Why is Substack so big? Because it's a narrative empire

23-03-06 22:00
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原文标题:《 Substack 因何伟大?因为它是叙事帝国 》
Original article by Mario Gabriele

The $650 million startup isn't a communications platform: it's a multimedia network and cultural empire.

Feasibility view

If you only have a few minutes, here's what investors, operators, and founders should know about the Substack.

The Substack is more than just a communications platform: while the Substack has defined the communications movement, its scope and ambitions extend far beyond it. What Chris Best, Hamish McKenzie and Jairaj Sethi have built is not just a simple way to send emails and collect money, but a powerful network of ideas. A transformational product: The market downturn has made the Substack more than just a communications platform: While the Substack has defined the communications movement, its scope and ambitions extend far beyond it. What Chris Best, Hamish McKenzie and Jairaj Sethi have built is not just a simple way to send emails and collect money, but a powerful network of ideas.

A transformational product: The market downturn complicated Substack's Series C funding plan. While this requires cutting costs, there seem to be some benefits to a colder climate. 2022 saw the Substack make extraordinary improvements to its product, not the least of which was its recommendation feature, which drove huge growth for top writers.

Real revenue and upside: Substack's Series B funding valued it at $650 million. Today, the company is unlikely to get that price, although that doesn't mean its business is in bad shape. Extrapolating from Substack's available data, the company is likely to have $20 million or more in revenue and burn little cash. Given the Substack's rapid growth and revenue opportunities, we should expect good times ahead.

The flywheel has to spin: So far, Substack has served its top writers, driving more revenue than the 10% yield it carries. Last year, recommendations were key to the equation. The company had to make sure to keep the existing flywheel spinning and add new ones. If Substack can't justify its expense, publications will take their subscription lists elsewhere. ‍

Create cultural power: It's not easy to evaluate something as intangible as cultural power, but the Substack has it. Important news, analysis and narrative are shared on the platform, and some of the world's most influential people use it to connect with their audiences. That kind of clout is hard to compete with and could help the company become a true category creator.

Moses Beach needs a faster horse. In 1846, the publisher of the Sun, then one of the largest daily newspapers in New York City, tried to provide timely news about the MexicAn-American War. It was, after all, the story of the day, which captured the public's attention. Emily Dickso wrote to her brother, expressing the nation's interrogatory mood: "Is the Mexican war over, how? Are we defeated?" .

While Beach understands the desire for the latest information from the front and recognises the value that strong reporting can bring to the Sun, he faces a conundrum: how can he get the best information quickly without incurring huge costs? Although the telegraph had been invented, the nearest machine was in Richmond, Virginia, thousands of miles from the front. Can the Sun afford a horse relay for days, weeks, even years?

An innovator, Beach dabbled in gunpowder-powered balloons and steamboats (he devised a clever solution) before turning to publishing. Instead of paying for it himself, he invited four other New York newspapers to work with him. They will share the cost; Benefit from faster information together.

Beach's plan worked. This series of carriages and stagecoaches took the Sun to new heights and illustrated the power and leverage that media companies can exert as a network: sharing infrastructure costs and cooperating rather than competing rigor.

Although intended to solve a temporary problem, the structure will have lasting value. In the years following the MexicAn-American War, Beach's consortium became the Associated Press. Today, the Associated Press is one of the most trusted and wide-ranging media organizations on the planet, both as a "news organization" (distributing content to other publishers) and as a purpose in itself. Every day, it produces 1,000 stories that reach 250 countries and are read by half the world's population.

At a glance at the Substack, the resemblance to a nearly two-century-old nonprofit isn't obvious. But, beneath the surface, there is a common marker that unites the two organizations, a common commercial allele. Fundamentally, the Substack exists to cover the infrastructure costs of publishers, make it easier for them to build their businesses, and propel them to new heights. It is not a single entity, but a network in which publishers collaborate and help each other at least as much as they compete for attention. And, if the Substack has its way, it will evolve into its own premier destination, sought by hundreds of millions of readers (perhaps billions in total).

It has come a long way in a relatively short time. Earlier this week, co-founders Hamish McKenzie, Chris Best and Jairaj Sethi announced that the platform had attracted 20 million monthly active users, not bad for a business founded in 2017. Equally impressive was the way it attracted (and funded) luminaries from a wide range of disciplines, gathering together a surrealistic digital banquet, Margaret Atwood, Kareem Abdul Jabar, Marc Andreessen, Chuck Palaniuk, Patti Smith and George Saunders are chatting and thinking together. These days, Glenn Greenwald, Bari Weiss and Matt Taibbi are stirring the chocolate fountain to bring it back to life.

It powered tycoons and Henchmen, supporting emerging empires like Liberty, Letter to an American, Not Boring, Lenny's Newsletter, Platform, Ankler, and more. It is overrated and underrated, intolerant and untolerated, loathed and worshipped. Kleenex, Velcro, ChapStick and Coke are all brand names that have defined a category; Substack, a precocious brat, entered this illustrious, hot club. Communication is no longer simply communication; They are substacks, sometimes even if they are not on the platform. In short, this is news in every sense of the word.

In today's post, we'll explore the complexity of the Substack and why, despite attracting a lot of attention and capital, it's misunderstood. Along the way, we'll document the origins of the Substack, dissect its accelerating flywheel, highlight key risks, and apply our perspective as a media company.

Origin: Capital letters

What is reality? As the science fiction writer Philip K. Dick approached his sixth decade, he became increasingly obsessed with the question. In 1978, the author of such classics as "Robots Dream of Electric Sheep" gave a lecture on the subject. The talk sums up Dick's musings and poetic uncertainty: "How to build a universe that won't collapse after two days".

