Substack, Growth and Why Casey Newton Should Be The Exception, Not The Rule

Substack bringing on popular writers like Casey Netwon has been the talk of Tech Twitter and the New York Times the past week. Newton is a popular tech reporter who does some tremendous work at the intersection of social media platforms and society. Obviously, it was a smart move for Substack to court Newton and bring him onto the platform.

Newton has over 20,000 subscribers to his current newsletter, Interface, so if even a fraction of those subscribers subscribe to his new Substack-powered newsletter, Platformer, Newton will generate significant revenue for himself and Substack. However, I have sneaking suspicion that in order for Substack to reach its fullest potential, popular writers like Newton should be the exception, not the rule.

Will there be a million Substack members making enough subscription revenue to live a comfortable lifestyle? Probably not. At least, not as Substack (and its user base) is currently constructed. Text is not video, the most preferred online medium. Can there be 1,000s of Substack member making a good living via the platform? Yes!

Substack’s current limitations

Substack and big name writers are entering mutually beneficial relationships. Substack offers the tools, upfront salary and benefits. The writers bring IP (the writer’s brand and work ethic) and an audience. However, this gets at the biggest challenge for Substack and its customers.

Substack is not a distribution channel...yet. Most big name writers on the platform will have to rely on HAMs (horizontal attention marketplaces) like Twitter for distribution beyond their own subscriber-driven growth. Substack is come for the tools, stay for the tools.

In a previous post, I explained the symbiotic relationship between HAMs and vertical software providers like Substack:

The continued growth of social media platforms like Twitter, TikTok and Instagram, which are horizontal attention marketplaces or HAMs, are creating massive attention demand (ie. value creation) and opportunity for value capture.

Vertical software providers like Substack, OnlyFans, Patreon, and others provide software tools that help suppliers (ie. prominent accounts on HAMs) directly monetize their attention and followings.

Demand and Discovery

“Come for the tools, stay for the tools” can work short term, especially when 10% of its customers can drive outsized growth for the platform. Eventually, in order to grow the platform, Substack is going to have to invest in distribution, which means web and app. Email-only won’t be good enough. Web and app experiences can serve as a top of the funnel for its customers (i.e. writers) in a way email can’t.

Substack has to get to a point where subscribers can reliably discover other writers and content creators on Substack. The platform has to influence demand AND drive discovery. The tool requires a network for sustainability.

I can already hear the chorus of folks saying, “Demand and discovery? Isn’t that just creating an aggregator of Substack writers and the content?” My first response would be, “What role do you think Twitter plays for writers using Substack’s tools today? It’s demand and discovery.” This is Twitter’s role and it is not optimal for Substack customers or their subscribers.

Excluding a “Post To Twitter” widget, Substack has no impact on its customers’ biggest distribution channel. To allow this to continue would be to allow Substack to become just another CMS that its customers could swap out at any moment.

Journalists Are Just The First Customer, But Not The Last

This is gonna be controversial, but IMO the future of Substack isn’t journalists, especially journalists that would be successful at a media org or any other platform. It’s helping talented writers *and* content creators (remember text isn’t the preferred medium for most consumers) grow their audience on Substack, HAMs and email.

Journalists are a risk averse group and unless Substack is ready to support all of them with benefits, journalists aren’t the platform’s long-term customer base.

Substack Economics

Now that we’ve gotten the Tech Twitter chatter out of the way, let’s talk about the fun stuff: How Substack can better monetize its customers and their subscribers in the future! Taking 10% of your customers’ subscription revenue doesn’t scale very well and is going to limit Substack’s growth at some point. The company is going to need to introduce pricing tiers, which will give writers more flexibility in their own pricing.

Substack can always offer a free plan to drive top of funnel customer growth, but recurring subscription revenue goes a long way to funding its business with FCF and building additional tools as well as better distribution channels and discovery mechanisms for its customers.

Relying on its current revenue model means that Substack will constantly be hunting for writers with large audiences that can be monetized and tailoring their product offerings to that segment. Eventually, anyone who gets big enough (eg. making $100,000s/year in subscription fees) is not gonna give away 10% pre-tax revenue, especially if it is split between multiple writers/creators.

Introducing pricing tiers with varying levels of tools and support would actually help Substack better understand its customers’ needs and investment areas that benefit the entire platform vs the top 10% of users. For example, every customer may benefit from branding tools and embedded financial services like business bank accounts, but not every customer needs healthcare and legal defense benefits. The latter group of services could be charged for in a way that is more economically viable for Substack and a more fair cost structure for customers that need those services.

Pricing tiers could be also paired with a services marketplace that allows experts to provide services and support that a certain % of users need and Substack isn’t built to support (or interested in supporting). Substack’s current revenue model is more limiting than it seems at first glance. The sooner the platform moves on from it, the better for Substack and its customers.