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We've tried to set up Substack as a business in a way where the way that we win is not by yanking the football, basically. Yeah. [chuckles] And I think we've succeeded. I think if I were to tell a story- That's true...

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for how Substack gets very big, the way I have to tell it is by serving writers and readers. [upbeat music] Welcome to the Rebooting show. I'm Brian Morrissey. This week, I'm speaking to Substack CEO, Chris Best.

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I feel Substack is a consequential company at this point of publishing's evolution.

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It captures several of the macro themes of the moment, the importance of direct audience connections, the shift to reader revenue, and targeting niches as opposed to chasing scale.

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This being media, Substack is also a challenged business, as its recent crowdfunding campaign laid bare.

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Substack didn't disclose the results for two thousand twenty-two, but in twenty-twenty-one, it generated just twelve million dollars in net revenue with a twenty-two million dollar net loss.

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You don't need to be a financial analyst to conclude that Substack will need to find new growth paths if it hopes to justify a five hundred and ninety million dollar valuation.

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Last Thursday, I spoke to Chris Best to get a better understanding of where the company is going. I'm not overly obsessed with Substack's valuation.

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I didn't invest in its crowdfunding round, and I do have a small investment in a Substack alternative called Beehiiv.

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But I do care, as a publisher on Substack, how its efforts to catch up to that two thousand and twenty-one year evaluation will change its approach, and therefore my own little business.

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As Chris said a couple of times in our conversation, business model is destiny, and Substack's existing business model will need to change. The current Substack business model is admirably simple.

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Take a ten percent cut of paid subscriptions generated on the platform, and well aligned with the goals of the company and the needs of publishers and the audience.

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The only flaw, this business model isn't lucrative enough for a VC-backed business. I'm interested in trying out Notes, the new Twitter alternative Substack is rolling out this week.

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But as I told Chris, my selfish concern as a publisher is that this focus on taking on Twitter will distract from the basic tools needed for writers to operate successful and sustainable businesses.

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Maybe I think too small, but I'd be more enthusiastic to have basic audience segmentation tools and better analytics. In any case, a couple of important takeaways from this conversation, at least from my point of view.

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One is that Substack is open to advertising, right? I don't wanna put words in Chris's mouth since he didn't say ads are coming to Substack.

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But what he did say, and, and I've heard this from others who have marketed themselves as anti-advertising only to introduce advertising later under a different guise or term,

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is that Substack would consider unobtrusive advertising. And this is a no-brainer to me, considering how publishers making money off only ten percent of their audience isn't a way to run a sustainable business.

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I mean, I am biased because I run ads on Substack, and I know it's right for what I do and what I wanna build, and I do not believe that Substack knows better than I do about how to build a business for me.

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The other takeaway that I have is that Substack is also open to some form of bundling.

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And Ben Thompson wrote this week about how Substack's publisher agreements have an embedded flaw in being almost too pro-publisher by allowing writers to own their own Stripe accounts.

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What this means is that moving a business off of Substack is very easy, but it also hinders Substack being able to grow its subscription universe.

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Media is a story of bundling and unbundling and rebundling, and Substack will need to expand the paying customer base, and bundling is a clear path to doing that. So anyway, I hope you enjoy this episode.

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And if you do, please leave it a rating and review on Apple or Spotify. And also check out another podcast I do called People vs. Algorithms.

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In our latest episode, I discussed with my collaborators, Troy Young and Alex Schlafer, the coming disruptions to the publishing business at the hands of AI. You can find People vs.

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Algorithms on the regular podcasting platforms. As always, send me your feedback.

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I'm gonna be trying new things with this podcast in the next couple of months, so I'd love to understand better, like, what you like and what you don't like. My email is brian@therebooting.com.

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[upbeat music] All right, Chris, cool. Thank you so much for doing this. I'm really excited. Uh, I need to get my disclaimers out. I, I am a Substacker, even though I hate the term. It...

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Although I don't do subscriptions, so I'm probably not using the platform as you want me to, so I don't make you any money.

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My other one is I did do a small angel investment into Beehiiv, which I guess is a Substack alternative, so hopefully you won't cut off the podcast now. [laughs] As long as you turn on paid subscriptions, I'll be happy.

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Yeah, okay. Well, my goal by the end of this is to have them turned on, and which I am gonna do. So I wanna get into what Substack is. I know that's a very basic question, but it's one that I wrestle with.

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I started on Substack in October twenty-twenty. I thought of it as an email platform, really. I thought about it as an easy way.

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I was leaving a job, and I remember seeing Austin Reef say, "Hey, if anyone was, like, leaving a job, they should always just collect email addresses," and that's basically what I did. So thank you, Austin.

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And then it became, like, you know, what I was gonna do next, and it's been, it's been really tremendous.

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Now, when Substack launched, it sort of s- said its mission was to make it simple to start a publication that makes money from subscriptions.

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Now, lately, you guys have been talking about being a new economic engine for culture, sort of moving more towards, like, to me, like a YouTube-type model.

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But explain to me, like, how you view Substack right now, 'cause it's clearly not an email platform.Yeah, it's interesting.

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You know, we started Substack with both a big vision and a small vision, which I think is the way you make great things.

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Right from the outset, we sort of had this big vision of could you create a new economic engine for culture?

