Writing is hard, competitive, and readers do not want to pay for it. Sounds like an unappealing market right? Against all odds, Substack is one of the most hyped companies at the moment. Their competitive advantage, growing and monetizing newsletters simply, is also a weakness. Writers can just as easily leave with a list Substack helped them grow and monetize.
Substack’s incentives are aligned for smaller writers (can’t beat free) but become misaligned for larger ones. For writers, Substack is as good as the services they provide them lately. The beneficial features for a new writer with no following are not the same as the features for an experienced writer with a large following. Larger writers might need support with moderation, subscriber management, promotion, and protection.
Why would writers leave? Substack takes a 10% cut of subscriptions. This isn’t much for smaller writers but is significant optionality for larger ones. At large amounts, writers could find ways to claim more of that cut for themselves, while getting optionality. Examples of this are paying someone to develop, host, and manage their own site, finding a service to do it cheaper with customization, or monetizing through traditional routes (books and institutions). Margin is opportunity.
Money isn’t the only reason for writers leaving. Newsletters require new content to constantly be created. You can’t charge someone for nothing. If someone wants to focus on any other medium (book, video, podcast, writing for an institution), it is a loss to Substack.
Keeping big writers writing on Substack is a key business problem to figure out. Here’s how they do it:
- Providing an expanded definition of customer service.
- Building community and reader lock-in.
- Showing writers how bad leaving would be.
Expanded Definition of Customer Service
Incentives become misaligned for high revenue writers. Revenue from a writer increases but the value provided to that writer stays the same. Writers could perceive Substack as not providing value at high revenue levels. To realign incentives, Substack needs to provide an extended definition of customer service.
Substack should aim to remove toil from writers. Toil is any work not central to writing the newsletter. Examples of this include moderation, payments, refunds, and product improvements. These are all tasks writers do for themselves away from Substack or get handled for them in an organization.
Substack needs to find a balance between providing services to writers and allowing independence. An example of this is Substack’s legal “Defender” program. It provides the benefits of a larger organization (legal support if needed) while allowing writers to remain independent.
Research and promotion are two ambitious areas to remove toil that could create massive competitive advantages. Substack could provide access to key research subscriptions to its writers. They could also co-market with writers to boost sign-ups and subscriptions.
Substack must treat its writers as large enterprise contracts. Substack enables writer success. This requires more than customer support reps answering questions. It cuts into their margins but is necessary as competitors encroach.
Writers may own the email list but they don’t own the full reader relationship. Substack will own more of the relationship. Product design is limited if in the end an email is sent. Moving readers from their email inbox to Substack’s site is an important goal.
“Substack Inbox” is in Beta. Its goal is readers reading on Substack’s site. This enables better community engagement and discovery. Inbox creates a closer relationship between readers and Substack. Substack wants readers to lock into the platform. They want to be the place readers check when they are looking for something to read.
Time-on-site creates value for Substack as a community. While on-site, people are more likely to see comments and more likely to comment. Communities require engagement to grow, and email is a low engagement platform. Substack provides access to many “communities” using one login. With engagement, community becomes a reason for readers to use Substack.
For writers, reader lock-in means less potential readership if they move away. Moving away may mean losing out on the community engagement and discovery Substack provides. If moving away from Substack means losing a large potential audience and community, that becomes an incentive to stay.
This could also be true in the other direction. Writers could want to move away from Substack for greater control over their community. Without careful moderation (who provides it?), communities can get out of control, especially because of the popularity of politics on the platform. Trolls go where the attention goes.
If Substack succeeds in getting readers to spend more time-on-site, there are incentives for writers to stay. If a writer moves, they’ll lose some part of their readership who spends time on Substack’s site and in their communities. Substack can say “don’t leave, your readers are all here.”
Showing Writers How Bad Leaving Would Be
Many of the most popular writers left traditional writing gigs to join Substack. This is great marketing for Substack. They must play this up. The message is simple: “traditional media is evil and managing your own site is too difficult, stay with us.”
I can foresee a day when a writer on Substack writes something bad about traditional media, so bad it is considered slanderous. The media company and the writer get in a legal fight. Substack comes to that writer’s defense. “Big institutions are evil, Substack is good.” Infinite good marketing for Substack.
To keep this up, they must keep the image of enabling independence. There will be big media stories about how Substack is hosting evil people (and it may be true). Big organizations can coordinate their attack and rally their writers to support. Substack needs their writers to decide to support them. If writers turn and Substack’s reaction is bad, this could be a major problem for the business.
Substack also wants to paint full independence as a hassle. Writers are writers, not business owners, not managers. Substack allows writers to focus on writing. Realistically, Ghost, Medium, and others are only slightly more difficult to figure out. They aren’t as trendy though. The “starting a Substack” trend will run out. Being ready to turn on the “we are simple and that makes us better” focus is important. This must remain true. Substack cannot become too complicated while the hype is still driving growth.
Substack has grown quickly, but they must be careful with their growth. Writing is never going to get easier. The amount of people who consistently write content people are willing to pay for is limited. They aren’t close to hitting a ceiling, but their growth could slow if the “trendy” label wears off.
If growth slows and top writers leave, it will ruin the business. Substack is easy to join, but also easy to leave. More competition is coming. Good writers have options. Showing Substack as the best of those options will become increasingly important.