Substack v. Twitter. Newsletters, Subs, and ways to make money
The future of Substack and Twitter; is subs a good idea and developing newsletter bizmodels
Hi All,
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We’ve increasingly, in the news heard about people starting off newsletters, more so than anytime in the past with 2020 becoming “year of the newsletter”. I am subscribed to 77 Substack newsletters (and that's just substack mind you but so much great content from so many smart people!). Seventy Seven. Let that sink in for a second. Seventy Seven!
I write this article as I am fascinated about newsletters, the monetization model both for the author that monetizes (uh not me!) as well as the platform.
But let’s step back to the 16th and 17th centuries. From : From Papyrus to E-mail: The History of Newsletter Marketing
Publications that we might now recognize as newsletters began to appear in the 16th and 17th centuries. One example is a 17th century newsletter distributed in England featuring accounts of events and people from the colonies. By 1704, a publication considered the United States’ first known newsletter appeared, The Boston News-Letter—a single sheet printed weekly that contained information from England of interest to Colonial Americans. These early newsletters evolved into what we today know as newspapers. Printed for 72 years, The Boston News-Letter is considered the first continuously published newspaper in North America.
Just as the birth of the Internet in the 1990s transformed life as it had been known for centuries, it also revolutionized marketing. E-mail actually predates the Internet, as does the first e-mail marketing message, which was sent in 1978 by a Digital Equipment Corp. employee name Gary Thuerk. He sent an e-mail blast to 400 recipients that resulted in $13 million in sales. This is also considered to be the first spam message.
With the 1996 launch of the first web-based e-mail service, Hotmail, what began as a communications tool for business professionals and academics turned into a common means of personal communication. This innovation made free e-mail available to anyone with access to the Internet, even if only from a library or business center. Smart marketers seized on the newsletter marketing opportunities of this new technology.
Large companies and small professional firms alike use e-mail marketing to send eNewsletters to clients and prospects on a regular basis. While some eNewsletters contain links back to a company website to increase web traffic, many more are content-rich publications full of information. Like the paper newsletters that came before them, these eNewsletters have helped turn prospects into customers, or one-time customers into repeat customers.
E-mail technology continues to evolve. For example, in the mid-2000s, e-mail service providers began allowing senders to receive feedback. As a result, marketers today can measure open rates, clicks and other data, helping them to hone and improve their e-mail marketing to better meet their needs and those of their audiences.
In 2015, an estimated 2.5 billion people were using e-mail, though 50% of all e-mails sent were believed to be spam. These figures underscore the importance of sending newsletter marketing e-mails that contain information useful and valuable to the reader.
Well, who knew right?
So why is now an opportune time for newsletters? I think there are several reasons this is coming to head now
Open Standards
The internet was built on open standards - TCP/IP, POP/SMTP which are essentially rules set by standards setting organizations such as W3C and IETF. This enabled companies to build on top of the standards and protocols and create products that millions of people use. However a lot of ways to “reach a user” today are owned and monetized by BigTech.
Sources of news
I think we’ve all been there -- open up an article on Facebook and read it, believe it, and make some internet “noise” about it. The fact though is that inherent in such reading we’ve lost connection to the author. In a world where everything seems (and probably is) inauthentic, this seems like a good thing to have access to.
Cambrian Explosion of content
There has been a cambrian explosion of “high calorie junk news”. As I wrote in The art of reading last year:
Have you ever been overwhelmed with how much there is to read? If you are a voracious reader like me, you’ve probably struggled with how best to optimize your reading. Reading well like anything else requires thought. Most people, I find, don’t themselves grok why they are reading something. In this quick note I try to frame a thought process around reading. If you are reading this to figure out what specifically (article, website, book etc) you should read this article is not for you. This note however will help you adopt a thought process around HOW to consume written media without any emphasis on other forms of media (podcasts, tv shows, Netflix).
As such as we start getting more and more overwhelmed we want to choose to “read” and not be bombarded. In Marc Andreseesen’s words:
I’m going to switch gears just a bit. I asked a lot of people we both know for questions for this interview. The single most common question: how do you read so much?
I’ve really read all the time since I was a little kid, it’s been a lifelong thing. It’s basically trying to try to fill in all the puzzle pieces for the big discrepancies.A great term is “sense-making”. Essentially, what the hell is happening and why? The world’s an incredibly complex and erratic place and trying to figure that out is kind of a lifetime occupation.
The thing I’ve tried to do the last few years is really “barbell” the inputs. I basically read things that are either up to this minute or things that are timeless–
They are Lindy [Effect] safe.
Yeah. I’m trying to strip out all the stuff in the middle. What I’ve discovered is the number of people who can write something in the middle zone — when they’re trying to explain something that happened last week, month, a year or even a decade — and who I trust to actually give me an objective read on the situation is just a really, really short list. There’s a handful but there aren’t very many.We have one situation currently — what’s literally happening right now [with COVID-19]. Coronavirus is one where everyday I’m looking at all the science and all the economics because these are critical issues. And I’m trying to avoid all the commentary and all of the interpretation.