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Could you create a place where the dominant incentive and way of making money is not to capture as much of people's time as possible and then sell it as a commodity, but rather to make things that people deeply value, and have a way to, like, reward and incentivize deep connection, uh, making stuff that people sort of value themselves highly.

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And so we sort of had this big hand-wavy, like, wouldn't it be cool if there was this alternate universe on the internet that had different laws of physics that wasn't the same as Facebook and TikTok and everything else that you know?

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And we had this very specific instantiation of that idea, which was kinda make it really simple to start a paid email newsletter. Mm-hmm. If the...

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If this new economic engine for culture, the thing that powers that is this subscription network, you know, the magical thing about email is that it's... This thing already exists, right?

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People already can subscribe to an email newsletter. We can make this tool that is a thing that people already understand and want. You know, you're sitting there thinking, "Hey, I'd love to collect emails.

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I'd love to send it to people. I'd love to have people subscribe to me." And that becomes kind of the start of this subscription network. And we're probably like some path of the way down that thing now.

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You know, today Substack is a place where you can come as a writer, as a podcaster, as, you know, a video maker increasingly. Uh, you can publish your work. You own your work. You have complete editorial freedom.

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You own your connection to your audience. And you can make money, if you choose to, from paid subscriptions. And the network part of that has really started to kick in.

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I think people are seeing that this is something that you can be independent without going alone.

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It's a place where you can benefit from not just a tool that allows you to do all this stuff, but from the fact that there's a whole universe of people here that are doing the same thing. Yeah.

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I know you guys created really constraints, I feel like, on your business from the start, and I think there's, there's positives and negatives to that because I think so many companies try to be everything to, to everyone, and having covered and been in the publishing industry for a long time, I've seen and experienced it quite a bit.

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Yeah.

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But basically, the way I sort of, uh, interpret it is Substack was going to be sort of not social media, not about that era, and social media was about getting attention and then basically monetizing that attention through advertising, right?

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And so to me, like, Substack was always gonna not be, you know, algorithmically driven recommendations, okay?

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And I think the recommendations feature that you guys came out with to me is like your home run sort of product feature.

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[laughs] That's my take of all the products you've done, 'cause it, it really works, and that really brings value to the platform. And also subscriptions, right? So advertising, I think, is...

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It has been an economic engine of media, okay? And I think a lot of times... Look, I can remember when advertising was the default out of Silicon Valley. Everything was gonna have advertising.

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You know, Microsoft, it was like, I remember they were gonna, like, bring advertising- Totally... to, like, Excel and stuff like this.

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Everyone was about advertising, and now the tide has turned for various reasons, so it's about subscriptions.

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Explain to me how you see that evolving, because, you know, most publishers, and I-- let's just start with subscriptions. Because very few publishing businesses are all subscription. Explain why that is the path.

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The way that I think about this is there was this sort of first generation of the internet where there was this giant land grab for attention. And so everybody was coming online.

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People used to have this problem where they would get bored. Do you remember this? Do you remember there used to be a time when you'd be sitting around- Pretty good... and be like, "Huh, I'm bored. I have nothing to do."

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You know, Buzzfeed existed as the Bored at Work Network. That's what they used to call themselves. I mean, you know, yeah, people were... And people used to be bored at work. People used to be bored waiting in line.

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People used to be bored at home. It was a real phenomenon. Yeah. One that is kind of gone now, to be honest.

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But there was this era where it felt like if you gave me something to entertain or distract or take my attention, and you gave it to me for free, that's an amazing deal.

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And so the media properties and the networks that got huge in that era took advantage of that by saying, "Well, we're gonna make everything free. We're gonna monetize... We're g- You're gonna give us all your attention.

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We're gonna monetize the attention." There was also a time when it used to be kinda sketchy to, like, pay for something on the internet. Like, you would- Yeah.

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Like, there was a, the meme of like, oh, you put your credit card on the internet. Like, are you crazy? And I think those two things together contributed to a time when you sort of...

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The default was everything was gonna be free. Nobody's gonna pay for things. Nobody's gonna pay for stuff on the internet. That's just, that's how it's gonna be.

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And I think that, especially on the side of the social network universe of thing, where you have this giant network that grabs as much attention as possible and then charges ads, that just turned out to be a hell of a business.

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You know, there's the Facebook universe of things. That thing works really well. It prints money. It's gotten to a tremendous scale.

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My mental model of this is that it's, there's a set of incentives that creates business models kind of des- destiny, and it's we're getting ever and ever closer to the perfect version of that, which is something that's like, you know, the cheapest grab of your attention possible that keeps you there as long as possible and sells you ads.

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I think that's TikTok right now at the forefront of that. Every social, every sort of legacy social network is slowly having to turn into TikTok.

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And I think it cr- What it does is it creates, as Instagram has to become more TikTok-like and YouTube has to become more TikTok-like, it creates this space at the other end of the spectrum where you say, instead of trying to compete directly for your attention by being as cheaply compelling as possible, we're gonna have a different game.

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We're gonna have an alternate universe where, look, it's not gonna be as much cotton candy delight as TikTok, but there's gonna be a place where you can come and be thoughtful of how you spend your time, where you can choose who you subscribe to, where you can look for things that you value beyond the amount of time you put into them, and that's where the opportunity exists today for Substack.And so our logic with this is not necessarily, oh well, all advertising is always bad or never works.

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I don't think either of those are true, although I think there are instances where both are true. But really the opportunity for Substack is zagging while everybody else is zigging.

