Why a Twitter acquisition of Substack would be a bad idea

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Why a Twitter acquisition of Substack would be a bad idea

In the world of tech, few things get people more excited than talk of an acquisition. As a writer who covers the industry, I’ll admit I become animated when discussing the business synergies of various companies; it can be fun to game out how the merging of two separate products can generate enormous scale and change the paradigm for how a service is delivered. Acquisitions turn founders into millionaires and can move markets.

So it shouldn’t be a surprise that folks on Media Twitter got excited about a few lines buried deep within a Ben Smith column titled “It’s the End of an Era for the Media, No Matter Who Wins the Election.” Here’s the relevant passage: 

Another way of looking at Substack is as a kind of Twitter Premium — a place you can pay for more content from your favorite journalists. And that synergy has caught the attention of some at Twitter itself, where the notion of acquiring the newsletter company has been discussed internally, a person familiar with the conversations said. 

I’ll pause to note that Substack co-founder Hamish McKenzie tweeted after the column was published that “This is not going to happen,” so take that for what it’s worth.

But let’s imagine a scenario in which Twitter puts forth a figure with the right number of zeroes and Substack can’t turn it down. Is there enough synergy there between the two platforms to where both could see some sort of benefit that they wouldn’t realize separately?

It’s been rumored for a while that Twitter is building a paid subscription product, and it’s not difficult to imagine a scenario in which Substack is integrated with that product. Many of Substack’s most successful writers have substantial Twitter followings that they were able to leverage to drive subscriptions to their own newsletters.

As a Substack writer myself, I admit it would be pretty cool if I could lock down some of my tweets so they’re only accessible to my subscribers. And given Twitter’s enormous reach, it may be easier to convert my followers there if they don’t need to leave Twitter’s platform to subscribe.

And sure, it’s not difficult to think of examples in which acquisitions like this have worked (Facebook’s purchase of Instagram; Google buying YouTube), but there sure are a hell of a lot more examples where acquired companies died on the vine, including a Twitter-bought company that was actually called Vine!

Coincidentally, I actually wrote a column a few months ago about the acquisition of a company very similar to Substack: Tinyletter. Like Substack, Tinyletter provided writers a simple template for sending newsletters, and it benefited from quick organic growth as verified Twitter users flocked to the platform. 

But in 2011 the email marketing company Mailchimp acquired Tinyletter, and while there was early optimism about how the latter platform would thrive under its new parent company, Mailchimp almost immediately began to neglect it.

Why? Well, I go into much more detail in the piece, but basically there were fewer synergies between Mailchimp and Tinyletter than one would have originally assumed. While both specialized in sending email newsletters, Mailchimp catered to enterprise businesses willing to spend thousands of dollars a month on email marketing. Tinyletter, on the other hand, attracted solo authors who embraced the platform because it was free. While Tinyletter users with large followings were eventually forced to convert into paid Mailchimp users, very few actually did so. Mailchimp could have attempted to develop an alternative business model for Tinyletter, but instead it just allowed it to die a slow death. In fact, it was this very factor that provided an opening for a newly-launched Substack to swoop in and steal most of Tinyletter’s writers.

Now consider the environment Substack would enter if it was acquired by Twitter. For the better part of a decade, Twitter’s revenue teams and engineers have optimized the platform for efficient advertising delivery, and it’s now generating upwards of $1 billion per quarter via ads. Based on my back-of-the-envelope calculations, Substack is generating, at most, $24 million per year, with 90% going right back out the door to its writers.

Is it possible that Twitter will reorient its entire platform so it gives equal weight to both advertising *and* paid subscriptions? Sure. Is it all that likely? Not really. Yes, Substack has a thriving community of creators and strong organic growth. But so did Flickr. So did Tumblr. A company acquisition is like an organ transplant: often, the host rejects the organ, no matter how healthy it was prior to the transplant.

For the record, I actually think Medium would be the more sensible Twitter acquisition. Not only is it headed by a Twitter co-founder, but it was actually built to resemble a longform version of Twitter, with a more traditional social graph and an algorithmic feed. 

This former Patch reporter launched his own thriving local news site

Patch was never the cash cow that former-AOL CEO Tim Armstrong predicted it would be. When he bought the company in 2009, he hoped its network of hyperlocal sites would, in aggregate, generate enough reach and revenue to transform it into an advertising behemoth. Those plans didn’t pan out, however, and in 2014 AOL sold Patch to an investment firm. Patch went on to become profitable, but only after significant downsizing and reduced coverage

But even though Patch as a whole didn’t flourish, a lot of its individual sites found traction, and this opened a lot of entrepreneurial journalists’ eyes to the potential for lean local news sites in underserved communities. One of those journalists was Tom Sofield. After reporting for several years at a Patch site in Levittown, PA, he saw there was a real market for the type of news he was providing. So in 2013, he launched Levittown Now with a business partner.

Within a year and a half, the site was breaking even, and it’s now a well-regarded news source in the area. I interviewed Sofield about what he learned at Patch that he later incorporated into his own business and how he’s found success in a market where other local news operations have struggled. 

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Simon Owens is a tech and media journalist living in Washington, DC. Follow him on TwitterFacebook, or LinkedIn. Email him at simonowens@gmail.com. For a full bio, go here.