Medium can pay authors, run fact-checks, and make money
If you and I are willing to pay 5 cents for well written, well researched content
Business problems are my bread and butter and Medium appears to have a major one
I love writing on Medium and I am inspired by its mission, which is why I was crushed to see Ev’s post about refocusing the company and slashing 33% of their work force. As I read that article and others it seemed to me that Medium has yet to find any effective mechanism of monetization which management and investors can agree on.
My day job is helping companies re-invent themselves. As a management consultant at A.T. Kearney I’ve spent years helping the CEOs of major Australian and American save 100’s of millions of dollars and open new revenue streams. I love what I do and hopefully I can use those skills to support the platform I love, as well.
The key question facing Medium management appears to be:
How can Medium become a successful billion dollar company while rewarding authors on their ability to enlighten and inform, not simply their ability to attract a few seconds of attention?
Medium’s new business model in brief
My rough answer to that question is as follows:
- Medium should start charging readers 5 US cents to read each article (each user start with $1 dollar in their account and can then pre-pay to refill it)
- Of that 5 cents: 2.5 cents is payed directly to the author, 1 cent is used to fact check the article, and 1.5 cent goes to support the Medium platform
- Using that money Medium should start to fact check each article — both with human readers and via programatic systems- giving each article a “truthfulness” rating and promoting those which are most accurate
- This will allow Medium to profit as early as 2017, rapidly grow its community of contributors and harnessing the public’s desire for “real news” to continue growing Medium’s readership
Allow Medium to make money while staying true to their mission
In order to find out if this business model will work for Medium we need to run the numbers. As an outsider without access to Medium’s financials I have needed to make several assumptions, which you can find detailed at the bottom of this post.
Assuming annual revenue of $36M, Medium’s cut would be $18M and Medium’s costs would be about $17M annually, thus Medium has the potential to turn a profit in 2017, an enormous step forward without compromise.
That’s only the beginning.
Adopting this model will help Medium grow
By paying authors Medium will be able to rapidly expand its pool of writers. Many bloggers who currently use Medium to draw people to their own sites and services would have a reason to switch over to Medium as their sole platform. Many more writers who need other jobs to support the writing they do on Medium (like yours truly) might be able to make a living doing the writing they enjoy. For instance, Gary Vaynerchuk with 197k followers could potentially gross $59k (assuming each of his followers were only willing to pay 5 cents for just one of his articles each month). Two articles per month would pay more than $118k — increasing instantly as his readership grows.
At the same time fact checking each article will provide a natural check on the internet’s tendency to reward poorly researched click-bait. This means that authors who write high quality, well researched pieces, will receive significant income from Medium and continue to publish there. This will establish a virtuous cycle in which those who write nuanced, thoughtful pieces and readers who care about the truth of what they read will both be rewarded.
This model relies on one key hypothesis
In order for this to work Medium readers must be willing to pay 5 cents per article to support the author, the fact checking, and the site itself.
This is a hypothesis that needs to be tested and refined as soon as possible.
There are several way to collect this payment. Medium could try asking for donations at the bottom of every article similar to Wikipedia. Medium could try instituting a paywall similar to many well-respected news sites. There are several other options too, all of which Medium might be able to use A-B testing to trial.
My personal theory is that a pre-paid account, clear indication of the benefit to the author and a “free” inital dollar to spend would create the right incentives to generate a profit.
Medium is the perfect company to do this and now is the time
With its reasonably large subscriber base and high quality user interface Medium is poised to fill a special place within internet media. Under this model its quality content will not be centrally controlled, like the New York Times, but will be checked for accuracy, unlike Breitbart news.
Now, amidst the fervor of fake news, seems like the ideal time for Medium to adopt this business model. While this may simply be a passing fancy, doubtless the additional readers it would bring to the site would stay because of the same quality content I enjoy.
This is a rough idea and I would love to be able to do more
I have huge respect for Ev and his team.
It may be that they have a similar plan up their sleeve and are simply targeting a specific number of users before they deploy it. Or it may be that there is more money to be made from payments from existing brands expanding thru Medium (as Ev seems to hint in some of his interviews), or possibly more money in selling user data (as Twitter is doing). However, neither of these seems to be quite in line with Medium’s mission.
I hope I’m wrong, and that someone much smarter than me is a already smiling over a model which shows Medium’s future profitability. If not then I hope this article will, in some small way, contribute to the success of a platform I love and a group of entrepreneurs I admire.
If you agree click the 💚 below. Let’s prove to Medium and its investors that this idea has legs.
Revenue and cost calculations…
Based on M.G. Seigler’s post I assume Medium has:
60 million (M) unique monthly readers
Assuming that each reader would be willing to pay 5 cents for one article each month, Medium could generate:
$3M in monthly revenue
or
$36M annually
if 2.5 cents of each 5 goes to Medium then Medium has:
$18M annually
after paying its authors, to cover its own costs.
My assumption is that the employees, facilities, advertising and web hosting make up the majority of costs. According to Ev’s post Medium currently has
~ 100 employees
assuming each costs on average
$125 thousand (k) annually
including salary and benefits that means the total cost of employees is
$12.5M annually
then, assuming the San Fran office costs:
$1.3M in rent annually (200 sqft per person * $65 per sqft/year * 100 employees)
plus
$700k annually in tech, furniture and fun things (like ping-pong tables)
plus a generous advertising budget for the growing platform of
$2M annually
and that hosting the service with help from say, Rackspace is
$500k annually
brings the total cost to
$17M annually
which leaves
$1M in profit before tax
Please feel free to reach out to me if you think I can be of any assistance.