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If we try to out TikTok, we're not gonna get anywhere.

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But if we make something that is in opposition to that in important ways that people are hungry for, that's a real thing, and that's why I think it's working so well.

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[gentle music] Yeah, and it's also about alignment, right?

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So I think one of the flip sides to advertising as a business model is sometimes it leads to misalignment, and, you know, misaligned businesses are generally not great businesses.

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And it's hard to get alignment between what your customers want and what's good for you. It's really complicated when your customers and your audience are different. Yep.

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So if your customers are advertising, their needs are oftentimes not only different, but in opposition to the audience. And then when you bring in...

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I would say when you bring in platforms, then you gotta serve algorithms too. So when you're trying to [laughs]...

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I've seen it, like a publisher is trying to serve these three different masters at once, obviously it's difficult. But you keep talking about platforms, right?

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So like publishers obviously did not really fare that well in the platform era where they tried to publish two platforms and stuff.

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It's interesting to me that Substack is evolving into becoming some kind of like an alternative to the sort of platform content, industrial complex and stuff.

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And like as a smallest of small publisher, I don't think you can get any smaller, it's just me, although I have a couple people helping me part-time. It... You know, I'm sort of wary of that, right?

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Because like, you know, the independent path is incredible, right? But like at the same time, Substack is a platform, right? Definitely.

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You know, it's not like, it's not like, to me, like if you're gonna be fully independent, you're gonna roll your own. You're gonna do like a WordPress, MailChimp, you know, hook up Stripe yourself.

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But there's trade-offs, right? So I mean, to me, like, you know, the network effects of Substack, you know, that is... And like what do you, how do you see that trade-off?

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The analogy I sometimes use for this is if you're setting up a business or a house or something, there's like the off the grid version.

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There's like, I'm gonna go to some land and have like solar panels and a well and some guns. And then, and, and only- Right... then am I truly independent. And I think that's...

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I mean, you can say like, "Look, I'm gonna, not only am I gonna write my own software, but I'm gonna, I'm gonna host my own computer and I'm gonna..." Like, you could- Yeah, yeah...

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you could take that thing sort of arbitrarily far. Yeah. And the- Some people make their own clothes. Some people make their own clothes. Like, you can do all that stuff.

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The way that I look at it with Substack is, look, there's parts of this that really matter, right? What are the parts of independence that really matter?

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I would argue it's not in general the ability to like tweak the source code of your thing. The thing that matters is, do I own my connection with my audience, right? Can I reach them? Can I take them with me?

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Can I bring them in? Can I bring them out? Do I have editorial freedom? Do I get...

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Am I the boss of what I say, or is there some strict set of rules that's telling me, or is there a person that gets to tell me what to say? I think those... And like, and you know, does this work? Do they make money?

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Do I have an audience, right? Am I... If, if I'm building my business in a city instead of off the grid, is there plumbing? Is there sort of like basic necessities provided for?

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And we think that with Substack we can create this really powerful sweet spot where you have real independence in the ways that matter, right?

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It's not in the I'm hosting my own server hardware, but it is in the I get to decide what to say. I have exit rights. I can take my audience with me. I have a direct connection with my audience.

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And you get the power of being plugged into this network, right? If you're by yourself off the grid, you have independence, but it's hard to matter. It's hard to be...

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It's hard to, as a unit, independent media competing with the scale of something like, you know, the social networks isn't gonna get very far.

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But if we can create something where you have the power of independence and also the power of a network, that's where we can make something, I think, truly new and exciting in the world. Yeah.

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I mean, it's also kind of, I'm just gonna go with your analogy, right? It's kind of like the being in a condo complex, right? Like, I mean, the plumbing is set up for you, and there's a lot...

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Like, I had a, I lived in a condo in Miami during the pandemic, and, you know, it was great. Like, you know, things were set up for you and stuff.

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But then, like, I hung like a, a bath towel, like out to dry, and then they were like, "You can't do that." I was like, "Really?" I'm like, "Why? But I mean, it's my apartment. Why can't I hang, dry my bath towel?"

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And they're like, "You just can't. That's against the like-" Yeah. We're not the em- So- We're not the overbearing HOA. That's to be, that's to be- Well-... appreciated for sure...

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I mean, that, that's where the advertising sort of comes in. I mean, you guys tolerate it. I run ads. I hope I don't get cut off after this. As long as you turn on paid subscriptions. Yeah, we're gonna do that.

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We're gonna do that. But like explain to me, you know, why, because like, I guess let's just get into it. Like, I'm trying to wrap my head around it, like, you know, as like a publisher, right?

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As like, you know, trying to run a small business, and the idea of when I turn on paid subscriptions, let's say 6% of my, like 15,000 subscribers, uh, subscribe, it'd be amazing. It'd be great.

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Your subscription dollar helps support the rebooting of the things that you love so much. Go now. Exactly. Thank you. For the low annual price. Of like $400, yeah. No, I haven't set the price yet.

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But what I'm wondering about is like... And I think about all the publishing media I've been in, like nobody would come in and be like, "Hey, I got an idea, guys.

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Like, we're gonna like not make money off 94% of our audience. Let's do it." That generally doesn't go over well, and, you know, in history we see this.

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Like, you know, The Athletic was out there saying, you know, "Subscribe to us. No ads ever. No clickbait." You know, same message. The Information, amazing business and stuff like this.

