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Substack Business Model Case Study

The earliest medium of spreading news & information at a massive scale was the printed newspaper, which was first published weekly in Germany from 1609. In their early days, newspapers were expensive because they were sold directly to consumers — without ad-based models to support them. 

All that changed in 1833 when a news publisher named Benjamin Day invented the now ubiquitous advertising supported publishing model, changing the economics of the newspaper business, for better or for worse.

A newspaper that cost 6 cents per issue, an expensive price at the time, now sold for a penny per issue, supported by the advertising revenue to make up for the price drop.

Day’s newspaper, the New York Sun, quickly went on to become the most-read newspaper in America, giving birth to a new generation of advertising supported newspapers, including the New York Daily Times, which would eventually drop the “Daily” from its name.

For the next two centuries, newspapers thrived, supported by the ad-based model, but the advent of the internet and rise of digital media changed the publishing industry.

Anybody could now reach millions of people — with a personal website, a YouTube channel or a podcast & make money doing what they wanted to do. 

Full-time jobs — like being a food blogger, a travel vlogger or a history podcast host; which were previously unfathomable were now all possible and available to anyone who wanted to become a creator.

But all this was mostly driven by the age-old advertising model, with Google & Facebook primarily collecting the ad dollars for playing the role of middlemen. The Internet had empowered the individuals wanting to become creators, but the relationship between creators and consumers was now mostly facilitated by the new-age advertising behemoths, Google & Facebook.  

But what if creators were to establish a direct relationship with consumers, own the relationship themselves and charge consumers directly, in a way going back to the original model of information consumption, which was supported by the readers, not by advertisements. 

Not all creators might want to do that, but for the ones that would want to, Substack helps them.

What Is Substack & Why is it Needed?

In simple words, Subtsack is a tool that writers can use to build an audience and make money by collecting a subscription fee, if they choose to.

But if writers can build a direct relationship with their audience through their own website and collect a subscription fee if they wanted to, why would they use Substack?

It’s not that writers are not choosing to build audiences on their own and collecting subscription fee from readers, but what Substack does is that it makes it easier for writers to start and make money from email newsletter subscriptions. 

And How does it do that?

Imagine you plan to start a website dedicated to greek philosophy and plan to monetize it by selling subscriptions to loyal readers.

What all would you have to do?

You would first have to build a website, and maintain it. You would have to integrate a payment solution to manage subscriptions. You would have to develop a funnel by offering limited free content and restrict access to the remaining content in order to get your audience to subscribe. 

And you would have to figure out & make all of this happen, while working on writing content as well.  

While some might have the tech savviness to do all of that & write at the same time; there might be people who are not tech savvy enough to build & maintain a website as well as people who might just want to focus on writing without having to worry much about the other stuff.

What Substack does for these two kinds of people is that it handles all the technical aspects of running a personal publication — including things like providing a custom domain with easy to use publishing software, a payments solution to manage subscriptions and the capability to develop a funnel with free content & gated access to premium content in order to get people to subscribe. 

Writers can even choose to keep all of their content free, if they want to.

Substack’s business model is simple — in exchange for the tools it provides writers, it makes money by charging a 10% commission of every paid subscriber. Writers who chose not to monetize their content can use Substack for free.

More than two years after its launch in July 2017, the company had upwards of 50000 people subscribing to a Substack publication. 

In July 2019, Substack raised over $15 million in a Series A funding round led by venture capital firm Andreessen Horowitz, with participation from Y Combinator, who first gave Substack a seed funding of $2.2 million in 2018.

While, for some writers, Substack is a source of supplementary income, it is a full-time business generating serious cash for others.

The first & the most popular publication on Substack is Sinocism, a newsletter focussed only on China that charges its readers $15/month.

More examples of successful niche Substack publications include — Popular Information, a publication that holds social media giants accountable for their political advertising practices & Heated, a publication that reports on issues in climate change accountability. 

By removing the friction involved in setting up and monetizing a publication, Substack has accelerated the birth of niche publications & made it easier for writers to make money directly from readers. The founding of Substack was based on this very insight — people would pay for content they had been used to getting for free, provided that it was something that they were deeply interested in. 

In Feb 2019, Substack even launched audio content support for creators who want to sell podcast subscriptions to their audience.  

Explaining the rationale behind the move into audio, Substack wrote, “We’ve always believed that one of the great benefits of Substack is that you can subscribe to a person. That power is intensified when you can actually hear that person’s voice.”

Substack for podcasts works in the same way as written publications. Creators can choose to give audio content access to everybody, or only to their subscribers.

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Substack Business Model: How Substack Makes Money
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Substack Business Model: How Substack Makes Money
Substack’s business model is simple -- in exchange for the tools it provides writers, it makes money by charging a 10% commission of every paid subscriber.
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Hey 👋

I'm a digital marketer working 5 days a week as a salaried employee & writing business blogs on weekends.

My goal is to turn this blog into a full-time gig. But for that to happen, I need it to generate as much revenue as my salary to protect the downside.

To be transparent, I currently make money with ads, but it isn't enough to transition to working full-time.

Why do I want to work full-time on the blog if I can carry on writing on the weekends?
Two reasons:

  • My blog gets more than 20000 monthly visitors, most of them through search. The only bottleneck to growth is the amount of time I'm able to dedicate to the project, so working full-time will help me scale and turn it into my primary income source.
  • Working on projects of my own opens the door to unlimited personal and financial growth.

If you've found value from reading my content, feel free to support my dream in even the smallest way you can.

Muaaz Qadri
Muaaz Qadri
A Proud Computer Engineer turned Digital Marketer