In 2014, Ben Thompson, a blogger who writes about the business of technology, announced he was quitting his job so he could write full time. His business model? He would send out four newsletters a week. One of those newsletters would be free, and if you wanted access to the other three, then you had to pay $10 per month.
Within a year, Thompson had 2,000 subscribers, which, if you do the math, means he was generating $200,000 a year. At that point, he stopped publicly disclosing his subscriber numbers, but some predict that he’s increased them by several thousand.
Thompson was an early pioneer in the realm of paid newsletters, and there have since been several other writers who struck out on their own with similar models. There’s Nick Quah’s podcast newsletter Hot Pod. There’s political writer Judd Legum’s Popular Information.
Many of these newsletter writers have had to string together multiple services, from Mailchimp to Stripe, in order to manage their businesses. Now we’re seeing a few new companies on the market that want to serve as all-in-one platforms for paid email newsletters.
Once such platform is called Substack, and it recently surpassed 25,000 paying subscribers for its participating newsletter writers. I interviewed the company’s cofounder Hamish McKenzie about the rise of paid newsletters, how to convert readers of a free newsletter into paying subscribers, and why his service is preferable to other membership platforms like Patreon.
To listen to the interview, subscribe to The Business of Content on your favorite podcast player, or you can play the YouTube video below. If you scroll down you’ll also find a transcript of the interview.
Simon Owens: Hey Hamish, thanks for joining us.
Hamish McKenzie: Thanks for having me.
You run a newsletter platform called Substack. Can you tell us a little more about your background and what led up to you launching it?
I’m a former journalist. I’ve done all sorts of journalism, from writing for trade magazines to writing for tech news sites to writing for print magazines, and I’ve also written a book. While I was writing my book, I was working at a company called Kik, which is the maker of a messaging app, and I had a friend there, Chris Best, who was the co-founder of Kik. Last year, he had left Kik and was wondering what he was going to do next. Halfway through what was planned to be a year off, he came to me and said ‘Hey, do you want to start this company that makes it simple for a writer to start a paid email newsletter?’
I said no. I don’t want to get into the startup game. It’s too hard, it’s too stressful. I just want to be a writer. But the more we discussed it, the more excited I got about it. So I decided to leap in with him, because I think it’s something that can really work, and we’ve already seen signs that it is working.
You were a writer a PandoDaily, which had tried its own unique approach to subscriptions. They had gotten frustrated with the advertising game and tried this new model. Were you there when that happened?
I had left Pando. I got hired by Tesla to be a writer, so I was working there by that point. I think that was a good move for Pando, but in retrospect I wish it had started with paid subscriptions. I think it would have aligned the incentives between publishers and readers just perfectly. And the timing was just perfect for it.
When you look at what happened at a media company that started around the same time, The Information — it went all in on subscriptions, and it changed the future for those two publications.
Yeah, especially with The Information. They don’t aggregate the news. They don’t do the same spread that every other tech blog is covering, because they know people are paying good money for their publication. Every single story has to have some sort of impact. It has to be unique in some way, or else they know nobody is going to subscribe. They only publish two or three stories a day, but you know that it’ll be something unique, something breaking, or something that’s vital if you work within those industries.
When you’re selling subscriptions, your product is quality. You have to make sure you’re delivering that quality. If your chief customer is the reader, you have to deliver for that reader and serve that reader maniacally well. Whereas if your chief customer is the advertiser, then what you’re looking for is attention, and so you’ll go to whatever lengths possible to get that attention. In some cases that means aggregation. In some cases it means clickbait. In some cases it means cheap outrage and fake news.
When you launched your tool, it was around the time we saw the launch of some successful paid newsletters. Ben Thompson’s Stratechery was namechecked when your company launched as an example of how this model could work. Were newsletters like his the inspiration for what you were trying to do?
Yeah, definitely. We’re not trying to suggest we were doing anything genius. It was a very simple idea from the start. Ben Thompson’s Stratechery is working for him really well. It’s working to the extent that he’s been telling anyone who would listen ‘you should copy me, you should do this. Try this model.’ We were wondering why people weren’t, and so we thought ‘let’s just make it a lot simpler for any writer who is not Ben Thompson to try to do that.’
The basic building block of what we’re doing is to take what Ben Thompson has done and make it scalable, make it easy to access for anyone. We just started there.
For those unfamiliar with Ben Thompson’s model, he has a blog, it’s called Stratechery. For several years it was a side project where he was writing these really long analysis pieces about the tech industry and the business of tech. And then he decided to quit his job and go off on his own. His model now is that he publishes one really long article per week that’s completely free. And then if you want more you have to pay to subscribe for his newsletter. You then get the paid version in your inbox. He’s gotten several thousand subscribers, which if you do the math, he’s doing well into the six figures with it. It can be a very successful model if you’re able to get that audience.