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You can call it brand partnerships, whatever, it's ads.You know, so I always joke that, like, the first step to running ads is saying you'll never run ads. We've seen that.

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Like, you know, Buzzfeed was like, "Never display ads." Next thing you know, here comes the programmatic.

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Explain why ads can't exist alongside subscriptions, 'cause I think that having subscriptions as the base of a publishing business is tremendous for alignment.

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At the same time, I can't help but, like, you know, be, like, a realist in that the idea of not making money off 94% of your audience is not really a great sustainable strategy for many publishers.

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I think you might be surprised about how well it can work, and one thing that we've seen happen again and again with publishers on Substack is they sort of come in with this thing of, like, of a lot of reticence around turning on paid subscriptions.

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They're like, "Well, you know, I'm not sure. What if people are gonna do it? Like, I feel like ads would be good.

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Blah, blah, blah, blah, blah," and pretty often what's happened is we get them to [chuckles] turn it on, and then they go, "Oh my God, this is working really well."

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The economics of it are such that you don't need to have an enormous paid audience for it to be very lucrative, and the important thing there is it's not just a case of, you know, I'm doing something anyway.

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There's two ways I could make money off of it. One is I could sell display ads. The other is I could do paid subscriptions. Both of those are money. You know, money plus money equals two money. It's more money.

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That's better.

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The fact of the matter is, the kind of work you can do when the lever of success on your business is having an audience, potentially a smaller audience, but that deeply values the work you're doing, it unlocks a different kind of work than if you're playing the Buzzfeed game, and you need to just get five million people to click on something no matter what.

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And so we've seen as people... I think of this as, like, business model as destiny a little bit. As people- Mm-hmm...

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feel the pull of that working, it becomes very powerful, and you realize that you actually are making money off of the rest of the audience as well. Some of them over time go on to pay.

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Some of them over time share the work you're doing, contribute back content, contribute back things. Uh, it's not as if that, the rest of that audience is completely worthless.

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But I do think that it's surprising to people who've lived in the media world especially how well the subscription model can work.

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So you're at, uh, uh, Substack overall, I say you, this is also one of the issues, like whether people are subscribing to Substack or to publications, is there's two million, I believe, subscriptions now on the platform.

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Yeah, and people don't subscribe to Substack. Those are all subscribed to- Right... an individual publication. Okay. So I wanna say, like, maybe or never. Okay. So ads, ads are maybe or never. Let me put it this way.

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There's a way that you could, like- Highly unlikely? Well, so there's, that story I told you before about there's like- Yeah... everybody's gonna have to turn into TikTok or turn into Substack. We're already Substack.

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We're trying to play the Substack game. The piece of it I think is central is if you do advertising in a way that reduces the bargain to the audience is a commodity to be sold off, right?

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If you have a, if you have an ad network that like is what works on Facebook. Yeah. Likes what we do with, like, the display ads.

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That thing is fundamentally in opposition to the reason that Substack works in the first place, the reason that you can value, you know, you can value things that are valuable instead of valuing things just by the amount of time you're spending on them.

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So I think that's pretty much a never. The place where it gets interesting to me is if you ask the question, are there ways that you could do advertising that don't have that property?

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I think that's, like, an interesting philosophical question. You know, you'll notice that we're not cracking down on you [chuckles] writing your own ads. You know, that's part of our- Okay.

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That's part of our, like, this is your editorial freedom. You can publish. You know, we let people- Okay.

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So, so my bath towel's not gonna get taken off the, uh [chuckles]- Your bath towel's not gonna get taken off the thing, although I do look forward- That's good... I do look forward to the paid subscriptions.

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Uh, to me, that's where it gets interesting. I, I will say it's not something that we're like we're... The subscription thing is working very well.

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It's not a never on all, 'cause, like, I think, like, a lot of times it's definitional, right? It's like, yes, I understand, like, people don't like pop-ups. They don't like retargeting.

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They don't like content rack ad networks and the toe fungus and stuff like this. I get it. I get it.

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I think where, just to sort of personalize a little bit, the reason that, like, I run ads is because my audience is a B2B audience, and an essential function of B2B media is being a marketplace that connects a buy and a sell side.

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It has always been part of it, and fine, maybe this sounds like a sales pitch or something like this, and I am an ad salesman on the side.

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It is a role in which you're actually aligning interests to some degree because every single publisher that is in my audience, they rely on technology providers for the most part- Yeah...

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uh, for their expertise and their software and stuff like this, and I've gotten all of zero, like zero, zero complaints about running ads.

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In fact, I've gotten people who tell me that they appreciate them, 'cause I've seen this in my career. Yeah. So I appreciate that you're gi- giving, opening up to some flexibility on that.

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I'll add to your sales pitch on this. The other thing I would say is that your, the thing you're selling in those ads is not fungible, right?

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You're not only selling the fact that it's like, hey, I have this demographic people, and I'm gonna sell you some slice of their time.

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The fact is that the, that you accepting the ad and that the people paying you money when you are this particular expert and voice, those things are signals.

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Those things are meaningful signals that are tied to you and are tied to the quality of what you're doing, and that's interesting, right?

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That's very different than running a display ad that's gonna get full of blah, blah, blah, belly fat.

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[outro music]Yeah, no, I don't do this. I don't... Although we'll see what the price.

