Sex Sells, Social Media is Popular and Other Lessons from OnlyFans Changing Strategy

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Folks, this week I’m writing outside of my comfort zone. Because sex is on the agenda. And frankly talking about sex is tough. Folks have moral objections to it from the right, moral objections to it from the left, and moral objections from nearly every other perspective too. (Pretty much only libertarians are cool with it.) As a result, most mainstream publications avoid it.

Yet I can’t avoid it this week. From a business strategy perspective, nothing was more interesting this weekthan OnlyFans!

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Most Important Story of the Week – OnlyFans Gets Rid of Sex

Sometimes I think the “social media wars” are easier to explain than the streaming wars. (And yes, no one calls them the social wars. But let’s make that happen.) So time to put on the “social media strategy guy” hat and get to it.

How Small Innovations in Social Media Lead to Big Returns

The social wars are hyper competitive. We tend to forget that, every year, hundreds, if not thousands, of aspiring social media apps are launched. This year we’ve seen the rise of “social audio” apps from Clubhouse, Discord, Twitter’s Spaces, Spotify’s Green Room, and Facebook’s Soundbites. Most will fail, but one will succeed.

(By the way, this is a great real life example of the “availability heuristic” at work. Since we only remember successful social media firms, you can forget how many failed apps launched. And if they aren’t powered by a huge conglomerate—think Google+—we never know they existed. My favorite anonymous app? “Hey”. Hey was an app where you just sent someone a “hey”. They got $200K in funding.)

But why does one social media app/platform succeed where others fail? For the most part—and yeah that’s a big caveat—it’s because they have just one innovation that sets them apart. A “hack” if you will that suddenly turns a so-so service into a great one. Small changes make big differences because of the power of “network effects” in social media. Specifically the “demand-side increasing returns”, which is fancy economics speak for “the more people who use it, the more useful the service is”. 

My favorite example is Facebook. MySpace was alive and well when Facebook started. But MySpace had two clear problems: first, everyone brought over their random AOL usernames—AOL Instant Messenger was social media before social media—so no one knew who anyone was. It turns out that it’s better to know who everyone actually is. Essentially, folks didn’t want to find out that someone was a dog on the internet. (And I say this as an anonymous hold out on the internet.) Facebook’s solution was to make folks use their real names and college email addresses to prove who they were.

Second, Myspace was open to anyone. Facebook paired their authenticity with exclusivity. Initially, Facebook started with only college students at elite universities. So an exclusive club with real names. The demand side returns were also huge. Since everyone was on Facebook, you couldn’t survive in college without Facebook. 

And it took off like wildfire, leading to the multi-billion dollar conglomerate we know and hate today.

(There is also a story about how Facebook failed to keep innovating and changed its business model, but survived by anti-competitive behavior. But that’s a story for another day.)

OnlyFans Innovated in the Online Sexual Relationship Space

This brings us to OnlyFans.

For those who don’t know—or want to pretend like they don’t know—OnlyFans is a website/platform where “creators” have individual relationships with users/customers. They offer several different models, from monthly subscriptions to one-time transactions for their “content”.

If “creator”/“content” sounds vague, that’s because it’s hard to find a word to describe the primary service on sale: a sexually-explicit relationship. The users follow various creators who are, frankly, hot women. These women make suggestive, explicit or pornographic photos. Then the users can interact with the creators, especially if they pay for subscriptions. These interactions can mean even more explicit videos, but also include messages and conversations. So far this sounds a lot like “cam video” fare.

(Quick aside. As I write this, I realize some folks will immediately say, “Man, EntStrategyGuy is a bit of a perv for knowing all this.” I’m not an OnlyFans user. Since I’m married, that wouldn’t quite be kosher in my house. However, I’ve listened to OnlyFans-creator Aella on two different podcasts and she’s astoundingly well-versed in the business side of OnlyFans/sex work. She regularly surveys her users about sex work business models.

And while sex is incredibly lucrative, as an industry, we try to pretend we don’t know this. It’s like a dirty secret that nudity sells (Netflix’s Top Ten regularly features softcore sex), that some of the most popular websites are pornography websites (but Comscore doesn’t track them), and that every social platform is constantly battling with folks trying to to use it for sex (even Roblox, a website for kids). As I said in the introduction, we don’t talk about this for fear of condemnation. But understanding this is crucial.)

Back to OnlyFans. What is a “cam video”? Almost as old as the internet, it’s a video where a girl is on camera does whatever his/her fans want. (Though mostly hers.) And often very graphically. In addition, men follow along in a chat, and guys are actually “competing” with each other to spend lots of money. Not only does that require lots of money, it also frankly requires a special type of person to brag about spending money on a cam girl.

What was OnlyFans “hack”–or, in business speak ,”product innovation”–that delivered a new value proposition to customers? Privacy. I don’t have statistics, but I believe the majority of dudes—feels like the right term for this conversation—want to keep their sexual activity somewhat private. The vast majority of guys don’t want to compete with other dudes for a cam girl’s attention. They want the appearance of a one-on-one relationship. Moreover, they want to believe this (hot) girl wants them specifically.

OnlyFans delivered that. They hide all the other conversations a creator is having. So a user feels like they are the only person subscribed to a creator. It’s like she (or he) is making photos/videos just for them. In fact, many guys ask for individualized photos to “prove” the girl took the nude for them.

And frankly when I first heard about this change, I thought, “That’s genius”. 

It’s not like OnlyFans is the first website with explicit content. But it found the product innovation/hack that delivered the network effects. And the success of the last year in revenue and cash flow say this was a winning hack. 

Source: Axios

(For context, Netflix’s total revenue is about $25 billion this year, but they will only breakeven on cash flow. That’s network effects in social media for you!)

