Ben Thompson’s Stratechery should have crossed $3 Million in Profits in 2020

Analysis of the Content Subscription Business Model

Andreas Stegmann
May 19, 2020 · 10 min read
Ben Thompson in 2018, taken from Wikipedia

If you’re interested in reading about technology and its cultural impact on the world, there’s no way around Stratechery these days, a blog solely written by Ben Thompson.

Most of my articles have a link to one of his pieces, either building on top or disagreeing with his views. He’s valued highly by VC’s and my Twitter sphere.

what are we Substack newsletter writers if not a bunch of Ben Thompson cosplayers? [Brett Bivens]

What sets him apart from almost everybody else is that he was able to move most of his posts behind a paywall as early as 2014. He started with $100 per annum and raised prices by 20% at the end of last year.

No small feat. From my essay on personal blogging:

It’s a lot of work to get users on your article. Statistically, the first thing that happens is that the user will close the tab without reading. Only a fraction will read your content for free — consider what an effort it takes to also be paid for it! The original sin of the web, indeed.

Given my own interest in internet business models and the future of media, it’s only logical to investigate how exactly it works out for him, right?

Some Old School Detective Work

What information do we have? Thompson himself published three data points: In November 2014, 6 months after launching the freemium model he pushed past the 1,000 “true fans”. In a conversation with felix salmon he reported 1,500 for his “lifestyle business”, and in January 2015 Stratechery had 2,000 paid memberships. But since then, we haven’t got another official figure.

Among Indie Hackers there’s this trend of opening the books — they call it Open Startup. Here’s Lenny Rachitsky doing it for his paid newsletter.

I like that a lot because aspiring creators can learn from each other. Thompson is more tight-lipped in that regard.

Anyway, chances are there are three indicators, and all point to the same ballpark.

  1. Take those official data points and extrapolate them to today in a linear fashion and you’ll arrive at 25,935 paying subscribers.
  2. On This Week in Startups Substack Co-Founder Chris Best & jason estimated between 20k and 30k subscribers.
  3. Triggered by this tweet from Blair Reeves, Anthony Bardaro did some digging and found the number of 25,189 paying subscribers in Discourse, the software powering the Stratechery membership forum. Extrapolated to today: 26,303.

Given that three independent sources point to the same range, I ascribe high accuracy to that number.

Applying some rudimentary math, I estimate that Thompson will pull in revenues of $3,285,351 for the calendar year 2020. Congratulations!

Growth has been remarkably steady over the last 6 years. This seems strange at first given that we are accustomed to exponential growth in the web. But it checks out with the growth rate of other newsletters.

With this pace Stratechery will earn nearly $300k per month by the end of the year.

The complete calculation and sources can be found in this spreadsheet:

To get the full picture we need to look at expenses. I checked the tech stack listed on Stratechery’s Privacy Policy to get a sense what Thompson is paying to distribute his content.

A rough cost estimate for the year 2020 lands at $315,585.

The lion share (92%) is split between Memberful and Stripe — both services take a revenue share.

So, to borrow from Thompson, his own business looks more like Spotify than sought-after software startups with zero marginal costs.

Thompson’s chart for Spotify

Users (and therefore revenue) rise linear instead of exponential, while marginal costs follow in parallel.

But consider the profit margin: 90.4%. From every additional monthly subscriber Thompson gets $10.85. A staggering high gross margin.

The resulting yearly profit of Stratechery for 2020: $2,969,766.

[Update August 2020]

We now have data to include Dithering.fm, his paid podcast with John Gruber from Daring Fireball which launched in May 2020.

The podcast had 6,000 paying subscribers shortly after its general public release. This alone will break the $3 million sound barrier.

After three months, the subscriber count is now at 10,000.

Extrapolating this growth would result in

  • 16,022 subscribers at the end of 2020
  • 22,404 subscribers one year after release in May 2021

Since we are interested in the profits for calendar year 2020, it’s reasonable to calculate with an average of 11,000 subscribers (all Dithering calculations can be found in the Google Spreadsheet, too).

But in which tier are they in? Not only is the question how many people choose monthly versus yearly payment, we have to assume how many people already are Stratechery customers:

Bundle economics at play

This is a brilliant move — I bet a few Daring Fireball fans converted along their journey to bundle owners. The halo effect in action.

I assumed the same monthly / yearly split (10% / 90%) and a even split between bundle and standalone customers.

Revenues in 2020: $317,124

Regarding costs, I’m no expert in running a Podcast. I figured a rough estimate of $150 per month after reading James Cridland’s overview. (Feel free to correct any of my numbers.)

The resulting yearly profit of Dithering for 2020: $315,924.

Assuming a 50/50 split with John Gruber the combined profits for Stratechery and Dithering for Ben Thompson are $3,127,728.

[End Update]

Caveats

  • If you skimmed through the numbers so far read this disclaimer: These are estimates. Some costs may be missing. This is an EBIT calculation.
  • Some services potentially offer volume discounts; I used public available pricing only.
  • Costs for human labor are not evaluated. Obviously that includes Thompson’s time, but Daman Rangoola is also involved.
  • Since a few weeks even free users can listen to articles as a spoken podcast. Audio files increase the AWS bill. Exponent.fm had Mailchimp and Wordpress as sponsors, though. I’m guessing this is balancing itself out.
  • Thompson sells merchandise in his own shop on Cotton Bureau. In comparison to the early days of Stratechery the items aren’t marketed. The share of revenue should be minimal, therefore I left it out.
  • Thompson was a conference speaker (back when those were not cancelled). I have no idea on his fees other than it being a “single digit percentage” of his overall income and therefore left it out.
Conference talk I witnessed in person

That’s my contribution to investigative journalism for today — now let’s do some takeaways for businesses like Thompson’s.

