Sunday, 3 August 2025
One final publish on my latest Substack kick. Yesterday I linked to Ana Marie Cox’s scathing evaluation of Substack’s financials. She revealed that on June 23, and wrote about Substack’s $100 million funding spherical, with a $1 billion valuation, sooner or later tense. Substack certainly closed that spherical in mid July, elevating $100 million, with a valuation of $1.1 billion. After which their triumvirate of cofounders sat for an apparently transient “interview” with Benjamin Mullin and Jessica Testa of The New York Instances:
Substack’s enterprise mannequin is straightforward: Customers subscribe to comply with
creators on the platform, and the corporate takes a ten p.c minimize
of the income when these creators cost for a publication
subscription or entry to a podcast. That strategy initially made
Substack a author’s haven, leading to greater than 5 million
paid subscriptions and a steady of publishers, together with
the brief story grasp George Saunders, the historian Heather Cox
Richardson and an exodus of journalists from conventional
newsrooms.However the newest traders are betting on an rising product that
may amplify its enterprise. Substack’s app, launched in 2022,
permits customers to speak with their favourite creators, watch dwell
video conversations and write and share posts on their
personal feeds by way of Notes, a function much like X or Bluesky.
If their enterprise mannequin have been really so simple as described, they’d already be worthwhile and wouldn’t have wanted to boost one other $100 million. They’ve already acquired numerous subscribers. They’ve already acquired a steady of high-profile writers. They already preserve 10 p.c of what subscribers pay. And pointing to Twitter/X as the longer term mannequin doesn’t precisely say “Effectively that’s the trail to monumental earnings.”
The sharp improve in Substack’s valuation — practically 70 p.c
greater than its 2021 valuation of $650 million — is a validation
of that technique from Substack’s traders.
Or, this may very well be like when a man who simply misplaced each greenback in his pocket taking part in blackjack withdraws a couple of extra grand from the ATM within the on line casino. That doesn’t “validate the technique”. What would validate Substack’s technique is displaying proof of precise earnings and worthwhile development. And if they’d precise earnings and worthwhile development they wouldn’t have wanted to boost one other $100 million.
“The community is rising,” Mr. McKenzie stated. “We’re on this new
part the place folks can come to Substack and never simply publish, however
additionally discover new audiences and discover new alternative.” The corporate
at present is extra concerned with taking up YouTube than MailChimp.
This, to me, is the nut graf of the entire NYT piece. Substack since its debut has introduced itself as a platform for writers to construct publications for readers. That’s how everybody I do know who would endorse Substack would describe it. Hamish McKenzie, the cofounder quoted right here, proudly claims the job title “Chief Writing Officer”. Does an organization “extra concerned with taking up YouTube than MailChimp [sic]” sound like an organization targeted on writers as expertise and readers as customers to you? (And it’s a bit factor, however Mailchimp doesn’t fashion their identify camel-case. You’ll be unsurprised to be reminded that The New York Instances dismantled its beforehand crackerjack copy desk in 2017.)
Now let’s do some tough back-of-the-envelope math. The New York Instances Firm has a market cap of $8.5 billion. Simply gut-feeling-wise, I don’t assume Substack is value one-eighth of the Instances, nor do I feel they’re on a path to get there. The Instances has round 11 million digital subscribers who all pay round $25–35/month, and a powerful promoting enterprise. Particular person Substack publications are likely to cost round $5–7/month, and Substack solely will get 10 p.c of that. So Substack solely pockets like 50–70 cents monthly from subscribers, per publication. (Substack’s 10 p.c fee, once more, is fairly excessive in comparison with competing platforms.) Substack at present has no promoting enterprise in any respect, and lots of of their writers publish with them particularly as a result of Substack, as we all know it, has no advertisements.
I firmly consider one may construct a really good enterprise taking 10 p.c of subscription income for a running a blog/publication platform, when you may get as good a roster of widespread writers to construct on the platform as Substack has. I don’t assume that’s a $1 billion enterprise, although. And if it have been, they need to, at this level, be capable to get there on their very own, with out further funding. They need to have achieved profitability lift-off way back.
However what do I do know, apart from operating a worthwhile unbiased web site for the final 20 or so years?
