Random Thoughts on Substack

I've been writing a big thesis on what I'm calling the Content Stack. It's taking far longer to complete than I hoped it would and I apologise for not sending it out earlier. I also had a dream involving Dave Portnoy, Mark Zuckerberg and depth charges. I'm not making this up. It will go into that Content Stack newsletter.

That being said, I've decided to send out a note on Substack. It's not super polished, but I'm trying to reboot the habit of writing – and I don't think I'm going to do that by not writing.

To start with, I like Substack – I used to read Hamish at Pando, and it's very satisfying to me that a former journalist ends up co-creating a tool that's empowering so many new creators.

My initial assessment of Substack was that it was the paywall for Twitter, in a way that Medium has still not quite been able to pull off. If you have a large following (>10k) on Twitter, Substack offers you two things – an easy way to monetize that audience, and maybe more importantly, a simple way to build a contact list from your best followers independent of Twitter.

With Substack, you can build an email list of your most dedicated fans and email them for free. If you choose to monetize that audience, Substack only asks for 10% of your revenue. What's more, Substack will allow you to export your content and email list to another platform at any time you like. You also use your own Stripe account, so you can theoretically collect payments on another platform without having to ask your subscribers to re-enter their cards.

For the individual creator, this arrangement is nearly perfect. So what's in it for Substack?

First of all, this is not a bad business at all.

Sendgrid has a plan that sells 1.4M emails for $749 – $0.000535 per email. If you send more emails than that, you can get a better rate. Assuming that the cost of hosting is negligible (or is cancelled out by the fact that SS can get a better rate than this), then I estimate that Substack can send about 450 free emails for ever paid email it sends i.e. only 0.2% of its emails need to be paid for.

Average cost of paid subscription $ 10
Average no of emails sent/subscription 4
Average revenue per paid email (10% * $10 / 4) $ 0.25
Max cost per email $ 0.000535
Breakeven paid to free email ratio ~ 1:467

Secondly, Substack is in a great position to build a position of power in newsletter creation based on aggregating multiple creators. While Substack does not [yet] own users' email inboxes (or Imboxes), it has unparalleled visibility into how the newsletter business of its creators is doing across the board.

For example, Substack knows which newsletters perform best, not just in terms of subscriber numbers, but topics, lengths, writing styles, subject lines, delivery times etc. What could they do with that information? What would you do with it?

Substack doesn’t just know which authors make the most money, they know which subscribers pay the most. They know which subscribers read the most religiously, what devices they read from, time zones etc. Everyone talks about subscriber fatigue, Substack has actual data to make decisions around it. It knows the whales, and it is in the best position to figure out which subscribers, based on behaviour with other newsletters, are best positioned to upgrade their subscriptions, open their emails, and even share a story.

With that in mind, one has to wonder if Substack is aiming for becoming the Facebook of the newsletter industry – subsuming all content into its ecosystem, and exerting enormous power over its creators. Or will they try to become the Shopify of newsletters - providing tooling and 'arming the rebels' of media and leaving it at that?

I don't know. And frankly, I'm not sure they do either. But if they eventually choose to become the Facebook of that industry, here are a few things to think about:

Could Substack, at some point, start to offer bundles in the way Everything is trying to do to their most valuable subscribers? And how would content creators take this? Also, could it help grow creators' audiences by offering cross-newsletter paid advertising - allowing people to advertise newsletters to people that fit a certain profile?


Thoughts? Reply this email or tag me on Twitter @seyitaylor

Cover photo by Diana Akhmetianova on Unsplash

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