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But no, I don't think so because they're...

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It's a very specialized audience, and I do like, you know, to me, like the kind of advertising, and I don't even know if it's advertising that, that work 'cause it's somewhere between like endorsement in some ways, although I can't endorse the product.

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But I can endorse the fact that they're trying to solve a problem for publishers who need to have a sustainable, uh, publishing business. And I understand that they want like a personal endorsement.

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I, I can't, I don't give personal endorsements, but I do think that, you know, at its best, advertising works alignment-wise, and that's where I think the, what you're talking about, the ad ecosystem got insane.

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Because what it did was, you know, early on in, in order to differentiate itself from analog media, the digital media world, I guess at least called internet advertising, said, "Oh, we can do this trick.

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We can separate the media impression from the audience impression. Oh, wow, look at... That's cool. That way, you know, cat owners will never see dog food ads and stuff like this."

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And this was just like, you know, the advertisers, the CMOs, the we waste half our money sort of thing. They were like, "Ugh, this is catnip."

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And what it led to, obviously, would be that alignment being broken, and the alignment became the alignment between the advertiser and the audience data.

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Like, and that, I think, led to a lot of these like sort of issues. But I wanna talk about one other thing, and that is subscriptions and bundling. Mm. Right?

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Two million subscriptions is amazing, and I think what Substack has done, and that's why like I did, like and I'm not kissing your ass here, like I do think Substack is like, is really important, uh, company, and what you've achieved is tremendous.

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What I wonder ultimately is how many of these can people have? It's the obvious question. I can see there being a very sensible role of people being able to subscribe to Substack. I don't know what that gets them.

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I know it would be voluntary. I just think that inevitably you're gonna hit a wall with the number of individual subscriptions to people's publications on Substack. Basically, will Substack ever bundle subscriptions?

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Yeah, good question. People, I hear this all the time, subscription fatigue, especially from people that are like paying for seven things on Substack, and it's like it's so hard.

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I'm like, "That's really cool that you're paying for seven things. That's awesome." I do think that wall exists. I think it's higher than people expect.

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Like, I think the people's willingness to subscribe to things they value.

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And, and sometimes I think this is part of what I hope we can do with Substack is reset people's expectations about how valuable the stuff is, how valuable is culture, how valuable is art, how valuable is important business things that you're learning about.

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Being willing to pay more for that stuff is actually really reasonable. You know, your scarce resource is no longer your money, it's your life.

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Like, especially if you're gonna spend, you know, y- the time you invest reading a book or listening to a podcast or any of those things, the monetary cost of that is gonna be vanishing compared to how you should be pricing your time.

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Your... The opportunity cost of how much you spend on that. So to some extent, I'm like creating a bargain where people are willing to spend more to get more is actually a big piece of what we're doing here.

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All of that said, I think bundle economics are still real, and actually that's the same, correctly understood, that's the same deal you offer in a bundle. You say, "Hey, pay more to get more," right?

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Pay a little bit more than you would've spent anyway, but get much more than you would've got individually. Those- And I'll just jump in, like that has a really important...

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Just 'cause I, I can remember, I ran like our membership program at my previous job, is being a- perceived value is very important. Yeah.

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And bundling actually really has an effect on getting more people across the line with that perceived value. You know, sometimes it's bullshit perceived value.

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Like, I always go back to like my childhood and the Sports Illustrated with the football phone. But like there's [laughs] you're too young for it, but they used to be like, "Oh, you get this.

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You get the swimsuit issue," and then they ran out of things to promise, and they're like, "And you also get the phone that's the shape of a football." They did that for a reason. That sounds awesome, actually.

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Okay, so basically I cut you off. Like the bundling could exist. You see like a possibility. So there's, there, there's definitely like there's economic potential for it at some point.

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There's value that could be unlocked through bundle if done correctly. Now, the flip side of this, I think, is the first v- version of that you said, you're like, "Should you just subscribe to Substack then?"

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And I think the answer to that is no, right? Because that is the thing that undoes the thing that is at the heart of the reason Substack works, which is the direct connection between the writer and the reader, right?

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If you live in a world where it's like, well, I don't actually subscribe to you anymore, I subscribe to this other thing, and then the money gets just doled out sort of somehow, you're no longer actually a subscription network, right?

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You've gone to be something else. This is something that Medium did for a long time, and I think did not work.

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Like, there was a place from very early on in the, y- you know, when Substack was very small, Medium used to publish, they're like, "Here's what the top writers on Medium are making with our cool bundled give money for claps" or they went through like eight different things.

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Yeah, yeah. And we used to look at it and be like, "We're tiny, and the top people on Substack are already making more than this.

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And they're making more than this not because they had one breakout hit that pleased the algorithm. They're making more than this- Right... every month because they have people that are here for them."

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And so the, to me, the interesting question of bundling on Substack is can you combine those two things?

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Can you combine the economic power of pay for a bunch of stuff at once, pay more to get more, and the agency of the writers and the readers where you still have an individual relationship?

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And I think the ways that you could approach that are through sort of writer federation or reader choice, right?

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You could m- imagine publications organizing together into bundles, or you could imagine readers constructing bundles with out of direct relationships or some combination of those. I think it's a very fertile space.

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Yeah. The obvious answer is the wrong answer, I would say. No, I mean, I think it can be like writer-directed too because, I mean, look, there's a lot of other publishers who write about some similar stuff as me.

