#17 - Substack's Facebook Problem

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In recent news(letter), Facebook launched Bulletin

Substack has taken the newsletter world by storm, recently raising $65M led by a16z.

With Substack, Medium, Ghost, Revue, and a growing list of platforms, newsletter creators now have a healthy collection of tools to help with creating, publishing, distributing, and monetizing newsletters.

Predictably, as the space heats up, Facebook has entered the fray in the form of bulletin.com. Luckily for Substack, Facebook’s public perception and copycat reputation aren’t exactly winning a warm welcome for Bulletin.

Setting aside the negative reactions and classic Facebook strategy of “Free at launch (in exchange for data and product lock-in)”, can Substack innovate and execute before Facebook commoditizes it?

In this post I’ll unpack why Substack’s survival could hinge on:

  • Discovery

  • Monetization

  • Community

What can Facebook offer? How should Substack respond?

  1. Discover - Help people find the content they care about

  2. Subscribe - Enable consumers to “directly support” creators by subscribing with Facebook Pay

  3. Unlock - Let consumers buy premium subscriptions via Facebook Pay

  4. Connect - Social interactivity with subscription groups using live audio

Discover

This is a key battlefront, and Facebook has the advantage. Facebook is one of a handful of companies with enough data and scale to train its recommendation system to achieve a world-class search and discovery experience. Every moment of every day, Facebook takes a vast ocean of text, photo, and video content and delivers personalized feeds for people around the globe. It efficiently ranks content at an individual level, and it’s done so for 15+ years. As for the impact of this discovery system, Facebook’s growth speaks for itself.

On Substack there are no sophisticated algorithmic discovery systems. As for search? Below are the search results “Creator Economy” on Substack.

It’s a static set, and there’s no “show all results” or pagination to see more. The red number below indicates how many posts they have published in the past 2 months.

60% of results shown have posted 0-1 articles in the past 75 days.

Some of these newsletters have 0 lifetime posts, meaning users will click into the newsletter, potentially subscribe to it, only to see that it is an abandoned newsletter. Bad UX 101. Meanwhile, guess who writes weekly and doesn’t show up? 😅🧂🧂

Perhaps Substack only cares about writers who have an existing audience. Or perhaps Substack wants to figure out how to help small writers grow an audience if it wants to serve a broader set of creators. Either way, Substack needs to decisively clarify its strategic position: Is Substack a BYOA platform that serves writers who already have meaningful following, or is it a one-stop shop for all independent writers, not only those at the top?

If Substack is simply a BYOA platform for top writers, then it must make this clear to aspiring writers, and it should consider shuttering half-baked efforts into discovery to focus on key monetization differentiators.

But if Substack means to be a platform that serves creation, publishing, discovery, engagement, and monetization needs, then it cannot win at scale if the only writers who can succeed on it are the few with an existing audience — discovery is a must.

Subscribe / Unlock (Monetization)

These are Bulletin’s creator monetization pitch. Monetization is what led to Substack’s recent trajectory. In Casey Newton’s words:

If writers can convert 3,000 subscribers, that’s an incredible job. That’s an amount of money that almost no one in media would pay.

Money talks, bullshit walks. The prospect of making a significant income from writing uprooted star journalists from major publications. For many star journalists, Twitter has enabled them to build a personal brand that transcends that of their employers. When they achieve this level of fame in the current news publishing world that doesn’t reward them enough, they are bound to move on to greener pastures.

In terms of the actual product, Bulletin doesn’t seem to be offering anything unique or advantageous in monetization features:

  • Pay gating content is fairly commoditized

  • Bulletin might only supports payments through Facebook Pay according to the language on the site

Features aside, this sentence on Bulletin.com should be turning heads:

Facebook will not take a cut of the revenue from Bulletin creators at launch.

“At launch” implies there’s a future where Facebook will take a cut of the revenue, but in the near term, Facebook has decided to take a negative margin on Bulletin to attract writers. In comparison, Substack takes 10% of subscription revenue, and Twitter’s Revue takes 5%.