The Big Change: OnlyFans is Getting Rid of Explicit Material

So OnlyFans changed the online sexual relationship game. And now the “sex” part of their business model is about to go away:

This seems like a huge change, given that the core of their business model is about offering sexually-charged relationships. But OnlyFans presumably sees higher upside in the buzz word of the moment: “the creator economy”. Customers now want direct relationships with creators. Every tech platform wants to be the interface in which fans interact with “creators”. Since OnlyFans has that, and an installed-base of customers, presumably, pivoting now to a broad platform will help unlock lots of growth. 

By getting rid of sex, they can tap into all sorts of relationships between customers and fans. 

But I don’t think it will work. 

Why This is Bad Strategy

It all comes down to understanding the customer. Again, OnlyFans offered a seemingly one-on-one relationship with super hot girls. And I don’t think this advantage extends to other types of “creators”.

Other platforms will serve specific creators better than OnlyFans. Take music. Musicians are better served on Facebook, Patreon or other music-focused services. And you know, selling concert tickets and albums. (And seriously think about this. There is this assumption that since folks don’t/won’t buy albums anymore, musicians need to be on OnlyFans to make money. So a super-fan will spend more than hundreds of fans buying an album and going to concerts. Huh?)

For video, Youtube is better for non-sex video personalities. Or Twitch for live streaming. (And by the way, Twitch has its own kinky sex videos.) And for “intellectual” pursuits, if I can use that term, Substack has already perfected the newsletter system, and Spotify and Apple have the best payments for podcasting. In other words, most non-hot women creators have other, better platforms to build their brands.

What does a PG-13 version of OnlyFans deliver to customers? Almost nudes? Instagram and Twitter have those. Isn’t this basically Patreon? Maybe OnlyFans has a better interface than Patreon, but I doubt it. Maybe I’m wrong and enough guys will still pay for non-sexual content with hot girls. Maybe.

Add it all up, and this is a risky strategic shift. 

Of course, I’m hardly the first online person to scoff at this change. But the real issue is why they had to do it. 

If It’s Bad Strategy, Why Do It?

Because they have to.

After news broke about this change, a number of news outlets leapt to explain why this move was happening. Here are three rough, but distinct reasons:

1. Mastercard will refuse to process payments to companies related to pornography. This includes OnlyFans.
2. OnlyFans is having trouble attracting investors, meaning later round venture capitalists and/or private equity.
3. OnlyFans sees higher upside in a broad social network than a targeted social media platform.

I ordered those reasons above because I think they explain the logic fairly well. First, Mastercard is cracking down on pornographic businesses. Earlier this year, they took action against PornHub and affiliated companies, for hosting underage content. Frankly, since Mastercard, Visa and American Express control a super-majority of payments online, if one of the three refuses to work with your website, you’re toast. 

This has antitrust implications. Does it make sense for a trio of payment processors dominate the economy? It does if you’re in the Chamber of Commerce—or a credit card company shareholder—but not if you’re a fan of a free and thriving market. Does it make sense for large corporations to have so much power they can set rules and regulations more powerful than elected governments? Basically no side of the political spectrum agrees with that, except the most die-hard Chicago School economists. 

(Or Democratic congresspeople from Silicon Valley…)

Couldn’t OnlyFans have continued without Mastercard? Maybe. But there is also the allure of riches. The founder Tim Stokely and majority owner Leonid Radvinsky want to get paid because, again, look at those cash flows. (As I wrote a few weeks back, they want “an exit”.) Both Stokely and Radvinsky are now “wealthy” but not obscenely wealthy. Like billionaires buying super yachts wealth. Like wear pajamas to parties wealthy. OnlyFan’s explosive growth hints at that future.

But there is a catch. Lots of folks don’t want to be associated with the sex business. So venture capital, private equity and other other institutional investors can’t invest in related businesses. If OnlyFans wants a huge pay out, they need to get rid of the sex. 

And lastly, OnlyFans probably thinks there is more upside in the non-sex business. Sex sells, but its upside is limited, since most folks don’t talk about sex in public and don’t want to admit to using sex website/apps. (Look how many caveats I’ve put in this article already!) 

If you’re big enough—like Facebook in the late aughts—sometimes you can pivot and keep growing. Maybe the PG-13 OnlyFans is less lucrative per user, but has many, many more users, so makes more money. I could build a spreadsheet making the case either way. So I’m sure they’ve convinced themselves this makes sense.

What Comes Next?

Well, either OnlyFans will thrive or they’ll fail. I’d guess they collect outside investors, either way. As others have written, there is a lot of private cash sitting on the sidelines waiting to be invested. When the OnlyFans opportunity opens up, someone will leap in.

As for OnlyFans, we’ll see if this strategic pivot works. If it doesn’t, they won’t be the first social platform with early growth that later petered out. Or again, maybe it does work and the “hack” was just enough to build a network. Again they could either be Myspace or Facebook. Or somewhere in-between. (Pinterest? SnapChat?)

What about the service offered by OnlyFans and the creators? They’ll go elsewhere. Frankly, someone will be smart enough to build a service called “TrulyFans” that will run the same playbook. I know it seems apocalyptic for creators now, but the sex economy abhors a vacuum.

And that seems to be the best point. One of my handful of best pieces of advice for business strategy—after “focus”—is “know thyself and customers”. To have a competitive advantage requires knowing what your company can deliver and what you customers want. This move strikes me as not understanding that at all.

(Whoops! I ran out of space. I’ll have additional stories tomorrow!)

The Entertainment Strategy Guy

The Entertainment Strategy Guy

Former strategy and business development guy at a major streaming company. But I like writing more than sending email, so I launched this website to share what I know.


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