And then the other, as you said, there’s just a very large amount of timeless stuff that really has been proven right over time. You could spend your entire life only reading timeless works which is what smart people used to do.
The Passion Economy
Ever since Kevin Kelley’s concept of a 1000 true fans, the concept of 100 true fans is gaining hold. It almost seems we’re going away from mass products to customized individual products. One can make a lot of $$$$.
For example Heather Cox Richardson an American historian and professor of history at Boston College writes “Letters from an American” which probably makes her a lot of money ...
The news of her ranking seemed to startle Dr. Richardson, who in her day job is a professor of 19th century American history at Boston College. The Substack leader board, a subject of fascination among media insiders, is a long way from her life on a Maine peninsula — particularly as the pandemic has ended her commute — that seems drawn from the era she studies. On our Zoom chat, she sat under a portrait that appeared as if it could be her in period costume, but is, in fact, her great-great-grandmother, who lived in the same fishing village, population a bit over 600.
She says she tries not to think too much about the size of her audience because that would be paralyzing, and instead often thinks of what she’s writing as a useful primary document for some future version of her historian self. But there was no ignoring her metrics when her accountant told her how much she would owe in taxes this year, and, by extension, just how much revenue her unexpected success had brought. By my conservative estimate based on public and private Substack figures, the $5 monthly subscriptions to participate in her comments section are on track to bring in more than a million dollars a year, a figure she ascribes to this moment in history.
Given that context, I think it is sufficiently clear that newsletters (in the current paid form are here to stay), which brings me to Twitter’s recent acquisition of Revue for probably not a whole lot of money given that Revue had only €400,000 in funding.
Things are stirring up a lot in TwitterLand. Quite recently with Twitter Spaces (Clubhouse competitor) as well as Revue, Twitter is trying to make inroads into more than just the ad’s business model. I am finally glad that Twitter is waking up. Today a newsletter writer would broadcast on Twitter, link back to their newsletter site (Substack or MailChimp or whatever they happened to use) and conversations never happened. I am still skeptical of the audio format as I wrote in Clubhouse : The newest (audio) unicorn kid on the block, just last week. Twitter however is losing out since a lot of newsletter discovery happens right there on Twitter with Twitter making the connection, but not a buck.
In fact within Substack, you can discover newsletters from people you follow on Twitter …
This overall transaction has multiple users:
The “consumer” → newsletter reader
The “producer” → newsletter writer
The “platform” → Substack or Revue/Twitter
There are multiple ways to make money for a platform. In The best way to make money, Brian Morrissey breaks down the options :
The excitement around newsletters and independent micro-media businesses is in many ways a do-over for the Web 2.0 era. The big difference: Web 2.0 was all about building large audiences through platforms that would be monetized with ads. Now, it’s about niche audiences and subscriptions.
But that misses a big lesson of the blogging boom. As bloggers built businesses, they focused squarely, almost maniacally on ads. That made sense since, well, that’s what everyone was doing. That turned out, in most cases, the wrong bet. I’d argue, however, the big lesson was different. It’s that the best way to make money is: lots of ways.
Subscriptions beat ads for most media businesses for a few reasons.
You align your revenue with your product far cleaner than with advertising. As we have seen again with Robinhood, there are misplaced incentives when your users aren’t your customers.
You make fewer compromises with your product. Visiting an ad-dependent local newspaper site is like getting punched in the face. Not a way to keep an audience.
You start the year with money. Recurring revenue is the most powerful business model around. There’s a reason subscription software businesses fetch the multiples they do.
That said, subscriptions aren’t religion. Too often, people take absolutist approaches. (BuzzFeed was never going to run a display ad. Programmatic display is a big part of its business now.) Advertising is not an either-or proposition. The history of media says it’s usually an and situation. The businesses being created many independent newsletters will not be supported by a single revenue stream. Instead, they’re going to need several sources of revenue, including advertising.
To date, Substack has taken a no-ads-ever approach. I understand that -- from a marketing standpoint. Substack wants to position itself as an antidote to the doomscrolling of social media feeds. Substack co-founder Hamish McKenzie recently summed up the stance:
Substack is designed to be a calm space that encourages reflection. You read Substack posts in your inbox or on a web page that is free of advertising or any other distraction. There are no addiction-maximizing feeds, autoplaying videos, or retweetable quote-retweets to suck you into a psychological space you never asked to be in. You make decisions about which information to put into your brain based on how well certain writers reward your trust, not based on a dopamine hit gained by refreshing a feed packed with performative posturing.
And yet many Substack newsletters are already running advertising. More will do so. The dream of writing great content and relying solely on subscriptions will be available to a small group of stars. For Substack and micro media to gain traction, most will need a mix of revenue sources, including ads.
How does Substack make money today?