So I ask in my writing, what is real? Because we are constantly bombarded with pseudo realities created by very complex people with very complex electronic mechanisms. It's not that I don't trust their motives; I don't believe in their power. They have a lot of power. It is an amazing power: to create the whole universe, the universe of the mind.

The "cutting-edge electronic mechanisms" of Dick's era were radio and television. Although government groups began using the primitive Internet in the 1960s, it was still decades away from mass adoption.

Less than two months later, 40 years later, Chris Best experienced a similar feeling. This is probably what every waking modern person has felt in the past decade or so: Your thoughts are not your own; We live in an age of controlled, advanced machines; Reality is hidden behind hallucinatory technology and artificial intelligence clicking ads.

For Best, these feelings reveal a crisis on a social, perhaps even civilization-scale. The Internet and the social media platforms it has enabled have killed traditional media and replaced them with publications chasing participants and insurgencies. Discourse and authenticity have been sacrificed in favor of algorithms. Enraged by this state of affairs, Best went the way of many agitators and wrote an article. (If he had been born two thousand years later, Demosthenes- the Roar master, the original speaker - would have pressed it on the Substack).

The Canadian was the right man to deliver such a message. The son of an English teacher, Best grew up with a deep understanding of the world of words. "I always thought what you read was important," he said in our conversation.

Best also just finished eight years of building Kik, an anonymous messaging app. It has been an eventful year. Kik rose quickly when Best was an undergraduate at the University of Waterloo, attracting 1 million users in its first 15 days. In the years that followed, the app attracted millions more and raised more than $200 million -- $100 million of which came through an initial Token offering in 2017. While not a social media platform, Kik's challenges are similar to those faced by companies like Reddit. Anonymity, at scale, invites control and user security issues.

Best's experience at Kik gave him a taste of how "complex electronic mechanisms" affect behavior. "I developed this really healthy respect for how important it is to design the online Spaces that we live in now," Best says. "You can't change human nature...... but how you set the rules, the incentives, the presentation can create a heaven or a hell for the exact same people. I think Kik probably has both."

Another stalwart of science fiction, H.G. Wells, said, "There is no passion in the world like the passion to revise someone else's draft." After completing a draft of his work, Best offered this passion to former Kik colleague Hamish McKenzie for feedback.

McKenzie is a trained journalist who has built a career at the intersection of technology and storytelling. He worked as a reporter at PandoDaily, a popular tech blog, and then at Tesla. At the electric car maker, McKenzie was tasked with "telling the Tesla story" as the firm's lead writer. (" The experience in Musk's stores informed his 2018 book Crazy Mode: How Musk's Tesla sparked an electric Revolution that Ended the Age of Oil. ") At Kik, McKenzie played a similar role, acting as "editorial adviser" as the messaging app went through the pressures and storms of supercharged growth.

The challenge of writing about an issue that everyone understands is that it's not enough to just reiterate the issue. The Polar Ice caps are melting, but what should we do about it? Pandemics are bad news, but how do we prevent them? Yes, Internet discourse has degenerated into endless, fractal Shouting matches, but how do we communicate again?

"He had written about it in a very clear way," McKenzie said. "Everybody in the media knew it was a problem, but nobody knew how to fix it." In the years before Best sat down to write his article, a slew of entrepreneurs tried to reform the ecosystem, launching new publications and experimenting with innovative business models such as micropayments for the article.

McKenzie's feedback triggered further conversation. "It got us talking," McKenzie says. "The more former colleagues talked, the more Best's work moved from theory to practice."

The fundamental problem, according to Best, is the business model of contemporary media. More and more publishers and platforms make money from advertising, making companies their true customers rather than readers. How can you change that dynamic? What model would give publishers the incentive to refocus their efforts on readers?

For McKenzie and Best, the answer seemed simple: Subscribe. Instead of making money indirectly through advertising, digital publishers are being paid -- sponsored -- directly by readers to reinvent the software generation.

Though far from the norm, when McKenzie and Best looked at the media landscape, they saw glimmers of the idea's potential. The Information, which launched four years ago, is thriving on a subscription model, while the more than two-year-old Sports newspaper is getting off to a fast start in sports. All of this is promising evidence, to be sure, but none of it captures the ethos they are trying to build on in the way that paid communications guru Ben Thompson did. Thompson has turned his publication, Stratechery, into a Silicon Valley force with an impressive subscription business without additional writing staff. "It really works," McKenzie said. "Thompson is telling anyone who will listen that it works."

However, starting Stratechery required a lot of entrepreneurial drive and technical know-how. How many writers have the necessary skills to piece together disparate software solutions the way Thompson did? "We assume that most writers don't have a business sense, entrepreneurial impulse or technical knowledge," McKenzie said. "Even if they could, it's a big job."

Like a photo developed in a chemical bath, a product comes into view. What modern media companies needed, the pair decided, was an easy way to solicit and manage subscriptions, a subscription stack, if you will. With this kit, writers can launch their own Stratechery-style businesses in a fraction of the time, and no software expertise is required. Best and McKenzie's platforms do not charge a flat SaaS fee for providing this infrastructure, but instead take a cut of revenue - say 10%.

"I pushed the model very hard," Best recalls. "We only made money if our customers made money."

Crucially, even at this early stage, the former Kik duo believe there is unlikely to be enough reader product subscription interest on this alone. The right infrastructure is undoubtedly key, but the real gains come after a large number of independent publications operate within a shared ecosystem. Best and McKenzie knew this was the basis of a network in which media companies might collaborate and interact to help each other grow. As this happens, the base product can become a platform in its own right. It's essentially an accelerator of the AP story: shared infrastructure produces a network that drives the creation of a destination. They called it the Substack.

