Why you should care
The U.S. is beginning to follow China’s lead in tipping via streaming platforms.
Chinese pop singer Hua Chenyu once made $17,000 in five hours, and he wasn’t even famous yet. In 2014, Hua posted a single on Chinese microblogging site Weibo and charged 2 yuan (30 cents) per download. He also allowed tips. The 23,000 payments made within those five hours included an average tip of 2.5 yuan each.
In China, Hua wasn’t breaking fresh ground with his financial model. Tipping video producers, podcasters and musicians online for their work has been the norm since 2013, when online payments really took off there. Tencent Music’s three streaming apps — QQ Music, KuGou and Kuwo — and its karaoke app WeSing, allow fans to tip artists any amount through the apps. Writers can be tipped for their stories through WeChat and podcasters for their episodes on Ximalaya, China’s biggest spoken-word audio platform. Now, digital tipping is beginning to catch on in the U.S., with Americans who are used to tipping bartenders, baristas and hairstylists loosening their purse strings for other services and creative professionals.
A growing number of U.S. startups are letting users tip for services as varied as a paycheck advance to podcasts and live music. Among the pioneers is Bay Area-based Earnin, which allows you to access your paycheck several days before the next payday and then pay what you think is fair for the service — between $0 and $14 per cash-out. Tipping is the company’s primary source of revenue. It also has a “pay it forward” function that allows users to add a larger tip to cover someone else who can’t afford to pay anything. Earnin (formerly Activehours) declined to reveal its exact number of users, but since launching in 2014, more than 10 million thank-you messages have been sent by people who’ve had their transactions covered by others through the pay-it-forward function.
When they’re given the opportunity, people know [tipping] is a great way to say thank you.
Zachary Davis, vice president of premium content, Himalaya
San Francisco’s Himalaya launched its audio content network earlier this year, allowing users to tip the creators of their favorite podcasts. Donations or tips can be difficult to collect for audio because users aren’t already looking at a screen. But the tip function is embedded in the Himalaya app, making it easier for listeners to contribute. China’s Ximalaya is Himalaya’s biggest investor, and its tipping option inspired Himalaya to do the same. So far, the firm says it has seen a high level of engagement in tipping.
Another startup, based in Raleigh, North Carolina, is taking a traditional form of tipping digital. LiveLifeLIVE is an app that lets you tip musicians during live performances while you’re watching the show — like a virtual tip jar. While LiveLifeLIVE is still in beta and won’t officially launch until the end of the summer, a test run last year in Raleigh saw $450 in tips generated among three bands. At the moment, the app takes 20 percent of each tip to keep up operating costs but it plans to lower that number as it grows.
Streaming platform Twitch allows fans to tip their favorite gamers, some of whom receive thousands of dollars every time they go live. Tipping software company Streamlabs has processed more than $362 million in donations to live streamers since 2014.
These firms are disrupting the tipping industry at a time fewer people carry cash. Digital tipping ensures that creative professionals and service providers — whether musicians, gamers, podcasters or financial sector firms — don’t lose out. And by leaving the tipping amount flexible, they’re guaranteeing maximum buy-in from customers.
“Not all people can afford payment at all times,” says Earnin CEO Ram Palaniappan. “Our model ensures that no one is left out of the financial system.”
It’s a model that has proved successful in China. The tipping strategy is credited by industry analysts for helping Tencent Music record a post-tax profit of $263 million in the first half of 2018. Comparatively, American music streaming platform Spotify reported net losses of $461.4 million in the second quarter of 2018 and Pandora lost $92 million the same quarter.
In the U.S., digital tipping for content is not yet a source of revenue for the companies offering the option. One hundred percent of tips go to creators on Himalaya because they want to make it easier to become a successful podcaster. That may change in the future, but the company also plans to pursue a variety of revenue options, which it isn’t disclosing at this time. LiveLifeLIVE is self-funded and the 20 percent cut it takes from tips does not generate revenue for the company. Additional revenue streams will be addressed in its app release at the end of the summer.
When the Himalaya team carried out market research before their launch, listeners told them “they wanted to support the shows financially,” says Zachary Davis, VP of premium content. After deducting processing fees, Himalaya transfers the entire tip amount to the creator. And while Davis declines to reveal how much money has been tipped through the platform so far, “some of our listeners,” he says, “are quite generous.”
Bob Riedlinger, one of LiveLifeLIVE’s founders, thought of the need for digital tipping after hearing from his longtime friend and co-founder Mark Wilms that the tips Wilms earned from his piano gigs had dwindled over the years. The app the two created lets users store credit card info or use Apple Pay to tip performers during or after a show, as well as read about the performers’ backgrounds and send them direct messages. “When you’re spending a night out in a venue, the reality is that you’re using your smartphone,” says Riedlinger, who hopes to support local musicians through the app. “We’re focused on getting more local people [performing] music because they love it,” he says.
China remains light-years ahead of the U.S. when it comes to tipping as a significant source of revenue for both platforms and creators. That’s partly because minimum tipping amounts in China can be smaller than in the U.S., possibly due to the currency’s denomination, suggests Connie Chan, a general partner at Andreessen Horowitz who has helped grow the firm’s Asia network. But a big reason is the level of integration between e-commerce and content-sharing platforms available through Chinese platforms such as WePay and Alipay — which American digital payment portals aren’t close to matching. Chan thinks it could work in the U.S. eventually, but the “platforms themselves need to integrate [payment] apps” first, she says.
It will also take a cultural shift, suggests personal finance expert David Bakke. “In the U.S., online consumption is much more individualized than it is in other parts of the world, like China,” he says. “We’re not as focused on the community experience, which in China means supporting creators monetarily.” Tipping artists would also raise the overall cost of listening to music or podcasts.
Both Riedlinger of LiveLifeLIVE and Davis of Himalaya say that creators — whether bands or podcasters — need to proactively reach out to fans by seeking tips through these new platforms to make the model work. Davis has faith that American customers will pay up. “When they’re given the opportunity,” he says, “people know [tipping] is a great way to say thank you.”