[kfk]

I struggle to make the VC math work on Substack. They take a 10% cut on paid subscriptions. They need 1 billion in paid subscriptions to have a $100m revenue, which at a hopefully 30% ebit would put them in the $0.5-1 billion evaluation (maybe). Now, at an average of $200 of paid subscribtions, it would take 5m paid users to achieve a 1 billion revenue.

If we assume a very generous paid / non paid user ratio of 10%, it means Substack needs 50m total users to have 5m paid users.

You tell me, that with 50m users, Substack would be content to make “only” $100m per year?

[anonylizard]

Well, the counterexample is all those writers trying to setup some open source system for their blog, or move to some competing service.

This leaves two possibilities

1. They are financial idiots

2. The competing services are also priced/costed at a similar amount to substack, such that the writers can afford to pay the difference for ideological reasons.

That competition exists for substack is telling enough, that there's still money to be made here.

As for whether $100m is enough, substack is an very cheap platform to run. It can be run by a craiglist sized team if must. It is cheaper than any major publication, by virtue of not having either writers nor editors on staff.

All the additional cost and VC requirement for substack came from it paying big dollars to attract famous writers, which it is no longer doing (And fired the teams managing those relations).

There's also nothing stopping substack from adding ads to the free-users, much like how netflix does it. There's plenty of ways to monetize 50m users without infringing on the core experience. Also this wouldn't turn substack into medium, as the core issue with medium was the membership was site-wide, whereas substack is writer-level.

[1123581321]

They have a paid ratio of around 6% (around 35M subscribers, 2M paid.) Some correlating of past subscription and revenue figures suggests each subscribed user nets Substack $11 revenue. So perhaps 130 million total subscriptions to hit 100M revenue.

If that's compared to a mediocre social network like Twitter, which supposedly can show ~$45/year/user of ads, if Substack can get a quarter of its non-paid subscribers to view ads that are a quarter as effective (smaller economies of scale, weak ad partner etc.), they would still quadruple their total top line revenue.

And it's all upside from there because they can get better at selling ads at scale and they can grow unpaid followers by diluting their brand once they're confident it'll pay off.

That, unfortunately, explains the VC case to me. I'd much rather them be a smaller company that focuses on taking real money.

[anonylizard]

Why is selling ads unfortunate? The newspaper industry was ad-sustained for a century. Credible journalism only persists in a handful of newspapers, because only they can be subscription supported, the rest depended on ad-revenue that got dominated by google and meta, which meant gutting the journalism quality.

The problem with google ads, is google gets all the cut. If substack can produce an ad system, where the writer can take a bigger cut and exercise control (or choose not to), then it returns the ad-revenue to the writer, which'll make the space boom.

Youtube is half-ad revenue, and it clearly sustains a large ecosystem of thriving video creators. Why can't substack do the same.

The ads can take two forms.

1. Generic ads, which substack just providess silently, and takes a large cut.

2. Writer-sponsored ads. Essentially like youtube sponsorship segments. Except substack provides a nice interface to put the ads (That doesn't piss off the users), and a centralized payment/bidding platform to lower the transaction friction, and take a small cut out of it.

[1123581321]

Selling ads per se is fine, but in Substack's case it would detract from their focus on helping writers be good enough to sell subscriptions. I think that is special. Helping writers be good enough to draw the attention of free users has affected the writing the users produce at other platforms/publications.

I actually believe Substack is sincere when they said this week that the free following product is in service of driving subscriptions, when if/when revenue from free users is introduced, that's going to change no matter how hard they try to protect the original mission.

[poisonborz]

Why would they need at least $100m revenue? Why would 50 not be enough? Why is it not enough for a service to be simply profitable? Why would every service need to shoot for the moon? This would be true for every company, but hell, we are talking here about a plaintext blogging site.