"The Substack started as both a big, ambitious vision and a small, modest vision," Best reflects. "And that's what makes it such a good idea." It didn't bother them that Thompson gave them a thumbs up when they presented the concept to him. "Ben was always very, very supportive," McKenzie said.

While Thompson may have inspired the startup in part, another author stepped in as an angel investor and first client. By 2017, Bill Bishop was a media whiz. In 1997 he co-founded MarketWatch, which handles financial publications. In doing so, Bill Bishop faced the operational challenges of running a media company. "At the time, it was really difficult to piece together a set of tools to charge people and keep doing business," he says. In the years since, the issue has become more personal. Since 2012, Bill Bishop has written Sinism, a China-focused publication that has attracted a loyal and influential readership. As Sinocism grew, Bill Bishop, at Thompson's urging, considered cashing in on his passion project.

By 2017, Bill Bishop was ready to make his move. "After talking to Ben Thompson, I did a clunky job with WordPress and Stripe," he recalls. To warm up his fans, Bill Bishop has begun sharing his plans to introduce a paywall. Thankfully, one of his readers paid special attention.

At the time, Hamish McKenzie had known Bishop for a decade and was a loyal consumer of Sinocism. When McKenzie read that Sinocism was introducing a paywall, he sprang into action, emailed Bishop and, soon after, arranged for him to visit the writer at his home in Washington, DC. McKenzie and Best ended up getting more than they bargained for: Bishop not only agreed to become the Substack's first external publisher, but also invested in the budding venture. "I really like the platform and I like the guys," Bishop said. "I thought I'm going to put my business out there anyway, and these guys seem really smart - maybe I should double my efforts."

Bishop's decision did not take long to be at least partially vindicated. On October 15th, 2017, Sinocism launched its paid product on the Substack; By the end of the day, Bishop had snagged more than $100,000 in subscriptions. "This validates the Substack model for everyone," he added.

Soon after, Substack was accepted into Y Combinator's winter batch, setting Bishop's new investment on a breakout track. While at the accelerator, Best and McKenzie continued to develop products - and liaise with writers, the most important addition being in the form of a third co-founder. Chris Best hired Jairaj Sethi to join Kik's engineering team in 2012, where he worked for five years. Sethi was involved as a contractor in the early days of McKenzie and Best's conception, but moved into the role of chief technology officer about half the time at Y Combinator. Best as chief executive, while McKenzie is chief writing officer.

The trio's work at the accelerator eventually led to a new round of funding. In April 2018, Substack announced a $2 million seed round of funding from participants including the Chernin Group, Fifty Years, and Garage Capital. Twitch co-founder Emmett Shear joined as an angel.

In a little over three years, the Substack has grown well. By the end of 2018, it had 25,000 paying subscribers; By mid-2019, it reached 50,000.

Then something happened. It might be truer to say that everything is broken.

COVID-19 has upended business logic multiple times: the market crashed, then rebounded, then soared, boosting stocks of companies like Zoom, Peloton and Teladoc. The Substack, the beneficiary of a captive audience, has followed suit, albeit with a delay. By the summer of 2020, the number of subscribers reached 100,000 -- in line with previous growth rates. But by September, that number had risen sharply to 250,000.

Substack is never looking back. Over the next two and a half years, the platform expanded subscriptions at a compound annual growth rate (CAGR) of 136%. It did so during the frenzy of the last bull market and the cold snap of the past year. Earlier this week, McKenzie, Best and Sethi announced that Substack has surpassed 2 million paid subscribers and more than 20 million monthly readers.

Substack, Nieman Lab

The founders of the Substack have shrewdly driven the trajectory of their platform. Though they may not realize it, they borrowed one of these tactics from print journalism's most notorious entrepreneurs.

If the American media could choose a protagonist to represent itself, it would be hard to find William Randolph Hearst again. The media mogul and founder of Hearst Communications has captured some of the national and industry psyche in his insight and excess, ambition and machievers. The fact that Hearst was the inspiration for the main characters in the iconic Citizen Kane film and appears in Gore Vidal's American history series The Imperial Narrative shows just how much the one-time presidential candidate has captured the imagination.

Hearst took charge of the San Francisco Examiner in 1887 at the age of twenty-four. He adopted a bold and simple plan to increase the circulation of the newspaper: bring in the best people. They include Mark Twain, Jack London and Ambrose Pierce.

In its 2020 run, Substack began a similar push with what it called "The Pro." It attracts high-profile writers to publish on the platform by offering income advances, health benefits and funding to hire design and editorial help. Some packages cost as much as $400,000 over many years, even though many earn less. The standard arrangement seems to be that writers will receive a sum of money to start work on the platform, with Substack taking 85% of the paid subscription for a year, after which Substack's yield drops to 10%. Beneficiaries include Daniel Laveri, Anne Helen Peterson, Matt Iglesias, Roxanne Gay and Matt Taibi. Other notable figures such as George Saunders and Margaret Atwood may also have taken part in the project. (Given that Sanders is often hailed as Twain's heir, this would be a nice symmetry.)

While Substack sees these deals as "business decisions," they can't expect a return on their investment. Having a big capital cushion allows them to be aggressive. In 2019, Andrew Chen of Andreessen Horowitz (a16z) led A $15.3 million Series A investment into McKenzie, Best, and Sethi's platforms. Two years later, a16z doubled down, leading a $65 million Series B round. The round values Substack at $650 million. (We'll explore this in a later article).

