The business models behind popular email newsletters

The seemingly sudden proliferation of email newsletters is really interesting to me. First, why email? People have been declaring email dead for years, but now you can’t go a week without seeing overwhelmingly positive coverage about TheSkimm, encountering Nuzzel’s odd newsletter feature or somehow getting subscribed to a company’s list (which isn’t really a newsletter despite what they might say). Specialized tools like TinyLetter and Revue are even popping up. Second, what are the unit economics behind these newsletters? Can a sustainable business be built on top of one? People seem to be trying, but how realistic is it exactly?

Two regular guys at a good old fashioned news stand.

Why email?
This part seems the far more straightforward of the two questions. In the constant battle for attention, email inboxes still get a lot of eyeballs, especially work email inboxes. Even though Slack has taken over most offices as the communication tool of choice, emails are still something which cannot be ignored. It’s generally pretty acceptable to be on work email all day long rather than a random web site, even though the seemingly random web site might actually be far more relevant to an employee’s work. To the average person walking by your computer, the content of an email newsletter in your inbox is largely indistinguishable from any other work emails you might be checking.

As social media has become more and more crowded, it has become incredibly hard to get noticed or even be heard. I have a few thousand twitter followers, but a really engaging tweet will still only garner a few hundred impressions at best. One of the best ways and most well known ways to increase followers on just about any social platform is the mutual follow and like method. There’s a weird expected reciprocity to the point that bots have shown up to automate it all, making this “engagement” even more meaningless.

Building a social following also takes a whole lot more time than building up an email list. There are tools to scrape the email of anyone you’ve ever sent, received or been on the same email as into a convenient .csv file for uploading into your mail client. The availability of emails combined with the increased difficulty to unsubscribe make email a really sticky delivery channel. Email has always driven a lot of traffic. Often referred to as “dark social,” email is a channel that never really went away. Finally, given the slow, bloated and cluttered experience surfing the web has become in many cases, email is a far more enjoyable way to consume content.

Content marketing experts have figured out it works, and when something works, a lot of people notice, show up and try to do the same thing.

Can a real business be built on an email newsletter?
This is by far the more interesting question. Can a sustainable business be built on top of one? There are several business models that come to mind when considering the question. At one end of the spectrum is Ben Thompson’s Stratechery, a daily paid update ($10/month) of completely original content. At the other end is something like Fortune’s Term Sheet, a completely free collection of curated content which monetizes by pushing traffic to the company’s main news site. TheSkimm with its additional paid ($2.99/month) offering would be somewhere closer to the bottom left quadrant because it’s still largely curated content.

Maybe I should have made the logos larger?

This is clearly not a representative sample, but I’m not able to come up with any successful (or large enough to be on my radar) examples of newsletters doing freemium + original content or paid + curated content.

Freemium + Original Content
You might say that the newsletters of more traditional news outlets count in this category, but I’m not counting content which is easily accessible elsewhere as original. This category really only consist of content marketing.

Freemium + Curated Content
There are so many newsletters operating in this quadrant. Some like Fortune’s Term Sheet and Dan Primack’s Pro Rata exist to drive traffic to the respective backing media outlets and cultivate a loyal audience. Others like the one from Benedict Evans exist more as a hybrid of his own very brief analyses on the latest tech news as well as pushing traffic to his own blog where he has less frequent, yet really deep dives on the same subjects.

TheSkimm is a little different, but still fits into this area. They offer a free daily curated newsletter, but also has an app costing $2.99/month for some extra features. While the daily newsletter starts to shift towards the original content area, at the end of the day it is just rewritten versions of other people’s research and reporting. Although to be fair, the founders make it pretty clear when publicly speaking that the company is a media company and the newsletter is just a way to get in front of people and only the beginning.

Newsletters trying to monetize just within the actual email through ads face many of the same challenges as free news sources on the web. According to MonetizePros, the median CPM (cost per thousand impressions) of an ad in an email is $3.45. That means if you have 100k subscribers, a weekly email would net you about $138 a month in revenue. While the CPM you can command various widely because of a whole set of factors, the takeaway is clear: you need some serious scale before this will make you much money.

Paid + Curated Content
This category seems like it would be really tough, but not impossible to execute on. The problem, it seems, is for a newsletter consisting of only curated information (or ultimately just links to other sources) to be valuable enough to pay for, it would be so niche the time spent curating would far outweigh the size and revenue potential of the small addressable market.

I wonder though, if this is an area where some combination of natural language processing and machine learning could automate things enough to make it work. I imagine some sort of ingestion operating happening at tremendous scale, yet personalization through NLP and ML resulting in really valuable curated information someone would be willing to pay for. I suppose a variety of companies have tried to do this in various forms under the guise of personalized news, but the content always ends up in a sort of race to the bottom situation where the quality is so poor it isn’t worth it. And really if you manage to do this well, the newsletter portion is just the delivery mechanism.

Paid + Original Content
The two best known entrants here are Stratechery and The Information. If there is one category of blogging which is oversaturated, it’s definitely technology. And yet, these two produce content that is so far above and beyond the rest, people are willing to pay for it.

In the case of Ben Thompson, he’s just one guy writing every single day. Each subscriber pays $10 per month which scales really well when you think about the costs of his operation. It just him and a laptop. I’d venture a guess and say his biggest costs are travel to industry events, followed by credit card fees. He’s coy about exactly how many people subscribe, but back in 2014 he passed 1k paid members ($100k in annual revenue) and has since mentioned that it has grown considerably since then.

Taking this a bit further though, Stratechery is really just a one man analyst operation, no different than the countless others that would typically be attached to a big consulting firm (except for the quality of work). Just like the internet has allowed the disintermediation of so many other industries, it might be best to think of the email newsletter once again just being a delivery mechanism between the product and the consumer.

Conclusions
Is it better to get subscription revenue out of less users or better to sell ads or further monetize traffic against a far greater amount of users? The answer largely depends on the size of the niche you’re in and the level of competition within it. Largely the same unit economics apply as if it were a regular blog.

Are people really willing to pay for a newsletter? Yes, the same as they are clearly willing to pay for quality content behind a paywall. Email is a delivery mechanism, not a business model. The only real business model here involves producing great original content.