The Issues with "Democratizing" an Industry Through Software
The Creator Economy & Pareto Returns
The concept of “democratizing” a traditional industry through software technology has almost become a cliché in the lexicon of software descriptions, as countless startups and enterprise software companies alike champion a mission of improving overall equity through accessible technology. The belief behind this language use is that by reducing the barriers of entry to participating in an industry, there can be more equitable returns generated for these new participants who would have otherwise been excluded from contributing to this industry. However, while software technology does have a tremendous potential with respect to opening up industries, there still exists a disconnect in the equitability of returns in “democratized” industries and the belief that “democratizing” an industry will yield real value for the majority of its participants. In other words, reducing the barriers of entry into a market through use of software technology will not alone create equitable opportunity for new participants who solely enter the new market.
We can examine this claim through the returns generated by the “creator economy,” a self-styled “democratized” media industry that is comprised of independent content creators, journalists, streamers, and influencers who leverage technologies such as Substack, Instagram, Medium, Tik Tok, Twitch, etc. to create media outside the traditional content outlets. The creator economy has generally been heralded as a quintessential “democratized” industry, since social media has enabled different kinds of advertising, selling, and content creation, but these platforms require no capital other than either a smartphone or a computer with internet to join and use. The visible barriers of entry into the creator economy are practically negligible, which makes participation virtually cost-free, and hence, “democratized.”
But what have the returns to participating in a “democratized” industry look like? This Axios article has compiled statistics and observations that suggest the creator economy has failed to return value to its participants more uniformly. In fact, the distribution of returns in the creator economy seems to mirror the distribution of returns in most non-democratized industries: they appear Pareto distributed, with a minority of market participants disproportionately receiving returns from the industry. While a “democratized” industry doesn’t necessarily dictate that the returns should follow a certain distributive structure, the disproportionate returns realized by a minority of the participating population suggests that simply improving access to participation doesn’t result in a more equal distribution of returns.
This raises the question, however, of even though a “democratized” industry such as the creator economy doesn’t produce more equal returns across its participants, if the creator economy is still an equitable or more equitable industry because of its “democratization?” Equity is tougher to define than equality and even tougher to recover through experimentation, since there is a variance in what constitutes equity—is just merely participating in the economy enough to warrant returns, or should participants be producing a certain amount in order to justify receiving a segment of the economy’s returns?
Further, the barriers to equity are similarly murky; while the Axios article observations seem to suggest that the assumed conclusion associated with a “democratized” industry (the conclusion being that returns will be much more uniform or “spread” across the participants if more participants are added) is invalid, the trickier question of why this is the case needs to be discussed. Constraining the analysis to just the creator economy, why is it the case that returns seem so unevenly distributed? There are several hypothetical explanations that could independently or synchronously explain this:
· Increasing participation does not increase the participation of active contributors, but rather dilutes the overall population with market participants who are not contributing or producing substantially
· There exist “hidden” barriers that stifle content promotion, such as discovery feed algorithms that are biased towards certain content producers (and as such, disallow certain content creators from reaching their intended audiences)
· There are “hidden” costs to generating returns in this economy, such as requiring an overwhelming amount of content production in order to build an audience properly
· The compensation mechanisms are not equitable, and the content creators are not compensated properly for reaching their target audiences
Addressing these hypotheses is not a simple task that can be executed by a data scientist over the course of a quarter—they require a series of experiments and investigations into the creator experience for each respective platform. Not to mention, these explanations need to be addressed for the good of the larger section of participants in the creator economy. Further, while the distributions of returns across major creator economy platforms appear Pareto, they are not necessarily inequitable if the compensation mechanism is commensurate with the effort invested by participants into the market and the expected returns from participants roughly match the returns they are receiving. Perhaps this latter claim is more controversial, but in the absence of a uniform definition of “equitable returns,” the very least a creative platform could do for its creators is make transparent how compensation works and not inflate the expectations of new participants.
As such, the challenge ahead for software platforms that facilitate the creator economy is two-fold: (1) set up a governance structure that promotes refining an equitable system of returns and (2) empower data scientists to focus on creating a transparent and equitable system of compensation for its creators. Further, any software platform that claims to “democratize” an existing market or economy should be viewed critically, since the process of opening up participation doesn’t necessarily reward participants in a fair way (or at least, there is not a preponderance of evidence to support the claim that they are being rewarded in a fair way, although there is substantial evidence to suggest returns are not as even as one might expect).
The “democratization” of an industry through software technology lends itself to a further discussion down-the-line, as there is a wider conversation on the ethics and purpose of positioning a technology as a “democratizing force,” as well as what that actually means for the product. However, in the context of the creator economy, it would be wholly irresponsible to claim that software platforms in this space are a democratizing force without setting expectations as to what that means in terms of expected returns for participation. As the Axios article reveals, there is a disconnect between what can truly be expected from participating in the creator economy and what has been realized by its participants; and while the larger question of whether this is fair remains unanswered, the short-term responsibility is to stop exploiting democracy-related branding to entice users to participate in an otherwise increasingly opaque economy.