Substack's Catch-22

Power laws, zero-sum games, and existential challenges to a platform's ethos

Thanks for tuning in to this week’s newsletter, a meta pontification about Substack … on Substack. I’m clearly channeling my inner SF tech nerd today — too bad it’s too warm here in San Diego to don my Patagonia and Allbirds. 🌞

I spend a lot of time at my day job pondering questions around social, media, and the confluence of the two, questions that have become more poignant as I’ve begun to ramp up on Substack.

Let me know your thoughts — I’d love to riff on this topic together! And to receive this newsletter in your inbox each week, feel free to subscribe here:

Capitalization and clout

“Substack” has become analogous to “newsletter” in our modern vernacular, a poster child of the “passion economy” landscape. It’s well capitalized, having raised $15M from a16z in 2019.

It’s also garnered a lot of buzz, and for understandable reasons including low barriers to creation, the allure of working for oneself, the presence of high-clout journalists (e.g. Casey Newton and Andrew Sullivan), and an indignant refusal to go white-label.

Substack’s new vision for media is one of a democratized, disintermediated model with no editorial gatekeepers an ability to own your content and own your audience.

As such, Substack is inherently a platform, meaning that it facilitates (think Shopify, Squire) rather than intermediates (think Amazon, Google) relationships between users and third parties. And as with any platform, its primary raison d’etre is to drive monetization by providing businesses a foundation on which to grow.

A tale of two writers

On the surface, Substack seems to be serving writers, the atomic “businesses” on its platform, just fine. It currently has more than 250,000 paid subscribers, and its top 10 writers collectively earn more than $10 million a year. So on average, $1M of cold, hard cash per top writer? Not too shabby.

But Substack, like most things in society and especially on the internet, is subject to power laws, meaning that engagement and subsequently wealth are concentrated at the top. On Patreon, for example, only 1,393 creators (under 2%) earned the federal monthly minimum wage of $1,160 a month in October 2017. This power law distribution of creator wealth is even baked into the company’s operating DNA, as reflected in its Financially Successful Creators metric (defined by a threshold of what Patreon considers “life-changing earnings for Creators”). Per Patreon, “We'd rather have our GMV be made up of fewer, but truly life-changed financially successful creators rather than a lot of creators making a few dollars”.

To simplify this dynamic: On Substack, there is a short head of top writers who do very well for themselves and a long tail of aspirational newcomers with limited monetization.

A bifurcated creator base raises existential questions

And here’s where things get interesting. This bifurcation of its creator base makes the question of “where do you play and how do you win” incredibly challenging for Substack to answer. Like any profit-seeking business, Substack’s end goal is to monetize through its writers — the way it currently does so is by taking a 10% cut of writers’ gross revenue. So through the lens of a bifurcated creator base, what Substack needs to do to “win”, i.e. successfully monetize, is:

  1. Drive depth and retain top revenue-generating writers, or

  2. Drive breadth and help enough aspirational newcomers successfully make money on the platform

Through its recent product launches, Substack has signaled its intent to “play” by taking a peanut butter approach across both segments — for (1), it has lobbed out sizeable advances, created more options for customization, and even offered legal services (2), it recently launched Substack Reader, an aggregated discover feed.

I see Substack’s current approach of solving for both top revenue-generating writers and newcomers who aspire to monetize as not only a zero-sum game but also indicative of existential challenges to its core ethos.

Let’s break this down.

(1) Top revenue-generating writers

  • These writers are: Journalists and bloggers of eminence with large audiences who likely already had a sizeable following before porting their content over to Substack

  • What they need is: Cherry-on-top offerings like room for customization, more robust analytics, and back-office services that provide demonstratable value and justify Substack’s 10% take rate

  • Substack’s play has been: Lobbing out sizeable advances, creating more options for customization, and even offering legal services

  • But this is zero-sum: Peripheral white glove services are inherently not scalable to the long tail and likely not economically sound unless you’re supporting the most plum creators

  • And reflects existential challenges: By offering perks that a traditional publisher like NYT would, isn’t Substack essentially becoming the newsroom it aimed to unseat in the first place? And isn’t it perpetuating the same dynamics that accrue engagement and wealth to a select few, just through a different vehicle?

(2) Aspirational newcomers

  • These writers are: Recreational or newly-minted creators who have a small audience and limited monetization who use Substack as a simple publishing solution for paid newsletters

  • What they need is: Audience building capabilities, which are necessarily dependent on content discovery. Discovery occurs via social and search, where there’s a critical mass of eyeballs

  • Substack’s play has been: Substack has signaled an intent to close the loop between supply and demand with its “Reader” functionality, which offers existing readers rudimentary non-algorithmic, in-platform discovery of other Substack publications

  • But this is zero-sum: Enabling in-platform discovery creates a Robinhood-esque dynamic where audience liquidity is brought in by top writers but then distributed to aspirational newcomers

  • And reflects existential challenges: By offering a discovery layer onto its platform that nudges readers to other publications, isn’t it undermining its core pillar of empowering writers to own their audiences? Through intermediating the relationship between readers and writers, Substack structurally becomes an aggregator and subverts its “Substack is a tool” value prop that brought writers to the platform to begin with

TLDR and so what

For all its aspirations of disrupting media and all its current clout and capitalization, Substack is still subject to power laws seen across the publishing space. And as we can see, its mere philosophy of “aligning incentives” is necessary but not sufficient in serving its primary purpose of enabling writers to grow their businesses. Moreover, its current strategic plays (white-glove services, Reader, etc.) simultaneously disenfranchise certain segments of its writer base and challenge its core ethos as a platform.

Substack faces a strategic Catch-22 and pressing existential questions on the horizon. Will it bet on retaining top writers or on nurturing the long tail? Who is it building for, the writer or the reader? Will it be a platform or an aggregator? Will it be a tool or a network?

I’m curious to see how Substack decides to respond to these questions.

A tide that could lift all boats?

To circumvent its existential issues, Substack could double down on being a membership provider rather than a subscription provider. Membership is less transactional and more relationship-focused than subscription — my Blue Apron subscription (hypothetical of course, my frugal self would never pay for BA) offers me a regular shipment of a good as a result of my monetary transaction, but my Costco membership enables me to buy bulk goods and giant pizzas at a steep discount. This is not only in line with Substack’s ethos of enabling a disintermediated relationship between writers and their audiences but also doesn’t serve one segment of its writer base at the expense of the other.

Here’s what this could look like in practice.

  • Multi-SKU offerings: For most full-time creators, a newsletter is just one revenue stream among many. Consulting, events, and courses are all add-on monetization channels Substack can enable and bundle into an all-in-one membership.

  • Community-building tools: This seems like a no-regrets bet to me. Substack currently offers comment threads capabilities for posts, and top writers often have very active comment threads (Zat Rana, for example, regularly clocks in 30+ comments per post). This signals to me that readers have an appetite for closer interactions with writers that Substack currently does not have the infrastructure to support. Intimate reading circles with authors, a la Bookclub, or general community-building platforms like Mighty Networks or Circle could be natural extensions here.

Final (macro) thoughts and questions

This whole thought exercise has raised more questions than answers. Taking a step back, some additional macro questions for me would be:

  • Substack’s value prop for readers is being able to curate your information diet to include only what you want to read and see. But is a world with niche communities and radical individualism a vision that we want to move toward?

  • Moreover, in light of the recent insurrection at the Capitol, de-platformed creators will likely double down on directly owning their relationships and communications with constituents via email, one of the last truly private corners of the internet. How will Substack reconcile content moderation with its principle of enabling writers to own their audiences?

Additional reads and resources


The Media Writing about Media

On the Creator Economy