Product-to-platform (Part V): Substack

In this post we decided to apply our three methods for turning products into platforms (open the door to 3rd parties, connect customers or attract customers’ customers) to discuss Substack’s platform potential. In other words, a Substack about Substack.

Some may think Substack is already a platform, but according to our definition it is not. Substack allows writers to create and send digital newsletters (like this one) directly to their readers, and monetize their work by putting it behind a paywall if they so choose. Each newsletter has its own dedicated domain within Substack, like However, as of right now, readers (i.e. you) do not have to affiliate with Substack. We suspect many readers are not even aware of Substack when they read content like ours, just like many ecommerce shoppers are not aware the online shop they are buying from is powered by Shopify. And while does contain some featured newsletters, there are no comprehensive listings or content discovery functionalities. The vast majority of users discover and subscribe to individual Substack newsletters on other platforms (e.g. Twitter, LinkedIn, Facebook, Google search) or via word-of-mouth. Thus, while Substack helps writers provide content to their readers, it doesn’t enjoy any network effects because it does not actually bring those readers to the writers or vice versa. This is in contrast to Medium, which users can subscribe to in order to discover content from various writers who publish their posts on Medium (and who obtain a share of Medium’s subscriber revenue based on the number of reads and claps they get). The more different writers there are on Medium, the more value there is to subscribing to Medium, and vice-versa. The same cannot be said of Substack as subscription decisions are made for individual newsletters, one at a time.

That being said, we believe Substack has significant potential to become a platform business. The company just raised a $65 million series B round at a $650 million valuation, so it now has the means to execute on that potential.

There are many ways Substack can turn itself into a platform business, and thereby generate network effects, which would help it grow faster and improve its defensibility. It is useful to go through each of our three methods in turn.

If we think of Substack’s current customers as writers (like us), it could productively open the doors to third parties that want to reach these writers. Specifically, it can create a marketplace where third-party writing assistants, copy editors, illustrators, graphic designers, software developers, marketers, etc. can offer their services to Substack writers. These services would help writers improve the quality of their newsletters and distribute them more effectively. Since similar generic marketplaces already exist (e.g. Fiverr), Substack’s marketplace would need to be tightly integrated with the Substack product in order to add real value. This means that the services offered on the marketplace should be highly specific to Substack writers and they should be offered in the most convenient possible way, e.g. via APIs that would allow writers to seamlessly share their data with the third-party providers and would allow the providers to offer widgets that work directly within Substack’s writer dashboard. A timely example of such a tool/widget would be one that allows writers to turn some issues of their newsletters into NFTs and auction them off to their most devoted readers. This creates another monetization opportunity for Substack writers (which of course Substack can extract a fee from). Such a marketplace would help make Substack more resilient against competing services like Pico, which provides more powerful tools for professional writers to manage and grow their audience.

An even more compelling application of opening doors to third parties would be enabling advertisers/brands to connect with writers so as to put ads or sponsored content into their newsletters. This would offer writers an alternative way of monetizing their content, instead of putting their content behind a paywall. Packy McCormick’s NotBoring newsletter on strategy and investing is one example that successfully does this. But Packy presumably has to find suitable sponsors, and manually deal with them, something that Substack should be able to do much more efficiently. They would enable advertisers and sponsors to easily connect with suitable writers (based on their content and audience reach). Since Substack has access to the relevant analytics (how often an article is opened, what links are clicked on, etc.), it could charge advertisers per impression or per click, and take a share of the writer’s ad revenue just as it does with subscription revenue.

Consider now our second products-to-platform method, which is connecting customers. Substack could connect its writers by creating a forum where writers can share best practices (and frustrations). A less obvious idea would be to enable writers to refer readers to each other and possibly cross-sell their content. Substack could make this possible via tools that allow its writers to promote other relevant newsletters to their subscribers (in exchange for commissions) and for subscribers to easily sign up (one click) to these newsletters. One could take this even further, by exploring co-syndication models, where writers can work together to take advantage of their respective strengths (e.g. specialized content vs. broad market reach).

The final products-to-platform method for Substack to consider is the most obvious and powerful, but with the greatest downsides if not implemented carefully. Substack could reach out to its customers’ customers (i.e. you, the reader) to form a direct relationship. Currently, as noted earlier, readers connect with a writer (a particular newsletter) and at no point do they login to Substack or create an account. This assures writers that they own the customer relationship. But there would be obvious benefits to readers if they could create a Substack account through which to manage their various subscriptions and payments. And reducing the friction for readers to pay for additional subscriptions benefits writers. Substack could even enable bundled subscriptions (discounts for multiple subscriptions) or other pricing approaches that boost demand and increase revenue for writers – something it is in a much better position to figure out than its writers. Substack seems to be moving in this direction with its newly launched (in beta) Substack Reader, where readers can see and manage all their subscribed content in one place, and which they can link to their Twitter feed to see which people they follow have Substack newsletters.

Substack could go further, by providing tools to help readers discover relevant newsletters to subscribe to based on their reading and subscription history. They could also create a mechanism for readers to rate writers, and develop a Netflix-like recommendation engine based on the results. Such discovery, which is closer to what Medium offers, can create powerful network effects that benefit both readers and writers. At the same time, however, it may also make writers feel disenfranchised, since they would no longer be fully in control of their relationship with their readers. Unlike in the connecting customers strategy, where writers decide if they want to refer their readers to other writers’ newsletters (as we did above by linking to the NotBoring newsletter), here Substack would be doing so for the benefit of readers without necessarily involving writers in the process. Writers may naturally be upset that Substack is using their content as lead generation for the content of other (potentially competing) writers. And if their newsletters are ranked by price or star ratings, writers may feel they are being commoditized. Of course, this is exactly what happens on most marketplaces. And it need not turn off existing writers, provided writers perceive that they are getting a share of the growing pie (increased reader traffic on Substack and overall subscription revenue). However, figuring out a practical way to commit to offer writers a fair share of the benefits created after Substack has successfully attracted all of its customers’ customers and no longer needs to rely on writers to attract their own readers, can be a significant challenge.

Finally, perhaps the most significant risk associated with becoming a true two-sided platform by providing discovery and recommendations for readers is that it would expose Substack to a much higher degree of liability for objectionable content by its writers. In its current form, precisely because it does not directly control the content that readers see, Substack can afford to take a largely hands-off approach to content moderation, as its founders explain here. It has chosen to ban some types of content (e.g. pornography and spam), but overall Substack delegates the responsibility for content choice and moderation to its writers and their readers. And that is a legitimate position to take given its nature as a publishing tool for writers. However, that position would become much harder to maintain if Substack were to enter the realm of content discovery and recommendations for readers. That would most likely mean it would have to start spending significant resources on content moderation, just like the large social media platforms (e.g. YouTube, Twitter, Facebook, etc.) do today.

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