Substack charges you 10% of the newsletter's price. For example, if you charge $5 per month, then SubStack will take $0.50 or 50 cents every month. If you charge $100 annually for your email newsletter via SubStack, they will charge you $10 for a year. Substack has always been a non ad’s play which at face value seems like a good thing but as mentioned above, writers do plug in ad’s and that’s smart if you make money from that. Basically use Twitter for free to get discovered, maybe charge for your newsletter or run ads’ (or both!)
Here is an example of an ad within the newsletter: Smart right?! The same organic ad unit ...
There are other ways to monetize (However Ken Norton is not so far) : From One To Infinity And Beyond: Avoiding Second Product Syndrome. At the bottom of the article is a list of jobs …which can essentially be a paid listing!
And you have even more creative things such as this …
In this case the post is a job! Diamond in the rough which will run you $12 a month.
I think, the key point is that most of the above cases Substack doesn’t make money. So there is the options of ad’s or paid leaderboards … Similar to what ProductHunt has done maybe?
To me a fine proposition (I don’t charge for writing this newsletter). Assume that I did make half a mill a year? Would I really want to pay Substack $50k. I mean at some point I’m gonna probably rethink that since I own my own mailing list and your email allows me to email you thanks to an open SMTP standard. What however is key is that my relationship is with YOU. Unlike Medium where I subscribe to uh well “everything” irrespective of if Joe Temple, Jessie Parks, or Promeet Mansata wrote it. Devalues, in my opinion, both the writer and the reader! The point I am making I think is that Substack at some point will need to rethink how it charges the top end of the spectrum, while at the same time encouraging “messy middle or low end” peeps like me to work for them. I don’t quite know what it looks like …
How does Twitter make money?
Well that is easy right? Ad’s but the (probably) low cost acquisition of Revue gives them a tool to start expanding that revenue source from just ads.
From Twitter: Making Twitter a better home for writers:
Starting today, we’re making Revue’s Pro features free for all accounts and lowering the paid newsletter fee to 5%, a competitive rate that lets writers keep more of the revenue generated from subscriptions.
Of course there is no guarantee of success but truth of the matter is that ad’s hasn’t been such a hot business for Twitter compared to their Social Media big wig brothers (Facebook and Google) so this is a way to diversify I guess.
So what can Twitter do? As I wrote several months ago in Twitter, MS Office, Economic Surplus, and subs
Subs all the way?
I am quite skeptical as to what a partly ad based business would look like assuming what Dorsey said above (We want to make sure any new line of revenue is complementary to our advertising business)
Subscription models are hard. Just ask LinkedIn. Furthermore, extracting money from a consumer v/s an enterprise is going to be very hard. What is the user paying for? Will that make sense? How does the experience differ? Is it fair to have a different experience for a “paid” v/s “free” user? How does that limit toxicity? Secondly, just because a user “pays” it doesn’t automatically reduce or remove toxicity. That being said, here are some options to augment revenue:
Charge by post
One option is to charge by the number of times a user posts. Modeling this is beyond the scope of the post but this is likely untenable as a monetization option
Charge by # of followers
This model can work (and is used in a lot of B2B pricing situations where you pay as you use more - Mailchimp as an example, you pay only if you send more email). This could work for Youtube where influencers/content creators are paid by the number of views (or show ads based on the # of views). Unlikely
Charge by user type
Charge content creators for posting and limit the number of comments a user can make on a daily basis.
Charge by private message (direct message)
This is the same as LinkedIn Inmail. This again is hard to accomplish. How many paid inMail’s have you sent in the past year?
Monthly charge?
Sure but you’ll chase away the ad dollars if you don’t have the eyeballs. Not a very feasible option
Type of user charge?
Charge businesses, politicians, business people who can corral their followers in their own public town square?
For all these options, there is also the question of how much do you charge which I haven’t considered at all. I don’t want to go down this rabbit hole.
Follower count folly
Assume a subs business, how does it impact followers? Would the prolific tweeters leave in favor of another platform where they have more followers not incumbent on paying?
This is why Dorsey said that "a really high bar for when we would ask consumers to pay for aspects of Twitter” and he is right. This change is hard, complicated, has to straddle two competing needs - not killing the ad’s business while building a subs business. Twitter sure has its hands full and I am curious as to the outcome/tests that Twitter plans. Maybe I’ll be a paid subscriber someday. Ok I heard you laugh out loud.
I think the mistake I made was I only considered subs as one way and of course was only thinking of “tweets” but there are other ways that this could make sense:
One time or recurring tips to a creator
Exclusive content filters - Similar to Substack but for tweets (you get all the tweets plus the newsletter for $5)
Use of TweetDeck. Tweetdeck is currently free, and doesn’t have ads
Product features, in addition to the above list …
Undo send
Ad free Twitter
Verification services
I guess I wasn’t so sold on the subs product for Twitter in the past, but bundling all of the above seems like an interesting option. The real question is is there enough of a user base that would pay for the subs product. Time will tell
Thank you for reading. Stay safe, be well! If you enjoyed reading this please consider sharing with a friend or two (or sign up here if you came across this or were forwarded this)
Reads about Substack/Twitter
Twitter Mulls Subscription Product, Tipping For Generating Revenue
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