be the amount they pledged plus the payment processor fee. If you pledged a dollar, you would be charged a $1.33 – the dollar you pledged plus 2.9% (3¢) plus the 30¢ flat fee.

PayPal, which is one of Patreon's payment processors, was offering a deal there for a while – and while all this was going down in December of 2017, I got on the phone with PayPal and asked if the deal was still available and it was – where one could opt into an alternative fee structure, with only a 5¢ flat fee, but a 5% fee rate.

So one hypothesis is that that was what Patreon was using, either through PayPal or through another processor that offered equivalent terms.

Then Patreon came along, and this was the deal they offered: you can do your thing and accept pledges of any amount, even tiny amounts, even amounts of less than $1, and we will charge you 5% for ourselves and approximately 5% for payment processing.

It was the right price point. Micropayments worked at that price point.

Nobody knows how Patreon made that work.

There's two major hypotheses.

Now they *weren't* trying to keep to 5% – they did in fact charge larger amounts for smaller pledges.

But the amounts they charged didn't seem remotely as large as they would have had to be to cover those payment processor fees if they were 2.9% plus $0.30.

But notice how bundling made this more plausible.

The other hypothesis is that, well. There was an old joke about Amazon, "We're losing money on every sale, but will make it up in volume". It may be that Patreon actually did that, for real. They may have assumed that they could subsidize the processing fees for small value pledges out of their own fees that they charged for high value pledges.

Only that math doesn't quite work.

But even then, you only get to a sweet spot if a given patron pledges enough across different creators. That $14.29 is even WITH bundling.

From my back of the envelope calculations it looked like Patreon was either losing money on every patron who pledged a total of less than $14.29 a month, or was otherwise struggling financially with low value patrons at some other threshold.

This is actually a horrendous problem, in light of that datum that the average pledge was less than $2.

If a patron pledges one creator $1 a month, a huge amount of that would be lost to processing charges – either Patreon cuts deep into the creator's share, or they lose money. But – with charge bundling – if a patron pledges 15 creators each $1 a month, the fee stops being so bad, because the $0.30 is only charged once. The fee works out to 2.9% (3¢) plus 2¢ per creator, so each creator's fee on their $1 is only $0.05.

Fundamentally, charge bundling is what made Patreon able – in so far as it was able, and it's not actually clear they were able – to offer what really was the first functional micropayment system on the internet.

I sat down with a spreadsheet and figured it out back in December 2017. If my math was correct, the point at which the 5% they said would cover payment processing actually did was for pledges of $14.29 and above.

"The Fourteen Twenty-Nine Hypothesis"
https://siderea.dreamwidth.org/1371510.html

This meant that if they weren't getting a special deal on payment processing, if they had tried to keep to 5%, they would have been losing money on any pledge less than $14.29.

For instance, the creator UI used to have a page that listed all of the works a by-works creator had submitted, that listed, *for each work*, how much money was pledged in the first place, how much revenue was actually collected (declined credit card charges are a thing), how much Patreon's cut was, how much Patreon took out to pass on to the payment processor, and how much you, the creator, would actually net.

They took that away.

Patreon also has removed key functionality from within the web interface that creators used to tell what's going on – particularly if their campaign is by-works, as discussed previously.

More generally, Patreon's UI for creators is really kind of terrible. I could itemize why but we'd be here for a while. A company could go far that offered the same services as Patreon, but let creators actually see what was happening to their money.

Because I want there to be Patreon competitors, I will explain what Patreon actually does, so if somebody would like to actually compete with Patreon they will know what they have to actually accomplish.

Brace yourself. Some of this is a little complicated to explain.

And before explaining it, allow me to observe: these are the sorts of features you get when somebody who actually really understands the usage case designs the platform. Patreon was founded by and designed by an actual goddamn artist, a musician and music video maker, who understood what artists and other creators actually need out of a platform.

It is incredibly frustrating that the only thing more stupid than Patreon is all the alleged Patreon substitutes that clearly don't even understand what Patreon does.

Pro tip: Patreon has no meaningful competitors, and also it sucks, so there's a huge opportunity for somebody to kick sand in its face and take its lunch money. But to do that you would have to understand what actually Patreon does that is worth it to creators to allow Patreon to take 5% of their proceeds (and then pass on to them a second 5% in payment processing fees).