“Tech” is not Niche (anymore)

Thompson gets not tired to see the future of blogging and himself in the niche. I guess it depends on how you define it — 25k paying readers (and probably a magnitude more viewers) doesn’t sound like niche to me.

The Only Thing Working Right Now

The most valuable companies on earth are Tech companies. With the SARS-2 shock, the stock market concentration is at record levels. The US Tech Index is worth the same as all other countries combined.

Over the long run every company will be revamped with Tech (or die). Everyday life is infused by Tech — and sometimes it’s what keeps our society together.

Maybe a newsletter about one Tech company only could be considered niche — Stratechery on the other hand is so broad some readers complain on Twitter that Thompson should focus less on some topics.

Perhaps the 1,000 true fans number needs to be adjusted down to 100.

Written Content seems still under-monetized compared to Audiovisual Content

Perhaps you’re in awe how a blogger out of Taiwan can rake in millions of dollars. But Thompson is right when he proclaims to not have pushed prices to the upper limit. For context, access to Statista sets you back at least $39 per month. I guess he could charge more with very low churn.

Price Intelligently Survey (monthly tier has increased in the meantime)

Stratechery pales in comparison to the revenues of other famous creators:

The Web’s technical Building Blocks are not made for Subscriptions

I’ve mentioned the potential of subscription based content in my advice to Spotify (in my strategy the streaming service doesn’t make the whole Podcasting community its enemy).

But it feels strange that we basically settled with the paywall as the only viable business model for written content on the internet. A model that is at odds with how the web is structured and set up economically:

Kneecapped Discovery: The default method of getting to where I want to on the web is Search. By putting content behind a paywall it’s non-existent for the Google Bot, which is bad for driving traffic (potential customers) to your site and constructing an interlinked narrative. It’s also bad for generating any kind of virality. Because of those reasons almost all paid newsletters still have occasionally free posts.

Eased Piracy: Digital structures were made for the greatest reach, it’s easy to copy information given that it “wants to be free”. Withholding information needs technical plumbing. For example, Dithering pushes a unique RSS feed to every subscriber (not how the markup language was intended).

Gruber and Thompson had the choice between two evils: Either to use XML feeds as is (and basically trusting the viewership to not pirate content) or to bake in Tracking Superhuman-style (which goes against the whole pay to not be tracked-argument).

Fractured UX: Dealing on the open web means dealing with a non-controllable environment — yes, even worse than Android OS fragmentation.

In the launch post of Dithering, Thompson voiced his frustration that “many players don’t abide by the current podcast standard”. The list goes on. There’s no purchasing with 3rd party cookies disabled. Or the newsletter had some issues on Gmail for mobile.

I don’t want to see Thompson’s support requests (despite that Stratechery readers should be above-average in tech-savvyness). Nothing an IT department can’t help with, but wasn’t the point to get along without one?

Handicapped Payments: Compare the one click/tap buying on Amazon or Apple Pay to what the open web has to offer. Having no credit cards on file builds friction. There are countries with low credit card penetration, too.

My bigger gripe is with the chosen business model. For comparisons sake take a look at Wirecutter. Their model is more aligned and a win-win-win for everyone involved (a free website with customer benefit that generates at least $30 million per year). Affiliate marketing has less hurdles and just feels more Internet-like.

Note that the the majority of big creators are advertising-based. The afore mentioned Tim Ferriss tried the Subscription way — only to revert course swiftly.

Having said that, I think it’s noble that Thompson tries to force the web to work with subscriptions — pioneering work.

Journalism needs less News, more Analysis

When people lament the ‘Death of Journalism’ I query them on what type of journalism they think of. There’s a stark difference between reporting the news and analyzing the news.

Pure news reporting got downgraded with the Internet. After all you can get it directly from Reuters, newspapers have become an unnecessary intermediary.

A while back when I still consumed newspapers I had this habit of reading only the headlines of news articles — but read every word of the Feuilleton section. (As a nice side-effect you feel better about the state of the world.)

What Thompson’s success shows very clearly is that we as a society are clamoring for somebody to make sense of all the stuff happening around us.

Analyzing complex interdependences requires skill and time: If I would keep track of the hours I need to get an essay like this one into shape, trust me, I would stop immediately.

Generating written content is traditionally a low-margin business because writers are often interchangeable. Thompson paved his success by being (or at least being perceived as) not substitutable.

For newspapers to stay relevant, they need more opinion pieces beyond one’s own nose (based on solid fact-checking of course), they need more essays instead of articles, they need more storytellers and cross-disciplinary generalists, they need more writers like Benedict Evans, Byrne Hobart, Alex Danco, Ranjan Roy, Matthew Ball, Eugene Wei or Kevin Kwok to name a few I like to read.

Actually…scrap that. I can barely keep up with the free stuff piling up in my various inboxes right now.

hyperlinked

Essays about a hyperlinked economy & culture