Substack really competes with creators leaving and setting up their own newsletter + payment gateway software. That’s like a $20,000 or so project from a web dev firm and for a creator who gets $200,000 a year from their newsletter it pays for itself in a year. The trouble is that substack makes almost all of its money from two handfuls of users who make more than that so if substack loses those creators it is left with all the expenses but none of the revenue.
The question about any feature they add is “what does it do about that situation?”
This is similar to the "Amazon problem," where manufacturers can earn a higher margin by selling direct.
>The question about any feature they add is “what does it do about that situation?”
The answer is the same in the cases of Amazon & Substack: generating sales isn't free, and in all likelihood the platform can do it cheaper than you can. Take the $200k writer who pays $20k to Substack annually. Either Substack can generate 166 subscriptions ($10/mo) annually so it's worth the money, or you move. (That's almost correct: if you are a writer, it may be worth it to you to let Substack continue to own this piece so that you don't have to run a business. There's a lot of value in being able to focus on thinking and writing and not SEO and ad placement.)
I've seen people trying to compare Amazon to Substack, but it doesn't add up for me.
One Substack "generates" the sale, transferring the relationship to your own site feels cheap.
It's like if Amazon stopped selling New Yorker subscriptions. If I actually gave a crap about the NYer subscription I was paying for, I'd find some other way to pay for it. Amazon [Substack] is a commodity in this vertical.
Of course, the people who didn't care about your subscription because they never read it would disappear. But, they were going to churn eventually. I imagine if you amortize over a year, this marginal loss is less than the diff between Substack's take rate and operating your own blog + newsletter.
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Acting rationally from an economic point of view, the only reason you'd want to stick around on Substack is that you think this equation holds true:
(Future subscriber base on Substack * (monthly rate - Substack fee)) > (Future subscriber base as an independent * (monthly rate - cc transaction fees)).
For "young" writers who don't yet have an audience, Substack helps a lot. But if you have a well-developed audience, IDK, I imagine Substack must view them as big flight risks (hence the advance payments).
Some substantial things Substack can do to make this equation more favorable:
- Give you free (or low-fee) marketing on substack properties (note this is a zero sum game over ad inventory, choosing to give you ad space means choosing to not give it to others. this is a hard game to solve, but they can probably do it).
- Reduce their take rate for mature audiences.
IMO, their current model doesn't make a lot of sense if you're somebody with a large audience. Especially now that we're out of ZIRP and they can't afford to sweeten the deal as much anymore.
So far the superstars of Substack (say Matt Taibbi) were superstars before Substack and promote Substack as opposed to the other way around.
Substack competes with traditional journalism, which delivers more journalism per dollar than the typical Substack but is based around the strength of the brand of The Guardian or The Economist as opposed to that of the individual journalist. From the viewpoint of the journalist the newspaper is an aggregator that is doing their marketing work for them.
Substack also competes with Medium which plausibly claims to be doing promotional work for its authors, but despite claiming to be a place which is a little bit better than the rest of the web it's actually a place that is a little worse than the rest of the web and isn't making significant amounts of money for anyone.
I mean look at Patreon that basically exist as 100% overhead over just a Paypal account. They're doing fine. They demonstrated that convenient cash transactions for digital subscriptions is a viable business model.
I mean, youtube had half the internet complaining "I wish that link was text and not a video" and the other half complaining "I wish it was as easy to monetize writing as it was to monetize video" and Substack saw the obvious solution.
Most creatives don't want to run a business, they want to create.
I know a warvlogger, however, who is still active on YouTube but moved to Patreon because he felt constrained about what he could post on YouTube who left Patreon because Patreon kicked out all warvloggers, now he has his own members-only website.
Another example is OnlyFans which has the same inequality problem as Substack. In my mind it is a little more mysterous how you'd run your own video streaming platform than how you'd run an email newsletter system, but I know you can rent video streaming from AWS so it isn't so hard. I think it's interesting how live-interaction platforms like Clubhouse outside pornography collapsed really quickly though.
Ghost is effectively pivoted into this, so, it's an open-source and cheap/free alternative to Substack, if for some reason Substack doesn't work for you.
If I were doing it on my own account my estimate is close to yours. I have a cloud-native email newsletter system I built already, hooking up a payment gateway is routine, testing can be a bit of a hassle.
You could put a job like that up on a freelancer platform for a lot less money and you might get a good outcome or you might not.
My figure would assume there is a certain amount of arguing and barguing about requirements and that you’re dealing with somebody who will really come through, dot all the i’s and cross all the t’s and it is worth it if you are really making money on a newsletter.
The question about any feature they add is “what does it do about that situation?”