For Chen, Substack is a class-changing, N-of-1 enterprise. It not only developed rapidly, but also accumulated extraordinary cultural power in a short period of time. It was also critical that it was led by some of the most impressive founders he had ever met. "I sat down with Chris and Hamish and was like, 'Wow, this is an amazing team,'" Chen recalls. Chris saw scale at Kik, and Hamish had a drive and empathy for writers. Chen considers the three founders of Substack to be "some of the best" combinations in his company's portfolio.

Best does see the scale of Kik. He's had his fair share of controversy; The Substack offers little respite. As the company has grown in size and relevance, it has attracted criticism on multiple fronts.

Some writers think the Substack's 10% share is too harsh, especially when compared to traditional email platforms; A writer earning a $100,000 subscription paid Substack $10,000 to use its platform, while alternatives to similar features might pay a fraction. John O'Nolan, the founder of Ghost, a rival, calls Substack's rates "greedy and getting very little return on anyone's business".

Others have argued that by offering advances and support to controversial authors such as Glenn Greenwald, Jesse Singhal and Andrew Sullivan, Substack is not serious about censorship. Publishers such as Jude Doyle and Nathan Tankus left Ghost on these grounds.

Ghost isn't the only opponent Substack has had to face. In 2021, when the Substack established itself as a category in its own right, Facebook and Twitter entered the messaging game. Zuckeberg's company launched Bulletin, while Twitter bought Revue, a Dutch platform. (Both companies are now defunct, and the Substack is waving their heads high like headless chickens).

2022 brings new challenges for the Substack. In the middle of the year, Substack considered raising a Series C round at a $1 billion valuation, but abandoned the process due to another market shock. "We went and had a sniff of the market...... and it was the right time for the market to turn. We thought, 'Well, this is not the right idea,'" McKenzie said. The switch drew widespread coverage, highlighting Substack's lofty $650 million valuation and reported $9 million in revenue. McKenzie said the figure was incorrect and "it was an order of magnitude wrong". With the cancellation of venture capital, Substack cut 14% of its work force and reduced its cash-burning expenses.

Cooler funding conditions appear to be benefiting the Substack in important ways. The company's product matured by leaps and bounds in 2022. Visual improvements, mobile apps, video support, more powerful editors, upgraded podcasts, discussion threads, revamped web readers, mentions, chats and, of course, recommendations, all came in the last year. "The amount of stuff they've delivered in the last 12 months is super, super impressive," says Andrew Chen.

The result is that the Substack is looking more and more like a unique product - and significantly closer to Best and McKenzie's original vision.

Product: Narrative Network

Many companies have big plans, but few have the chance to pull them off. In a relatively short period of time, Substack has managed to move forward with its master plan. From the start, Best and McKenzie designed the Substack as a trifecta, a holy trinity of media: tools, networks and destinations. While the different elements are more mature than others, this configuration is still the best way to understand the platform.

At its most basic level, the Substack is a tool. Writers use it to send e-mails to their readers, post articles online, and accept subscription payments. Don't let these seemingly simple tasks fool you. It's not easy to get these things right: emails are easily interrupted, content is stymied by ugly interfaces, and purchases linger on poorly designed checkout pages.

The Substack's version of these features is restrained, effective, and increasingly elegant. It may not have all the features you want, or as much control as you'd like, but you won't struggle to get started. I remember using the platform to send out the first version of a subscription service, and I was impressed by how easy it was, especially compared to clunky enterprise-centric alternatives like Mailchimp. While the Substack has since added a number of features, it has managed to maintain its original simplicity.

In addition to addressing these core issues, the Substack also provides a sensible dashboard to track users and payments. The functionality provided here is light compared to other email marketing platforms. You can see how many readers you have and your gross annual income, but there is no easy way to see your mixed open rate, for example. This feature would be considered a table bet in other products.

The Substack has other shortcomings, too. You can't set up different email series or simple automation. Historically, design options have been very limited, meaning brand-conscious publishers have had little choice beyond the color of a few buttons. In addition, publishers on the platform have historically struggled with search engines, limiting their inbound traffic.

I've decided to move subscriptions off the Substack entirely in early 2021, also due to Substack usage. I want more control over our brands, a stronger set of automation systems, and more rigorous analytics. I feel that SEO is very important to our business and want to establish the authority of our website. (I still think this is important, which is why we are now cross-posting on another domain).

While the Substack hasn't fully solved these problems, the progress made in our two-year absence has been remarkable. The available dashboards have been improved, and recent SEO upgrades seem designed to address the most pressing issues. Crucially, the Substack also gives publishers more design control. For example, it's now common to see the Substack make use of different fonts and background palettes. On a case-by-case basis, Substack has worked with some of the largest publications to create broader, more finely tailored themes. Visitors to Liberty, for example, see a site indistinguishable from a traditional Substack, with the only visible sign being the "Subscribe" button in the top left corner.

The Free Press

Such appearance characteristics make sense for a media enterprise. While the Substack's platform has attracted many impressive publications, it has also seen some leave. For example, Dispatch left in 2022, choosing to build a solution of its own. Apart from financial considerations, I suspect part of the reason may have to do with brand control. In fact, this was an important consideration when we considered moving subscriptions back to the Substack. While we've started using the platform's default aesthetic, I hope we'll be able to adjust the visual language and branding in time to better fit our ethos. Introducing more flexibility here could convince fast-growing publishers that they don't need to leave the platform to build a brand.

In addition to beefing up its weak spots, the Substack has added support for new content types. Podcasts can now be published through the platform, and video support is being tested with a limited number of users. In my discussions with employees and investors, this has been referred to as an area of particular interest, expanding the boundaries of the Substack beyond the written word.