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Like people like Simon Owens are doing a great job and stuff. And I can totally see like an opportunity to help each other in some ways.

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And I think one of the things that's been interesting about Substack and being on it is-That I don't view it as, like, competitive and stuff like this, whereas I'm like the competition or, like, the institutional brands.

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Like [chuckles] we're not, like, competing with each other. Maybe at some point we will be, but I think it's like... I think it's a big area that can be tapped.

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The other thing I wanna talk to you about is being a platform and alignment, right? It's like, so as I said, like, you guys started really firmly on the side of the publisher, the writer, right?

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And what I noticed, maybe I'm, like, doing too much exegesis in your, like, blog posts or, uh, Substack posts really, but y- the reader has entered into that equation, right? And so, okay, now you're...

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You know, of course you wanna like... You know, those interests should be aligned. Um, sometimes maybe not though, right? And so talk to me about that because y- you're coming out with Notes. I haven't used it yet.

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I haven't gotten access to it yet, but from everything I read, it's, it's kinda Twitter, or it's meant to be a replacement for Twitter.

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Explain that because, like, me as like a sort of, you know, selfish publisher, I'm like, "Jesus Christ, why aren't they just, like, doing more on analytics?" [laughs] So I think- I want better analytics, Chris.

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That's what this is about. I- That's what this call is about. That's... I'd love to hear more about what you want, wanna see. Have, have you seen the new subscriber report? I want the ability to segment. Okay.

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I want the much better ability to segment, Chris. I wanna be able to collect data about my audience. I wanna know whether they're a brand, publisher, or agency. I got a whole list. I'll send it to you later. All right.

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We- we- But let's go on this for now. We're, we're working on some of that stuff. I actually think these are two separate questions, but the... but related.

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You know, we talked before about what is the value of Substack, and I think if all Substack was, was a tool to help you publish a newsletter, publish whatever you want, that's a, a useful thing to have, but it has, I think, limited value, right?

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I think part of the reason you feel like you're not in competition with other people who are writing about the same stuff or big publishers that are doing it is you're part of, like, a growing ecosystem, right?

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There's this universe of stuff that's happening on Substack around that's getting bigger and bigger, and a big part of the reason that works is because this is not just a tool, but it is a network.

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And part of that is the interplay between writers and readers, as you pointed out. Part of it's the interplay between writers and writers, right?

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You mentioned the, uh, recommendation feature as being a big piece of what makes Substack so powerful, and I definitely agree with that. I actually think that Notes is gonna be more of an extension of that.

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One way to look at it is that recommendations lets you recommend a publication, whereas Notes- Mm-hmm... lets you recommend anything.

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Lets you recommend a post, recommend a quote, recommend a thought, recommend a comment. Uh, it kind of, like, creates this space where people can recommend smaller chunks, uh, of things across the Substack network.

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Yes, r- readers are gonna be able to come and see that, but also writers are gonna see that among each other.

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It becomes this way that people can share things, let things travel beyond the, the universe of their own publication into, like, other writers' and other audience places, which is obviously, like, another way to access growth.

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I think it's gonna be really powerful for that, even for people with- Okay. Even if you don't choose to use it, I think it'll be a powerful thing. So how is it different than Chat?

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I mean, i- is it just Chat in, in a feed? Like, because, like, Chat, uh, to me, I'm like, okay, Chat, I thought, was... I remember when Reid, uh, Artemis, was... I actually did a podcast with him, like, uh, earlier.

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But I remember when it first came out, I was like, "Oh, I'm super into this." Yeah. Like, 'cause you need to...

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What I've seen with Substack, but just with newsletters in general, is the amount of interaction you get with the audience is qualitatively and quantitatively different than you do in other forms of media.

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I've never gotten as much. Like, people send back, like, you know, uh, almost as much as I've written. Like, I mean, and really good stuff. Like, I'm like, "My God, you've, like...

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You might have given this more thought than [laughs] I did." [laughs] I was like, "Shit, I gotta do a better job." [laughs] But, like, that is totally different, and that's why I'm really into this form of media.

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Podcast has some sort of similarities, but particularly newsletters. Yeah. And so what I wonder is with Chat, you need, like, a community element. I never really saw it with Chat.

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I mean, is this, like, a replacement of Chat? Did you, like, learn from Chat that you need something different, or is this just a totally different use case?

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I think it's a totally different part of the funnel, basically. Like, Chat is there as a way to talk to your audience, right?

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It's a place where you can have this intimate space to ask a question or have a conversation, and it really is... It's like you mentioned community. It's sort of like the community of your Substack.

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Whereas Notes is, uh, more about top of funnel. It's more about recommending things, talking about things, discussing things in a way that can spread through the Substack network, right?

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Where a lot of the, the potential things that you could reach if you're sharing notes there, or that your readers could reach if they're sharing your stuff there, is it has the ability to travel beyond your existing audience and reach new people who might be interested.

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So it sort of sits in a totally different part of the funnel and in a totally different way to think about who you're talking to. [gentle music] Okay, so this should be...

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For Substack publishers, this should be looked at as sort of mid, uh, like, top of the funnel versus, like... So it's a way for... Obviously, recommendations has worked, as I said, for, you know, to get new subscribers.

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I think in my view, like, some of the implementations were a little too frictionless. I mean, a little friction's okay, so [laughs]...

