The fact that individual people can use the power of the internet to monetize their personal intellectual output to an audience of paying subscribers is incredible. Whether or not this is good for Substack is up in the air.

Substack has added enormous amount of value to the media landscape. By normalizing the format/expectations for a paid newsletter, they have demonstrated that newsletters can be an economically viable option for talented and popular writers. But now that this cat is out of the bag, how much of this value will Substack as a platform be able to capture?

Don’t get me wrong; Substack is a great platform for writers. Running a successful paid newsletter consists of many more tasks than just writing, including:

  • editing, fact-checking, spell-checking
  • ensuring articles format properly on edge-case device types (the equivalent of digital typesetting)
  • measuring and analyzing the appropriate metrics to build a newsletter business
  • general design/branding, customer conversion, payment processing, subscription management, allowing/restricting access to content (free trials, paywalls, etc.)
  • advertising monetization

Given all this overhead, it is understandable that many writers are happy to let Substack handle some of these hassles for them. But how much should one person reasonably pay for Substuck, which only offers a subset of the services listed above? If you’re making $500K-$1M a year from your newsletter audience, you can almost certainly afford to pay someone to manage most of these things for cheaper than your 10% Substack fee (say a generic web dev working part time). And we know that the most popular writers on Substack are already making near $1M annually—meaning they’re paying Substack $100,000/year. We’ll call this amount the “off-ramp threshold”: any writer that has ~10,000 paying subscribers at an average subscription of $100/year can probably afford to make more money off of Substack than on Substack by paying the salary of an individual developer or administrative manager.

And the reality is that 10,000 is the upper limit of the off-ramp threshold. Writers with just a little bit of technical savvy can reasonably replicate the Substack experience at an equivalent hassle cost of much less than $100,000. Even for writers with 1,000 subscribers (i.e., making $100,000/year), Substack is taking $10,000 in absolute terms on an ongoing annual basis. At this large of an absolute cost, these people might be quite willing to even pay money to learn the technical skills required to run a self-hosted newsletter indepenedent of Substack.

There are many examples of this already happening, just in Substack’s own short lifetime. The fact that Substack has also indicated they do not plan to offer any ad-tech services for writers who wish to advertise to their audience also suggests they are not fully committed to serving the needs of the internet’s most popular writers.

Of course, not everyone will make the trade-off necessary to host their own platform. But, almost without fault, every prominent writer on the platform will at least explore the possibility of leaving. For example, here’s a post by the #20 author on Substack declaring why he is staying on the platform; even in this manifesto in defense of Substack, the author concedes:

“Ghost [a competing, open-source newsletter platform] seems like a great product. I may very well end up there one day.”

As it is, the challenge for Substack is that they are essentially in the position of an agency. They are very good as an agency—they give writers technical support, career support, and are genuinely interested in every writer’s success. And even though their standardized newsletter platform can be scaled to many writers, the fact is that they have very little control over the price of their product. Any number of competing agencies/developers can come in and offer writers more personalized support at a comparable price. It will be fundamentally hard for Substack to maintain their very high standards of personalized service if they are to grow substantially. Agency businesses can be prefectly good businesses. But I do begin to wonder if they can be $650M businesses.

What does this mean for Substack? Fundamentally, Substack views itself as being in the business of democratizing content creation/consumption by serving the “long tail” of niches on the internet. The challenge is that the most profitable newsletter writers on the internet can monetize their audiences without Substack. This means Substack will always be the platform of the “moderately popular, but not too popular”, as any writer that uses the freeway of audience building technologies that Substack has created will inevitably end up taking the off-ramp to direct audience monetization.