When evaluating the Substack in 2021, I missed its potential to be a network. Of course, I know it's a tool, and can see it becoming a destination in itself as it matures. But while I understood the beginning and the end, I failed to understand the crucial connection between them. The Substack isn't just a place to publish or read, it's an ecosystem where writers and creators collaborate and contribute to each other's growth.

The most obvious manifestation of this is the Substack recommendation feature. For this transformative addition to the platform, it's very simple. With a few clicks, writers can "recommend" other Substack publications. In this way, these publications will appear on their home page and as recommended reading when new users join. Substack sends regular, unobtrusive emails pointing out that one publication has recommended another, letting you know, for example, that The Generalist has recommended Netbook. (We also recommend excellent publishers such as Technology, Investment 101, Not Boring, Index View, Satellite Post, etc.).


There is no financial transaction-driven communication (although some may make informal arrangements). It simply serves as a way for writers to help each other and show their taste to readers. "One of the more pleasant surprises of the recommendation is how well it works with the well-intentioned support of writers," says Sachin Monga, VP of Product. "When you subscribe to an author, it's not just because you want their email in your inbox; you want their ideas to shape your worldview," he adds.

Recommendations aren't just effective, they've changed the way publishers grow on the platform. "There will definitely be a substantial increase in new sign-ups when the referral system kicks in," says Bill Bishop. Eric Newcomer tells a similar story. "Featured really proves 10 percent," he said. "Not that I'm really smart about it. I'd say it's a key feature."

Despite only recently returning to the Substack, our newsletter is already seeing the benefits of recommendations. Thanks to other publications, we have gained more than 2,000 subscribers, which is no small amount.


While recommendations are a cornerstone of the Substack network, other features help, too. Its rankings promote healthy competition and make it easy for readers to spot popular publications. The platform also recommends articles based on the activity of others in your network.


Even in subtle ways, the Substack prompts writers to collaborate. You can cross-post articles from other publications, or tag other writers. On the Substack's dashboard, there's a neat, somewhat hidden page detailing audience demographics and how much your publication overlaps with other publications. For example, The Generalist has a 9% overlap with Not Boring and an 8% overlap with Lenny's Newsletter. It's easy to imagine how this data could spur new collaborations and partnerships.


"We're trying different things to see what sticks," Reid DeRamus, product manager for Growth, said of promoting collaboration. "Recent additions such as the Letters feature - which lets authors post letters - illustrate this iterative approach. However, its network is already working." The team at Substack confirmed that it drove 15 percent of paying users and 40 percent of free sign-ups. It's worth noting that the company counts anyone who already has a Substack account toward these numbers; They are still impressive.

When considered through this lens, the Substack can start to look like a very good deal. Imagine you're a publisher making half a million dollars a year. At first glance, giving up $50,000 for an email platform and website sounds ridiculous. Plenty of alternatives exist for a tenth of the cost. However, if the $50,000 platform brings in $75,000 in revenue, then it is reasonable and economical to use it. For publishers that make money from subscriptions and advertising, the calculation is even more attractive.

This growth is particularly telling for our communications. If you believe, as I do, that the Substack will continue to grow, there may be even more opportunities to benefit from these features. My friend Ben Butler provided the best analogy I've heard, comparing Substack to Booking.com and publications to hotels. While hotel owners may want part of their business or brand to exist outside of the travel platform, they must have at least some presence - the traffic and volume of business driven by players like Booking.com cannot be missed.

Finally, the Substack seeks to be a destination. In fact, in some parts of the Internet, it has become a destination. For example, I'd say a significant percentage of tech workers visit the site with no stated purpose, just to browse. By expanding its scope and capabilities, the Substack encourages this behavior.

Key to this strategy was the introduction of a mobile app (now available on iOS and Android). It offers a superior reading experience to many email inboxes and websites, mixed in with other neat features.

For example, users can easily listen to podcasts of their favorite publications as if they were online. As more podcasts come to the platform, I expect Substack to build a cleaner, more fully featured podcast player like Overcast did. This will further establish it as the app you open multiple times a day.


Another interesting aspect of the app is the Substack Chat feature, which launched in November 2022. By toggling a button, publications can offer subscribers a Telegram like chat product. It's a lightweight, mobile-friendly way for writers to interact with their readership. "If you can get the conversation going, it's actually quite powerful," says Bill Bishop. It's too early to tell whether chat will become a significant part of the Substack product in its current form - but the company wants to manage this kind of community building for its customers.

In my discussion with Sachin Monga, he highlighted Substack's precise view of its stakeholders. It doesn't think about "users" or "creators" - it focuses on "writers" and "podcasts," built specifically for those groups. It sounds like a small thing, but this specificity is crucial to understanding how the Substack approaches product design. It's also an interesting framework for thinking about chat. What does a community platform look like when it's specifically designed for writers? What would Discord look like from a literary point of view? We will have to wait for the answer; Now, this is an intriguing question.

As mentioned, it was clear from the start that the Substack wanted to be a destination, although my feelings on the matter have changed. Initially, I thought the bigger the Substack's brand, the more it would seek to minimize and commoditize its base publications. In many ways, this is how the content web has come to be --Twitter doesn't want every tweet to have a vastly different brand, style, or rules. It wants diversity in content, but unity in structure. Wouldn't the Substack hold my newsletters to a similar rule?

I think so. I missed that structurally, Substack can't exert the same power as traditional social media platforms because the underlying business is fundamentally portable. Imagine you're an Instagram influencer who makes money through sponsorship. If you don't like the way Adam Mosseri runs the platform, what are your options? You can't simply port your followers to another network and start making a profit. Your business depends on the kindness of the platform on which it is built.