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'Cause I think some people got dumped into, like, newsletters that they were like, "Wait, what am I getting here?" Although my interaction rates haven't gone down that much.

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But this is a way, because, like, uh, to me, like, if you're gonna be a true platform, like I think about Shopify, right?

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Like, if you're gonna be a platform for, for merchants in the case of Shopify, for publishers in the case of Substack, you gotta solve for a few different problems.

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And I think what Substack was super smart about doing was actually narrowing the business model. So I'm, like, talking out both sides of my mouth 'cause I understand why it was all subscriptions.

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Because-The publishing function is very complicated.

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There's a reason that most people are publishers are not actually doing anything to do with writing or producing the content, because there's a lot of other shit to be done in order to keep these business models, uh, going.

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When you, you sort of narrow that down, I always would describe, like, Substack as like it's a media business in a box. You can open a media business in an afternoon, right?

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As long as you have something to say and people who wanna hear it. I mean, that's, like, tremendous, right? But things end up evolving, I guess, from there.

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And, you know, you gotta determine, you know, which path you're gonna take as a publisher. And I think one of the essential functions, uh, like that Shopify didn't really solve for was discovery, right? Right.

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Like, they outsourced that to Instagram. [laughs] All of the paid social media ad networks. And when those... You know, you could sh- When Facebook got hurt, their advertising got hurt, that hurt Shopify's business.

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Yeah.

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'Cause all of their, all of the Shopify customers depend on the various ad, you know, buying ads as the way that they get their customers, and anything that s- that, that squeezes that hurts them, and therefore Shopify.

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Yeah. But that's also your stickiness, right? Because, I mean, I think we're in the midst of a change. Uh, I think the social media era is ending, right? It's just, it's clearly ending.

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I mean, w- what you see what's going on with Twitter [laughs] is, like, I think indicative of it. You know, they're trying to...

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I don't even know if it's directionally the wrong choice to move more towards subscriptions, because the ad model, I think, combined with social media has been problematic, to say the least.

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But, like, what I wonder, and what I end up wondering then is, like, how you get the benefits of what the social media era did with discovery, right? And if people don't get discovery on Substack, they'll leave.

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Like, right? Like, 'cause ultimately you guys take 10% cut. There's 3%, I guess, that goes to Stripe, right? Like, and publishers need to determine, like, whether Substack is returning more than 13%, right? Totally.

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Because, I mean, you can switch. Well, yeah, I mean, a little less, but, I mean, you can go and you can get Mailchimp, and you can hire an agency and, and sort of cobble it together yourself.

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This is a big part of why we chose to charge Yeah. Right? A, it aligns us with the publisher, right? We can't make money unless you're making money, and the more money you make, the happier we are.

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And it lights a fire under us to say, are we actually giving you substantial value? Right? Are we giving you value beyond, you know, what you... Being like a convenient tool.

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We set ourselves up deliberately to have to solve that problem, and the fact that we have solved it, I think, is a big piece of why Substack works as well as it does. So final question, I'll let you go.

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About the crowdfunding, right? I'm not interested in the valuation stuff like this. I'm most interested as, like, a, as, as a person who uses Substack and a person who has, like, studied platforms.

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You know, we used to, in my previous job, you know, we used to have this, like, cover art, and then we determined that, like WordPress, you could put GIFs on there.

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And so, uh, someone was writing a story about publishing and platforms and, like, Facebook and stuff, and I was like, "Oh, you know, as the old person in the newsroom, we should get that, a, a GIF of when Charlie Brown tried to kick the football and Lucy, like, took it away from him and he went flying."

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We ended up using that GIF, like, you know, 100 times because that was the story of publishing [laughs] on these platforms. So I'm mostly, like, interested in this from, like, how it changes the business, right?

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Like, 'cause 2021 was a different era, you know. And you guys raised at, at a val- And lots of people, like, you know, raised at different valuations.

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And I think sometimes, and this is me selfishly or maybe naively, like, I, like, I sorta wish, I sorta wish Substack was like Craigslist. Like, [laughs] you know, probably without the venture capital funding.

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'Cause I'm like, venture capital funding can make you do some weird things in order to grow into those valuations. Explain the, how the crowdfunding, how that will affect, if at all, the sort of product roadmap.

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Because, like, for someone like me, like, I do have concerns that, like, as a publisher, at some point my interests will be less aligned with Substack because Substack has to do things to, to grow into, you know, this fairly lofty valuation compared to where the business is now.

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The way that I think about this, I, I think business model is destiny on this stuff. This is why it matters so much, how we charge, what we believe our differentiating advantage to be. That's the thing.

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Like, ultimately, the things that matter most for, like, what are the product roadmap and are we aligned is, are our incentives aligned, right? Does Substack depend on giving you independence and freedom?

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Does it let you leave? Do we make money when you make money? I think all of that is true, kind of regardless of whether people choose to invest in Substack or not.

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I don't think that if, if people aren't investing, we're misaligned. We're sort of trying to make this...

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We've tried to set up Substack as a business in a way where the way that we win is not by yanking the football, basically. Yeah. [laughs] And I think we've succeeded. I think this... Like, if I...

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And this is my job, [laughs] so I do want to. If I wanna tell a story- That's true... for how Substack gets very big, the way I have to tell it is by serving writers and readers.

