Twelve Days of Commerce: #5 OnlyFans

Welcome to my number five on the roster, one which needs no introduction: OnlyFans. In my opinion, OnlyFans may be the best business, from a pure economics perspective, to have emerged from the U.K. in the last decade.

The reality is that, at its core, OnlyFans is merely a media platform, and a simple one at that. However, OnlyFans leverages people’s natural psychological tendencies, combined with the power and virality of social media. Despite drawing controversy worldwide over its ability to maintain security and safety for creators, OnlyFans is, according to CEO Keily Blair, on a mission to "change the internet."

A bootstrapped success story

When we talk about SaaS businesses, it’s natural to assume they’ve gone through multiple rounds of funding to fuel marketing efforts and scale to profitability. Seldom do they ever reach that point. Even fewer manage to do so while bootstrapped, which is why OnlyFans stands out as a remarkable case study.

Founded in 2016 by Tim Stokely in Essex, U.K., OnlyFans wasn’t initially intended to be a platform for adult content. Stokely had earlier ventures, like GlamGirls and Customs4U, that failed to gain traction. However, providing a platform for exclusive content with a payment wall and minimal regulation inevitably drew users toward adult content.

“I can resist everything except temptation.” - Oscar Wilde

A similar scenario occurred when Snapchat launched in 2011. With its ability to send images to friends for a maximum of 10 seconds, many people quickly saw it as a tool for trading nudes. However, Snapchat’s architecture makes it much harder to contain content for users, and today it is a popular channel for texting and communication as much as it is for trading pictures and videos. Comparably, OnlyFans leaned into its trajectory, accepted that adult content would carry its P&L, and is molding its architecture to be a safer space for creators of all content focuses.

OnlyFans attempted to raise capital several times, dating back to its founding. Stokely claims he even borrowed £10,000 from his father to launch the platform. However, its sensitive niche scared off investors - some VCs were restricted by their LP agreements, others declined for moral reasons, and many doubted its advertising viability (read more).

Ultimately, fundraising wasn’t necessary. OnlyFans thrived by keeping its user experience simple and relying on creators to market themselves through platforms like TikTok and Instagram. With minimal top-of-funnel discovery happening directly on the site, OnlyFans acts as a down-funnel monetization tool, taking a 20% cut of all Gross Merchandise Value (GMV). This straightforward model allowed it to become the unicorn it is today.

The numbers are almost too impressive

When discussing the birth of the creator era, pinpointing where to give the credit is challenging. The pandemic undoubtedly sparked a new wave of opportunities, from remote work to content creation and unprecedented venture capital behavior stimulated new and exciting tech companies. For many, however, the pandemic brought immense challenges, but with the immense increase in social media consumption, a whole new movement emerged, stimulating a desire, or rather a need, to find ways to make money from home.

OnlyFans capitalized on this shift perfectly. As the saying goes: ‘timing is everything.’ In 2019, the platform generated $267M in GMV, $49M in revenue and retained 12% EBITDA margins at a conservative $6M in the black. In 2020, it experienced explosive growth, with GMV surging 764% to $2B, revenue climbing to $358M and profit increasing to $61M. It was here that the compounding effect of the platform meant that, despite its inability to advertise or form traditional partnerships, it didn’t need to. OnlyFans became the go-to platform for creators to share exclusive content.

By 2023, OnlyFans reached $7B in GMV, $1.3B in revenue, and $658M in profit. Retaining 50% of its revenue as EBITDA is an extraordinary achievement. For comparison, Snapchat, still grappling with profitability, recorded an EBITDA of -$739M, continuing to burn through capital in its efforts to turn a profit. Interestingly, “pure subscriptions accounted for less than 50% of our revenue," CEO Keily Blair said at the Axios Conference, noting that users are spending money through tips, pay-per-view fees, and micro-transactions to interact with creators. (read more). I see no reason why, when 2024’s financial results are published, we could see similar 12-15% growth.

Will OnlyFans IPO and could OnlyFans pave the way for cheaper alternatives?

The few challenges OnlyFans faces, in my opinion, are discovery, policy changes, and diversification. Right now, 73% of income is generated by the top 1% of creators (estimated 400,000 creators out of 4 million total), and the stigma that anyone can become a millionaire has been misleading for many creators. For greater wealth distribution to be achieved among creators who are less ‘famous,’ a discovery engine needs to be implemented. Otherwise, creators are forced to market themselves on mainstream social media platforms, which almost negates the benefits of retaining privacy.

In 2021, OnlyFans made efforts to shift its business model to further diversify its offerings. For example, OFTV (OnlyFans TV) allows subscribers to access non-explicit content from creators in a ‘suitable for work’ initiative. However, it has seen mixed results publicly.

OnlyFans faces several theoretical risks, but similar concerns were raised about other social media platforms during their early stages, particularly as they grappled with moderation and scalability challenges. If OnlyFans continues to demonstrate strong financial results, it is almost inevitable that more competitors will emerge. As seen with dating apps, which balanced regulatory scrutiny for years, venture capital will likely flow into niche-specific alternatives to capitalize on this market. In reality, FOMO (fear of missing out) will always take over. We’re already seeing smaller competitors emerge with very similar models (see examples).

Speculation persists regarding a potential IPO for OnlyFans. However, there are significant advantages to remaining private, in my opinion and their existing management dismisses any rumours as it’s not in their plans to go public anytime soon. Given the sensitive nature of its market, going public - likely on the NYSE, could invite a whole wrath of regulatory and political challenges. By staying private, they retain the ability to allocate resources strategically and focus on growth without the pressures of public market scrutiny (read more).