Communications is different. Because email addresses are mobile, you can take your audience with you. If a tool or network is no longer serving the company, you can make a change, as our newsletter did this week. As a result, the Substack can't overexpand even if it wants to. Even if it is run by bearded villains rather than principled media fanboys, it can backfire if too much force is applied and the screw is tightened too tightly. As we discussed, the Substack doesn't do that, but goes in the opposite direction, allowing for more variety and control.

Although the Substack is a three-part enterprise, its different parts work harmoniously. The more powerful the tool, the more writers join in. The more writers join, the stronger the network becomes. The more powerful the network becomes, the more compelling the Substack becomes as an import destination. The better the destination, the more readers will join and discover the writer. This is an elegant model. It may also provide the impetus for the creation of a large enterprise.

Business: Great destiny

Is 10% a lot? It depends on the context. In niche communications, no; In the media economy, yes. This background question is at the heart of how to assess the commercial potential of the Substack and how big it might eventually become.

First, a review of the Substack business model: The company takes 10 percent of the revenue writers make from subscriptions on the platform. It's a unified business model that means Substack only makes money when writers make money. (It's worth noting that publications end up with less than 90 percent of their revenue, after accounting for handling and refund fees. Bill Bishop estimates that he earns "85 cents on the dollar.")

While the Substack split sounds expensive, it's still fairly economical compared to other platforms that generate revenue for related businesses. Video platforms like YouTube and Twitch share as much as 50 percent, Apple's popular App Store shares as much as 30 percent, and OnlyFans share 20 percent. Patreon-- which doesn't act like a destination but charges a subscription fee -- costs 5-12%.

Based on this model and its growth in free users, Substack was last valued at $650 million, though it's unclear if that figure was pre-or post-funding. If it's the latter, the Substack's true valuation is $715 million. Is the company worth the money?

While Substack declined to share revenue numbers, we can do some envelope calculations to assess where the business stands today. As mentioned earlier, Substack announced this week that it has passed the 2 million paying subscribers mark. To understand how this translates into revenue, we need to understand the average order value (AOV) of our customers. While AOVs are not disclosed, we can get a rough figure by reviewing the pricing of top publications.

To do so, I looked at the annual plans of the top 10 publications in culture, business, finance, technology and politics. These are the categories that Substack stands out in its offerings, suggesting they are popular and likely to drive the most volume. Annual prices for the 50 publications range from $50 to $2,000, with a median of $100 and an average of $234. Using the latter two numbers, which seem to be the most representative, we can get an idea of the Substack's likely gross merchandise volume (GMV) and revenue.

We can see that Substack's revenue could range from $20 million to $46.8 million. If I had to guess, I would expect it to be around $25 million to $30 million.

How valuable is it? In essence, Substack revenue is a derivative of subscription revenue. It does not have perfect control over its revenues and relies on its customers to drive purchases. While this is not ideal, the upside is that this income should be resilient and come from hundreds of different sources - albeit potentially meaningful concentrations. Given that the Substack is ultimately a software product, it should be highly profitable.

All in all, it seems reasonable to think of Substack's revenue as the value of a B2B SaaS company (perhaps a little diminishing its other attributes). According to another Substack publication, Cloud Judgment, the median B2B SaaS is 10 times the next 12 month revenue (NTM) of businesses that grow more than 30% annually. Given that the Substack has grown at about 74% over the past year, it easily fits into this category. Had the Substack grown at the same rate, it would have made between $81.4 million and $34.8 million in 12 months, which is a decent proxy for NTM numbers.

‍ At 10x, the Substack would be worth between $348 million and $814 million in today's market. If we think my semi-understandable guess of $25 million in current revenue is reasonable, then the Substack is worth $435 million. (Given the Substack's rapid growth, it's also possible to get higher multiples, though there's no guarantee they'll be able to maintain that trajectory.)

If that sounds like failure, it shouldn't. While the Substack may not be worth $650 million in the current market, almost every company raising money in 2021 did so at a high valuation that needed to grow. As long as the company has enough runway, there is nothing wrong. Founders raise money on favorable terms without jeopardizing their future.

The Substack seems to be in this situation. Mr. Chen says they have moved quickly to preserve capital, even presenting investors with an 'unlimited runway' option that shows how companies can be self-sustaining. Given the Substack team's small size and eight-figure revenues, it's realistic to imagine that they could turn a profit in the near to medium term. In our conversation, CEO Chris Best noted that he's a "big believer in business models being destiny." The Substack's model almost brings it close to controlling its own destiny.

How big can Substack get without deviating from its current subscription model? A look at big traditional media companies provides a starting point. As of May 2022, the New York Times had 8.4 million digital subscribers, followed by the Wall Street Journal with 3 million and The Washington Post with 3.5 million. By those numbers, the Substack has outperformed respected publications such as The Economist, the Guardian, the Financial Times and the Harvard Business Review.

At the current rate of growth, the Substack will surpass The Times's numbers in three years. If the Substack were on par with Cinderella by that measure, and maintained the median and average annual subscriptions, it would be somewhere between $84 million and $197 million in revenue. Applying the same valuation process, the Substack would be between $840 million and nearly $2 billion.

Is that the upper limit of the Substack? It doesn't feel that way. As we have established, it is not the size of a media company. If Best wants his business to dominate in new fields, he doesn't need to hire a team of journalists and designers; He just needs to convince the right writers to join him.