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Like, we have to make a thing that, that keeps people,

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you know, isn't just about giving the best widget, but earns people's trust, captures the hearts and minds of people, especially as we get into this era of building a network, right?

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This kind of thing that the technology we build, the stuff that we convince people to do, like, that stuff is all necessary, but not sufficient. Ultimately, what determines whether, you know, the subscription network

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wins is whether people choose to be a part of it, choose to invest in it, right?

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Whether writers feel like if they're getting enough value from it, whether it's something they want to support and choose to recommend to other people, choose to participate in, whether readers find value in it, whether they choose to come.

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And so the idea with the community round is basically, like, for the people who are helping build that value, for the people who are making this thing, it would be nice if they had an opportunity to invest also in Substack the business.

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It's something we've wanted to do for a while. We think it helps. You know, it's good for us. It gives us a little bit of money. It's good for them.

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It gives them a chance to be a part of this thing that they believe in, and it helps sort of, like, just align the interests even further. But I don't think that it's...

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You know, it's not gonna, it's not gonna matter if, like, oh, it's gonna change our roadmap, or it's gonna change this or that.I think it's more just a matter of, like, giving people a, a chance to be a part of it if they want to.

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Okay, so final thing. Three years, how is Substack different than now? 'Cause, I mean, we started by talking about how, you know, this sort of mission has evolved over the last, what is it, like five, six years now?

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How is it different in three years? How's it different in three years? I think the, you know, the network piece of this has become ever more clear. I think there's less of, like, a...

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I think s- people are sometimes confused of like, "Why should I use Substack?" or, "What is this thing?" I think that is a lot clearer.

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I think we will continue, we've already begun this process, but we'll continue to expand into sort of like all of the formats that people care about, right?

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We've s- you know, we've started with podcasting, we've started with video, but I think the model, the underlying model of subscribing to things that you care about is not limited just to text, just to writing.

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I think there's a whole universe of formats that this can be for. And I think if we're successful, this will become a larger and larger force within the culture at large.

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The fact that you can, as you said, sort of have a business in a box, or if you have good ideas, you can come and, like, not just get them to the world, but make a living or even a fortune doing this kind of work.

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The impact that we'll have on the broader culture will grow and grow. I was on...

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I did, like, a Bloomberg thing today, and they had this graph where they're like, they asked people where they're getting, where they're getting their news.

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And it was like, well, 40% are getting them from, like, traditional media like us, and 60% of them are getting it from, like, social media. I'm making approximately these numbers.

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But they're like 12% are getting it from Substack. [laughs] And like news like this, and things like Substack, this newsletter, like, independent thing. I think- Yeah...

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if that, as that number grows, the impact that people like you will get to have on the world at large, uh, will change it for the better. But how do... What are your KPIs about whether you're developing a middle class?

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Because all these things seem to have power laws, right? And like, we always go to, like, Casey Newton and, like, you know, Pa- like, pod- Jed, like popular. Like, I've had done podcasts with some of them.

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I hope to do it with others. And we always go to the star- like, the breakout hits. Like, that's norm. But to me, it's like the mission seems to be beyond that, like, in developing, like, a healthy middle class.

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Like, do you guys have KPIs to that? Yeah, I mean, we look at... You know, we wanna help. We wanna give everybody as good of a shot as possible at making something that works.

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And, you know, the reality of this is gonna be, m- you know, much like everybody who goes to LA to aspire to be a famous actor doesn't always become a famous actor.

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Not everybody who says, "I wanna write or do a podcast as my full-time living," is gonna necessarily succeed at that. But the thing that we can do is give everybody the best possible chance.

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Like, make that box that you use as powerful as possible so that if it's, if there's a way to do it, like, we want it to be, this to be, like, the best possible place to do it.

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The other side of it is, like, I don't think the power law is a bad thing.

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One of the things that, one of the great advantages of this for writers, for the people making the media, making the art, is that they get a piece of the upside like they never did before, right?

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If you're somebody who does... If you can get to a thousand subscribers paying you, there's not really a reason you can't get to ten thousand or fifty thousand.

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And we think it's actually really exciting when people, the people who are reaping the vast majority of the benefit from that are the people who are making the thing.

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I think that that's, like, powerful and exciting, not something to be, not something to sneeze at. Okay. So in three years, also more options for ability to make money.

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'Cause I mean, I see you, like, you know, you can see with, like, the consulting. I don't know if that'll totally take off. But, like, right now it seems like the ways, the monetization right now is basically one type.

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It's just, like, subscribe. Yeah, I think you'll, there'll be more money. You'll...

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The number of people who are making a million dollars a year on Substack will continue to go up and up to the point where it becomes- Well, inflation, I mean, my God. There you go, yeah. Exactly.

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That, with that, you'll be able to buy, like, two coffees with that by then. Yeah, exactly. All right, Chris, we'll leave it there. Thank you so much.

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I really appreciate you, uh, taking the time, and I'm totally gonna do subscriptions. Don't worry. We're gonna be partners in this. Awesome. Thank you. Likewise. Thank you so much for listening.

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Again, please do send me your feedback. My email is bmorrissey@therebooting.com. Thanks a lot to Jay Sparks, who is producing this podcast.

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If you're thinking about doing your own podcast, and again, they're hard to grow, but the depth of engagement is amazing, so don't let that scare you off. Get in touch. Jay can help you out. He is @podhelpus.

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That is podhelp.us. [outro music]