Substack is another popular digital publishing platform powering the passion economy, and perhaps the most popular of the newsletter-specific publishing platforms. However, unlike Medium, Substack’s business model involves hosting subscription newsletter creation tools for writers.
Substack requires creators to work independently to acquire customers (Medium provides a built in audience, with its Partner Program).
It helps with distribution—providing tools for newsletter marketing, analytics, built in payment processing for multi-tiered subscriptions limited CRM functionality, and an easy to use email marketing system—but writers are largely responsible for growing their own newsletters.
Substack poses a threat to Medium because, as a SaaS tool (as opposed to a marketplace tool), Substack offers more financial upside for creators who already have a large customer base.
There are several ways in which newsletter creation platforms (such as Substack) threaten marketplace tools, such as Medium:
- Substack will poach top writer talent from Medium.
Medium has attempted to slow this “platform brain drain” by keeping in place various systems that are frustrating to Medium writers, but are effective in discouraging these writers from starting on a new platform.
The most obvious example of this is Medium’s low level of email list portability and the difficulty of communication with followers. As explained in the previous section, Medium has attempted to act as both a publisher and platform. This moat is largely superficial, though, as platforms like Substack prove.
Since Medium requires no exclusivity from its writers, most writers eventually will make the determination that “owning their own email list” and being able to communicate with their followers, independent of Medium as an intermediary, is worth leaving the platform over.
- Substack’s current business model is much more scalable than Medium’s business model.
Medium is a marketplace where writers can easily monetize their writing. Substack is a SaaS tool which simply provides the technical infrastructure allowing writers to create their own newsletters.
In the Substack model, newsletter writers are responsible for all writing, editorial planning, marketing, and ultimately building an audience. Substack makes money by charging a processing fee which is a percentage of a newsletters revenue.
Medium’s model relies upon content curation, (some) editorial direction, and it needs to manually moderate content. All of this is time intensive and expensive, making it hard to scale.
- Medium’s model was successful in driving growth over the past 8 years, but it also was effectively subsidized heavily by large venture capital investments.
It is tricky to say since Medium is a privately held company, but there is no evidence that Medium is actually profitable. Substack, by its very design is much more likely to achieve profitability, first or faster.
The team required to run Substack is very lean, and the marginal cost of adding a new newsletter to their network is extremely small.
- Substack’s business model aligns the financial interests of writers and Substack better than the financial interests of Medium writers and Medium as a company.
If I publish my writing on Substack, Substack only makes money if I succeed in selling subscriptions to my newsletter. Medium, by contrast, benefits from the content provided freely by writers. Medium writers, however, have little ability to control their earnings.
They are dependent upon earnings that Medium allocates (Medium currently uses Member Reading Time to proportionately allocate earnings). Let’s say I write an article on Medium that goes viral through organic search traffic. This article could earn a very small amount of money (or none at all) because writers are only paid for reading time from paid medium subscribers.
In the most extreme case, is is possible that I could write a viral article with millions of views, receiving little or no compensation for my effort, and Medium would reap the full upside of the article’s success as this helps boost paid platform reader subscriptions.
While Substack does have some advantages over Medium, I am not saying that Medium will collapse. I am also not ruling out the possibility that Substack itself will fail.
- Substack is not competing for passion economy creators in a vacuum.
Substack faces direct competition from platforms such as Revue or Buttondown. Further, the service offered by Substack is not proprietary, meaning additional competitors could enter the field at any given time.
- Substack is vulnerable to “platform brain drain” much like Medium.
In the case of Substack, top earning publications can and sometimes already have left Substack, in order to avoid paying Substack their fee or because they want to build a custom publishing platform, designed to meet their followers needs better.
- Substack newsletters face less direct, but strong competition from private membership communities.
These online community building platforms contain a wide range of features (with a newsletter being among the simpler platform features.