Actually, we think he’s doing more like seven figures if you parse the numbers and look at what he’s said over the years. Which is tremendous revenue for a one-person business, although I think he hired a personal assistant recently.
The secret there is that he uses that free content, which is not just long stuff, it’s high quality, deeply contextual analysis, which is differentiated from everything out there. He goes deep. He brings real value. That free stuff goes and finds an audience. And then people who fall in love with his worldview have proven themselves willing to pay to get more. And the stuff they get is a little bit more unvarnished, more insidery, a little bit wonkier, and more frequent. I think it’s a really powerful model, and it’s strongly differentiated from the mainstream media.
As you pointed out, before the launch of Substack there were people who had this same business model. What did they have to do if they wanted to run a subscription newsletter? They basically had to claw together a bunch of different services and use them together.
Ben Thompson once wrote a post about this where he listed all the services he uses, and there were like 19 of them. At the core of it was a cobbled-together version of Wordpress, Mailchimp, and a membership plugin called Memberful, along with several other tools in the background.
It’s not just making those things work together once. It’s about continuing to get them to work together and maintaining them so that they work well and don’t interrupt the reading.
Your platform is different because you can do it all on your platform. You could launch a free newsletter, but if you want to launch a paid version, you can then subscribe within your platform itself so it’s a seamless experience.
That’s basically right. It’s a self-contained ecosystem. You can start a free newsletter. If you want to add paid subscriptions, it’s just a matter of connecting a Stripe account. You can be collecting subscriptions and money within minutes. It can go to email and the web at the same time. And you can choose whether an issue is only for your paying subscribers, or if it’s for everyone.
A lot of content creators are using platforms like Patreon and Kickstarter to run and manage their memberships. What would your argument be for why they should choose your platform over theirs?
Patreon and Kickstarter, they are both trying to serve creators in general. Substack is laser focused on serving writers. We don’t ask you to figure out any of the technology or any of the design or do your own customer support. You just come to Substack, click a button, and start writing, you don’t have to worry about anything else. Our pitch to writers is that we take care of everything but the hard part, which is the writing itself.
Why are newsletters a good medium for handling subscriptions? Why not just run a website that has a paywall?
I saw your interview with Sam Parr at The Hustle the other week, and he had some of the same points that I’d make. Newsletters are a great, intimate venue. Everyone checks their emails still, and you can hope to reach anyone who cares about what you’re writing about. You’re going to reach them in their inbox, and you can pretty much make sure they see everything you publish.
Whereas on social media or on a website, you’re kind of left to the whims of fortune. They may happen to see your tweet, or may happen to check your site that day, among the millions of sites they’re visiting. I think it’s a good, intimate form where you have this connection between reader and writer. And it’s a good, completionist form that operates as a replacement for RSS, where you’re not left to the churn of social media in the hope that someone might strike upon your content.
[LIKE THIS ARTICLE SO FAR? THEN YOU’LL REALLY WANT TO SIGN UP FOR MY NEWSLETTER. IT’S DELIVERED ONCE A WEEK AND PACKED WITH MY TECH AND MEDIA ANALYSIS, STUFF YOU WON’T FIND ANYWHERE ELSE ON THE WEB. SUBSCRIBE OVER HERE]
Especially for a one-person operation, you don’t want to make your users have to remember a log in all the time. Basically, with your platform, once they subscribe they just get it in their inbox. They don’t need to remember a login. They don’t need to remember to go to a website every time. It’s just going straight there, and so there’s less friction for them to be able to get the paid product.
Yeah, they can subscribe and then just relax. They get everything on email. If they want, they can go ahead and click to the site, and they’re automatically logged in because of magic links and all this other tech stuff that my colleagues have done. And even if they forget their passwords, they can just email themselves a login link with Substack. It does remove all that friction, and having that self-contained ecosystem there makes it all simple.
For the free newsletters, is there a web version so they can use it for marketing? Or do the newsletter writers just simply cross-post it to places like Wordpress or Medium?
Yeah, there is a web version. And it’s not like the web version is just treated as an archive host for the newsletters. The web version is basically a blog post of the same content. It’s got the same class of treatment. That’s really important for posting the free stuff that allows you to go out and find your audience, because people want to go and read that when it’s published on a nice site, not as if it’s a facsimile of a newsletter that’s shared with some weird link. So you can go and share the article on social media, and it’ll preview nicely and load quickly and look really good on any device in any context.
I think that’s one thing that’s subtly different about Substack. We market Substack as a place for doing newsletters, but it’s actually a place for doing this new kind of publication where you can publish to the web and to newsletters, by email. People can have a first class experience in either one of those formats.