It is also unimaginative to take traditional media as the guiding ideology. In 2014, Bill Gurley published what is now a classic article. In "How to Miss a Mile," Gurley argues that NYU professor Aswath Damodaran made a major mistake in his skeptical assessment of Uber's $17 billion valuation. Using the global taxi and limousine market as a reference point, Damodaran fails to consider how Uber can grow in the broader market, supported by a better experience, network effects and a favorable economic structure. He estimated that Damodaran's TAM assessment could be off by a factor of more than 25.

Today, Uber is valued at just under $70 billion, far more than the $17 billion that Damodaran and Gurley debated, but short of Benchmark's general partners' most aggressive hopes. However, this is not important for the integrity of the argument. The point is, it's hard to estimate market size at the best of times, but it's even harder when evaluating the creators of a category. While the Substack can't possibly reach 25 times the number of users of the New York Times (which would put it close to Netflix), it can predictably outperform the 172-year-old medium many times over.

Of course, Substack doesn't need to adhere strictly to its existing business model, even if it inspired the company's name. Publications can make money outside of paywalls, and the Substack may want a piece of that pie. Not Boring, for example, has become one of the most popular and prosperous newsletters in the tech world by leveraging sponsorship, as has our newsletter. Can the Substack streamline the advertising process (for writers and podcasts) and take a bite out of the revenue?

Neither McKenzie nor Best ruled it out, but it doesn't appear to be a priority. "It's not like we haven't looked at other revenue options, and are discussing what else we can do," McKenzie said. "But it seems to me that advertising and subscription do conflict, or at least introduce conflict. If a Substack with ads came out today, I'd be pretty confident about competing with them." Best agrees: "There is an established advertising model that works for the big networks...... Our advantage is to go to the other end of the barbell."

An experiment might be a disposable product. Newsletter writers often create popular courses, write ebooks, and even host conferences. These can represent important sources of income. Eric Newcomer, for example, recently announced a conference on artificial intelligence called Cerebral Valley. Newcomer estimates that the "Brain Valley" could provide as much as one-third of Newcomer's revenue this year.

For now, the best way to promote the conference is to send an email to subscribers. That's not bad, but Substack could go further and add an "events" TAB to its web and mobile apps to make it easier to buy tickets and RSVPS. The same principles can guide the creation of an electronic library, a collection of jobs, or a selection of paid courses.

Given that paying customers already have credit card profiles, Substack is in a perfect position to drive such incremental purchases and get a cut in the process. If Substack can win across different media and product types, Series B investors are unlikely to be overly worried about 2021 prices.

Risk: The Peak Newsletter

Is Claud Cockburn worried about Peak Communications? In 1933, the British journalist left his job at The Times to start his own publication. Cockburn expanded his user base over the next few years, winning readers like Charlie Chaplin and King Edward VII. He is, at heart, a newsletter writer. And he wasn't the only one of his time. In fact, in the mid-twentieth century, as today, communications was a lively business, albeit in physical form.

Maybe this story is just a corresponding writer's self-consolation; Substack certainly hopes so. One of the company's main risks is the collapse of the type of content it supports; If newsletters wither or die, so might the Substack.

Despite the model's longevity, it is not impossible. In the days of Moses Beach or William Randolph Hearst, predicting the inevitable death of newspapers might have sounded like lunacy. Of course, over the past 20 years, newspapers in the United States have gone through a cull, with 25 percent of publications closing their doors. The mass extinction continues: in 2022, the New York Times estimated that two newspapers a week were closing.

Will newsletters undergo a similar disruption and be replaced by faster, sleeker content formats? Fast video platforms like TikTok and YouTube have met some of the needs newspapers once had. Time spent reading for personal interest is on the decline, from 23 minutes a day in 2004 to 16 minutes in 2019, the latest year for the survey. Will the younger generation find value in old-fashioned digital ink?

Maybe not - which makes the Substack's experiments with alternative content formats all the more important. Even so, the demand for B2B publications should remain strong and not be as well served as short video platforms. If you're a logistics manager, you might find tips on TikTok, but you'll be spending money on trade publications like Freight Waves. Although it may become more niche, at least some demand for long-form writing will remain for the foreseeable future.

A communications catastrophe is possible, but it won't rank high on the Substack's list of risks. Even more frightening is the potential for reputational damage. As we've discussed, the Substack has weathered plenty of storms in its relatively young life, attracting blame from all sides. In some cases, this has prompted writers with large audiences and earning power to drop out. So far, the movements have been small - and Substack executives want to make sure it stays that way.

One of the reasons Uber failed to fulfill Gurley's wildest wishes was that it often attracted negative attention. A #DeleteUber movement, launched in 2017 in response to ride apps' response to President Trump's immigration order, has crimped growth and boosted rival Lyft. Had it not been for these missteps, Uber might have gotten rid of Lyft altogether.

Robinhood offers a more recent example. The GameStop saga dealt a blow to the trading app's reputation and permanently damaged the public's perception of its "pay for order flow" business model. Its loss is a competitor's gain. The social trading app aggressively pushed back against Robinhood, explaining its differentiated business model and urging customers to "break up with their broker."

While discontent has subsided over the past year, the nature of the Substack's business means it is always a risk. Media companies tend to like to write about other companies, which means the Substack will remain in the spotlight. Because email accounts are mobile, its customers can leave the platform for alternatives such as ConvertKit and Beehiiv. If it falls into a PR quagmire, its rivals could benefit. The company will need to tread carefully while not being cowed into inaction.

The final issue for the Substack is its ability to provide growth for its customers. Recommendations represent the rules of the game for the ecosystem, pushing member publishers to new heights without adding any effort. While this feature could keep increasing the number of users, Substack wants to add other weapons to its Arsenal to keep the flywheel from slowing down. At some basic level, every successful publisher makes the same calculation at the end of the year: Does Substack offer more than 10% of its services? If the answer is yes, everyone will be happy. When there is a deficit, however, the emphasis shifts from growth to costs.