When it comes to stifling competitive threats, predatory pricing is often the name of the game. This is commonplace when big companies notice that small companies have uncovered latent demand in the marketplace.

  • Amazon Moms crushed Diapers.com with unsustainable discounts

  • Apple offers steeply discounted introductory prices for Apple Music, edging out Spotify because Apple can afford to lose money on its music streaming business in perpetuity. It wins by weaving its software and hardware evermore into consumer lives, securing the next wave of iPhone / iPad / Apple Watch sales

As a rising new platform, Substack is not in a strategic position to reactively reduce its revenue share to match Bulletin’s. Even if Substack does engage in a race to the bottom, the strategy may not yield meaningful competitive gains. The answer to Facebook and Twitter’s margin games is to ignore it, and instead improve the value of its offering so much that keeping 90% of revenue on Substack feels like an amazing deal compared to keeping 100% of revenue on other platforms.

Price is what you pay, value is what you get. - Warren Buffett

To toss out two terrible ideas:

  1. Writers have shown a willingness to bundle their work, and there have been examples of success (Every.to). How could Substack enable this behavior at scale? How could Substack automate the work of similar collaborations?

  2. High value fans from other content genres have shown a propensity to expand creator support spending when they’re able to help others. The top 2 gift subs buyers on Twitch have spent a combined ~$54M (if the data is good). How can Substack unlock this level of generosity from its writers’ biggest supporters?

Connect (Community Engagement)

Connecting consumers and creators via social interaction is Facebook’s bread and butter, which it can explore by leveraging parts of its massive existing network and tapping into a host of engagement features across Facebook Inc apps.

When the most popular Substack newsletters get an average of ~5 comments on each article, it is clear that reader engagement is not a winning area for Substack. Yet it may also not be the hill Substack should choose to die on, given Substack’s mission is to enabling writers to “generate income directly from their own audiences and on their own terms”.

However, Substack can consider community efforts in service of its monetization focused mission. For writers to effectively monetize fans, they need to offer what fans want. Increasingly, pay gated content on its own is not enough.

The most successful newsletters now come with rewards and perks not supported by Substack natively. For example, Lenny’s newsletter offers a Slack server for paying subscribers, and that’s where the community talks, asks and answers each other’s questions, and even co-creates content for a Community Wisdom series. How might Substack improve its own community features in a way that drives more revenue?

Additionally, Substack can focus on connecting writers with each other and increase their mastery and investment in Substack. Its resources page, office hours, and shout out threads are healthy steps in this direction. It could also take a cue from programs such as YouTube’s Creator in Residence, to help develop up and coming creators on its own platform. Simultaneously, these types of programs allow product teams to interact with creators directly to listen, get feedback, and ideate.

Again, this comes down to Substack’s company and product strategy. Will it be the all-in-one place that writers can grow, connect, and engage with the community and each other? Or will it be the place for established writers to monetize an existing audience? There’s no right or wrong answer, Substack must make its focus clear for users and for itself.

Substack’s Facebook Answer

To recap, here’s what Facebook offers and how I believe Substack should respond.

  • Discovery is Facebook’s strong suit, and quite lacking on Substack. If Substack decides it is the BYOA platform for established writers, it should forego this area. But if Substack decides to be a place that small writers can grow, then it needs to get search & discovery to a useful state. Otherwise, it risks losing the next generation of newsletter writers.

  • Monetization features are fairly standard today, but Facebook (and Twitter) are offering more favorable revenue sharing terms. Substack can ignore the race-to-bottom margin game, and build on the value of its monetization offering so that writers prefer a 90% share on Substack over a 100% share elsewhere.

  • Community can help form habits and drive subscriptions. Facebook has existing engagement features to draw on, but Substack has shown it can super-serve the writer community better than incumbents. Writers have shown various hacks to add value to paid subscriptions, and Substack is in the prime position to mold their native offerings to capitalize on these behaviors.

Substack had an amazing start, it was bound to attract competition. Now it must clarify to itself and to writers what it wants to be, and focus on executing that vision.


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