Yes, because the open web is still important in terms of the marketing of the newsletter. The hardest thing about growing a newsletter is the discovery. People have to land on it a few times before they actually convert. So that’s where the open web is a little bit more important, so that it can be shared on social media and found on Google.
Totally. And it’s also the place where people go to sign up and put down their credit card details. So it’s essential.
Can you talk about some of the newsletter writers who are seeing real success on your platform?
There’s a good number, and a good variety. I’ll mention Bill Bishop, because he was our first publisher, and we love him dearly for taking a leap of faith on us. He runs a really impressive newsletter about China called Sinocism. It summarizes the most important news of the day from China, but in the English language. It’s subscribed to by policy makers, diplomats, influencers, all those sorts of people. He’s making a very comfortable six figure income from this.
Another one is Judd Legum’s Popular Information. Judd was previously the founder and editor in chief of Think Progress, which is a popular political news site. He gave up that job and his 40 employees to write newsletters on Substack. And so he publishes four times a week really deep, clear sighted analysis of the news of the day.
He has a really big Twitter following and has used Twitter to get subscribers. He does these long Twitter threads that link back to his newsletter — I’m assuming that’s where he drives a lot of his conversions. He’s figured out how to leverage that platform to generate subscribers.
He’s extremely good on Twitter. He’s cracked the code of Twitter. I’d advise anyone who’s interested in building up their Twitter following and driving that to a mailing list to watch Judd closely. He’s very calculated.
What are the conversion strategies you’re seeing that work. If you were talking to a journalist who was thinking of going off on their own to launch a subscription newsletter, what advice would you give?
Most of the time now we’re saying you should prove the value in the newsletter first. Figure out if you’re making something people want. To do that, it’s a good idea to start in free mode. Publish free first, build up a mailing list, and establish credibility and reputation. Publish consistently and regularly. This is really hard work, but building a business is really hard work and putting the right investment in.
Over time, you should turn on paid subscriptions, tell people you’re going to do that. Explain why you’re charging, and then tell them what you’re charging for. We recommend, for people who are doing this whole hog, it’s probably good to have a mix where your paid content is about 70 to 80 percent of what you publish. And your free stuff should be about 20 to 30 percent, and that free stuff should be what goes out and finds your audience. In some cases, it should be your very best, most thoughtful work.
What’s most interesting about your company is that — if I sign up for most email marketing platforms, like Mailchimp, eventually, even if I’m running just a free newsletter, I have to start paying them based on the number of subscribers I have. Whereas with your platform, the free newsletter is 100 percent free, and the only time you start making money is by taking a small piece of whatever they get from the paid newsletter.
That’s right. That model makes complete sense for Mailchimp, which is a great company, because their primary customers are marketers. But for writers, if you’re so successful that you’ve got thousands of people who want to read your work every day, then we don’t think you should be then paying for the privilege of using the tool that sends stuff out to people. We think you should get paid. And so we want to let people come in and publish a free newsletter for as long as they want, and work up to as many subscribers as they want, and keep it free forever if they have to. But then when they turn on paid subscriptions, we’re building the ecosystem in a way that’s going to help them succeed as much as possible. And we’re going to give them all the advice we’ve gleaned from watching other people succeed. And then from that we’re going to take 10 percent of what they make from subscription revenue.
10 percent is in line with a lot of other platforms.
It’s an imprecise science right now, but it feels right for these early days of Substack. What we like about it most is that it completely aligns incentives. We only do well if the writer does well. So we’re maximally incentivized to help the writer do well.
What have you seen from a retention factor? Is the retention high? I know that with the New York Times and other publications, once you get up to the millions of subscribers, retention plays such a huge role, since it costs so much more to get a new subscriber than it does to retain an existing one.
I have to caveat this with the statement that these are still early days. We’ve only had one publication that’s so far made it to the year mark, but the retention’s been outstanding so far. That one publication did extremely well on annual retention. And then on monthly retention, we’re seeing numbers that are comfortable above what’s typically considered good retention numbers.
Of course, Substack has a role to play on that, but it’s also largely down to the writers of these newsletters, what kind of quality they’re delivering.
Do you give the choice of paying by month or by year? I’ve seen a lot of places that allow you to pay a certain amount per month, or you can pay a slightly better rate, but you have to pay up for an entire year in advance.
That’s what the majority of people in Substack do. In fact, it’s by default. If you set up a publication in Substack, you’re asked to set a price for monthly and annual, and most people give a slight discount on the annual.
Are you seeing any evidence that a lot of people are expensing this to their companies? They say that one of the advantages of having an industry newsletter is that it can either be written off on your taxes as a business expense, or if you work for a company you can expense it to your employer. Are you seeing any evidence of this?
There’s definitely a lot of people doing that. We have such a variety of newsletters on Substack — in the case of the industry focused ones, like Off The Chain, which is about crypto, they can certainly get a lot of company expense account subscriptions, and that’s a huge part of their revenue mix.