The tricky thing for the Substack is that the problem is particularly pronounced among its biggest players. If you're making $3 million a year in newsletter revenue, Substack needs to find a way to deliver at least $300,000 in value, and hopefully more. If the Substack can't do that, it could create a dynamic where the rational move for the most successful publishers is to leave the platform.

Substack's leadership is aware of this risk. "We don't have much protection against writers leaving," says Hamish McKenzie. "The best retention strategy is to make writers so successful on the Substack that they don't even think about the competition." The Substack has executed this strategy effectively so far, but it may not always be easy to do.

The future: Unlimited news

Today, the Substack is known as a communications platform. Three years from now, that may no longer be the case. The Substack aims to be the best place to build a media business, no matter what type of content you like.

Podcasts and videos are great tools to get started, but they're just a starting point. The Substack has an incredible breadth of content (a "crazy hodgepodge," as marketing head Bailey Richardson puts it), from food to politics to travel to spiritual beliefs. It was alive with subculture and mysticism, a place of passion that could coalesce, no matter how trivial their common interests.

In addition to this beautiful diffusion of defamiliarization (Reid DeRamus said "niches create more niches"), the Substack can better serve its existing members by building support and infrastructure for different parts of its ecosystem. This may take the form of a new medium or feature.

For example, you could imagine Substack rolling out support for comics and graphic novels, making it easier for those creators to build a business around their work. The next Cyanide and Happiness or XKCD might be delivered via email, or displayed in a Substack application, rather than run as a blog, accumulating its viral power through closed social networks. An elegant reader can be built to consume this visual content, with special features such as title contests.

You can see the Substack rolling out similar features for other categories. For example, a food writer might benefit from a custom recipe builder or timer feature. Financial analysts will no doubt supplement this with interactive market charts, tables and other graphics.

The more compelling the Substack toolkit becomes, the more creators are likely to get involved. The platform could also take steps to lower the barriers to creation -- perhaps with the help of artificial intelligence. As described in Endless Media, generative AI engines like Midjourney and ChatGPT are fundamentally disrupting the way we create content, making it considerably easier to create compelling images and qualified text.

The Substack can benefit from these innovations in a number of ways. For example, it can automatically generate summaries of long articles for authors to place at the beginning of their articles -- like our actionable insights. With the Voice Skin platform, it can upgrade its reading features to support custom audio; The reader will hear the text in the author's voice. It could even take a page from Lex, the AI word processor, and enhance its current editor to help publishers overcome writers' obstacles or speed up their progress. Fittingly, Lex was founded by Every, a newsletter network co-founded by former Substack employees.

Substack is sober about the opportunity. One writer talked about a closed test that made it easier to generate caption images using artificial intelligence; Substack confirms that it is doing just that. It's a test in keeping with the spirit of the platform: it's possible to use Midjourney to represent a suitable image, but it's not effortless and requires careful prompting. While details of Substack's testing have yet to be revealed, it makes sense for the company to streamline the process and provide timely guidance. Just as the Substack made it possible to gather subscription information with just a few clicks, it can do the same for creating media assets.

As Stackverse has proliferated, so have the possible business opportunities. Among the bumper sticker phrases collected by the tech world, Netscape CEO Jim Barksdale quotes this classic line: "There are only two ways businesses make money: they bundle or they split."

The Substack has an interesting relationship with this statement. On the one hand, it has promoted the great unshackling of the media, jailbreaking writers from traditional publishers and giving them the tools to succeed. However, it has essentially bundled these new businesses under its umbrella. So far, this has been done at the product level, but it can manifest itself in other ways as well.

We are already beginning to see some hints of this approach. Publications can activate "Substack Boost" by clicking a button in Settings. By doing so, their subscriptions began to show up programmatically in the checkout process for other publications, offering a 20% discount.

This is essentially a small bundle. Encouraging this behavior benefits the Substack, increasing AOV and revenue in the process.

Even more exciting than the types of content and business mechanics the Substack will one day support is the cultural power the company looks set to accumulate. Best's company is already a strong player in this regard. It is home to some of the most interesting and influential people in the world.

The power of culture is invisible and difficult to visualize; A Substack party in the real world can serve as a useful physical representation. Bailey Richardson said the company once held a beverage event in the East Village, Among those attending were legendary singer Patti Smith, Vanity Fair writer Delia Cai and the late football journalist Grant Wahl. All these people are on the Substack.

"We're still in the early stages of understanding the cultural significance of the Substack," says Andrew Chen. There will be new buzzwords and terms that come from it...... It's like the gamer terms that became mainstream came from Reddit and Discord. "It is a modern salon, a place for communication, collaboration and creativity."

As it happens, the first post on the Substack was about the Sun. In announcing their new platform in July 2017, Chris Best and Hamish McKenzie detailed how the New York paper pioneered the media's advertising model in 1833 (five years before Moses Beach took over). In doing so, the Sun set in motion, in the view of the Substack's founders, a gradual slide into dishonesty and superficiality in the media industry.

It feels fitting that the Sun pioneered the unhealthy environment that Substack was trying to correct, and then pioneered a new model of collaboration that closely followed Best and McKenzie's original vision. Moses Beach's "United News" alliance may have started as a solution to a passing problem, but it morphed into an example of enduring online power.

The Substack is not a publisher, nor is it a simple tool. It is a network, an ecosystem, an engine of words, cultures and ideas; An empire of narrative.

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