And at the other end of the spectrum, we have people who are writing, and their readers are following them and paying for them just because they love them. Like Daniel Ortberg, who was one of the co-founders of The Toast, he’s writing comedy stuff, basically. Riffs on Victorian literature and bible passages. At that end, it’s not corporate subscriptions, it’s people who are paying because they love the writer. And that, to us, is just as exciting, maybe more exciting. It proves that something exists that hadn’t existed at scale before.
Do you see newsletter writers giving any extra perks for their paying subscribers, like access to a private Facebook group or exclusive videos? We see that a lot with Patreon, where there are lots of little perks you can offer.
There have been a couple people who have experimented with that. But, if anything, we’ve seen people scale that back. We encourage people not to offer perks, because we want to send the message that good writing, itself, is intrinsically valuable, and people should get used to paying for it.
Just on one level, if you happen to offer a bunch of perks and send out, say, pairs of socks and postcards and things, it’s distracting you from your core focus, which should be poured into the newsletter and making it as good as possible. Apart from that, we need a mentality shift as a culture where asking for money for good writing doesn’t have to be augmented by offering little gifts.
At the same time, I’ve seen lots of success when publishers launch private Facebook or Slack channels, where once the channel gets large enough, the community becomes self-sustaining. It gives them a little bit of extra perks, but without the writer having to put as much extra work into it. I’ve seen lots of paid products that give you access to a Facebook group or a Slack channel. It does seem to be an extra perk that users will appreciate. And they like the personal access to the writer too.
That’s true. We’re huge believers in community as well. And some people are running Slack channels on the side. But we’re building this into the product itself, and over time it’s going to get more sophisticated. But at the start, already on Substack, you can have a comments section, and only paying subscribers can comment on that comments section. So it reduces the number of trolls and improves the signal of quality discussion among the community. So we have a bunch of publications using those sections really well.
What’s your recruitment and marketing strategy for getting writers onto the platform?
We don’t spend any money on it. One aspect is me reaching out to writers who stand a chance to do well with this model. So that’s a lot of the elbow grease work. But probably the major driver for us is word of mouth. Every publisher who starts a Substack newsletter reaches a certain number of readers who get interested in what Substack is about, and hopefully get interested in doing one themselves at some point in the future.
I’ve seen that in the past you’ve said how many paying subscribers you have on the platform. I think the last number I saw was 11,000. Can you give us an update on how many total people are paying to use the Substack platform?
That number was from July. We had 11,000 people paying for subscriptions across the network. Now we are up to more than 25,000. The growth is going really well. More than 25,000 paying subscribers paying real money, not just $1 or $2 a month. There’s more than 150,000 weekly active readers of Substack newsletters. Early days, but we’re really happy with those numbers.
In terms of pricing, what do you see that works for what people are willing to pay for these?
There are two groups. There are the industry newsletters and there are the passion newsletters, where people pay because they like those writers. On the passion end, we see, pretty commonly, about $5 a month, or $50 a year. In fact, we set $5 a month as the minimum because we want to introduce that idea that all writing is valuable.
And then at the other end, on the industry end, where there are corporations that are less price sensitive buying these subscriptions, most people start at at least $10 a month. We’re seeing $30 a month for some newsletters. I think, as people get wise to this category and it matures a little bit, and people understand the Substack model, I think we can see some of these industry-focused newsletters charging a lot more.
I’ve interviewed a lot of people who run industry subscription publications. Where they’ve devoted a lot of their strategy is to sell group subscriptions to large corporations where they’re selling, like, 200 subscriptions to a company that has thousands of people in it. Obviously, when you get up to that level, you can offer some flexibility on price to grease the wheels a little bit. Does your platform have that flexibility where people can try to sell subscriptions to companies at discounted prices?
I don’t know if any other platform has this, but we have a group subscriptions tool, where any administrator of a tool can come on and indicate how many subscriptions they want, put their credit card details in, and then subscribe their group, and then they can enter all their email addresses for those they want subscribed. And we’ve seen that be a really strong source of subscriber growth, and it’s an exciting area.
Do you plan to keep it purely as a paid subscription platform? What about ways to innovate on email advertising and integrating that into it?
Of all the people on the Substack team to ask about advertising, I’m the worst, because I’m the most vehemently against advertising. It is our honest intention to never build advertising technology into Substack. We think the world is going to be better if everyone is laser focused on subscriptions, where the writer’s interests are perfectly aligned with the readers’ interests, and the publisher is not trying to serve some other master that might compromise the product in some way.
So the short answer is we don’t plan to do that. And the long answer is I think advertising is a major reason that the media got into the trouble it is right now, and why Facebook and Google rule the world. The media should look to other models, and subscriptions are the best, in my opinion.
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