Why Substack should launch an advertising marketplace

Advertising models can create perverse incentives, but that isn’t a foregone conclusion.

Image licensed from Getty Images

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Why Substack should launch an advertising marketplace

I received two related questions.

The first comes from Kevin Dennehy

It seems as if Substack, which has recently laid off a number of people, needs to allow authors a bit more leeway to generate revenue. While the bigger journalism names, with large social media followers, are being taken care of (they bring in the subscribers), those of us with much smaller newsletters need to find other revenue streams. Will Substack ever allow advertising (where they also profit) to help the smaller publishers (with enough subscribers and opens to justify ad revenue)? Revue has tested it, I believe.

The second comes from Joseph Choi

Do you think there should be a Substack competitor that supports programmatic ads?

Substack’s founders have always insisted from the very beginning that the platform would never build out advertising tech, and I understand why they established that ethos. Substack was founded in the wake of the 2016 election, when we as a society started learning the extent to which programmatic advertising was driving the rise of fake news produced by Macedonian teens. This was also around the time that VC funding for digital media dried up, and the entire industry finally acknowledged that programmatic ad tech would never produce the kind of high-CPM inventory that could actually fund high quality journalism.

It’s not a coincidence that 2017 was also when nearly every digital publisher launched some sort of subscription or membership product. The emerging philosophy posited that the only way to pivot away from our clickbait dystopia was to create reader-aligned incentives that rewarded value over traffic. Substack’s founders definitely subscribed to this outlook. Here’s how CEO Chris Best put it:

The ad-peddling model that dominates the internet and hijacks our minds is costing us too much by being “free.” … While platforms that depend on ad sales must harvest attention any way they can, platforms that depend on people’s willingness to pay must foster trust and satisfaction. Writers succeed only if readers are happy, and in turn platforms succeed only if writers are happy. In this world, users are finally at the table rather than on the menu. 

But here’s the thing: while that was a perfectly reasonable position to take in 2017, I don’t think it reflects the current reality. As it turns out, the advertising model is still incredibly resilient, and a lot of publishers have come around to the idea that it can play an important role in funding quality content.

Building a sustainable media business through subscriptions alone is harder than it looks, and a lot of publishers have struggled to maintain their early subscriber growth. We’ve also witnessed a veritable boom in advertising demand, partly as a result of the pandemic-induced consumer shift to ecommerce. This demand has been especially strong within the creator community, as brands have seen impressive conversions driven from podcasts, newsletters, and YouTube channels.

That’s why we keep seeing more and more Substack writers embrace sponsorships. Brian Morrissey did it. Packy McCormick did it. Yes, even I did it. Right now, these are mostly bespoke products — native ads that we manually place within our newsletters. In some cases, Substack writers will leverage outside marketplaces like Swapstack to find sponsors. Others simply recruit advertisers from their own readerships.

I think there’s an opportunity though for Substack to build its own marketplace and ad insertion tool. I can think of three main benefits:

1. It would provide further differentiation from its competitors: Every week I get a new email from a founder pitching their startup as a Substack competitor. Given how easy it is to migrate your entire email list off Substack’s platform, the company is much more vulnerable to disruption than your average social network. An advertising marketplace would instantly increase its value over its competitors, since most don’t have the scale Substack currently has. 

2. It would help Substack’s struggling middle class: Substack has been a great platform for the star writers who left their mainstream media jobs to launch their solo careers. For just about everyone else, it’s a grind. Subscription economics are just so brutal, especially for solo creators. An advertising marketplace would allow these writers to diversify their revenue and get to sustainability much quicker. Substack would benefit because fewer writers would abandon its platform out of frustration.

3. It would be an additional revenue stream for Substack: Currently, the company only generates money by taking 10% of the revenue from paid subscriptions. With an ad marketplace, it could take a percentage of those sales as well.

So how would this ad marketplace work? I have a few ideas:

1. It would be completely self service: You know how easy it is to buy a promoted post on Facebook or Twitter? Substack would build an ad CMS that subjects every advertisers to the same standards and character limits.

2. Newsletter owners would set their own rates: They can choose to charge on a cost-per-click model or simply establish a flat fee.

3. The ad would be automatically inserted into the newsletter: The newsletter owner would obviously have the ability to reject or accept the ad.

4. Advertisers would have access to their own analytics dashboard: They would be able to monitor metrics like total impressions and clicks.

Advertising models can create perverse incentives, but that isn’t a foregone conclusion. Plenty of publishers manage to strike a balance that allows them to monetize with advertising and still maintain their integrity, and a tastefully-designed advertising marketplace won’t sully Substack’s vision to host some of the best writing on the internet.

What do you think?

Quick hits

"It is becoming increasingly difficult to distinguish what exactly is the difference between a podcast and a YouTube video." [The Verge]

The notion of a "daily" newspaper is quickly becoming anachronistic. Most are now publishing on an hourly basis. [Local News Initiative]

"I wonder if Netflix content is getting worse in the same way all video content for algorithmic platforms tends to degrade over time. A company thinks their data is better than it is and it steers them to uglier and uglier places." [Garbage Day]

The significance of MrBeast’s 100 million subscriber milestone

On its face, MrBeast’s announcement that he reached 100 million YouTube subscribers isn’t all that remarkable. After all, Pewdiepie hit that milestone all the way back in 2019, and there are now a handful of channels in the 100 Million Subscriber Club.

But there’s one thing that sets MrBeast apart from all the others: volume. In the past year, MrBeast has only published 16 videos to his main channel. Pewdiepie published 16 videos in just the last two months. Pewdiepie averages a respectable 3.7 million views across those 14 videos, but that’s nothing compared to MrBeast’s average: 93 million.

To put that in context: there’s not a single present-day TV show on this planet — other than maybe Netflix’s Squid Game — that’s reached that many people.

I’ve written before about how “MrBeast is changing the economics of YouTube” by spending upwards of $3.5 million on a single video. I argued that he represents the maturation of the Creator Economy:

The top echelons of the creator ecosystem now have the scale and diversified revenue streams that allow them to constantly push the limits of the YouTube economy. Does this mean we’ll ever see a Game-of-Thrones-level show debut on YouTube? It’s hard to say. But if a YouTuber can now drop $3.5 million on a single video, then a prestige drama doesn’t seem too far out of grasp.

I also think MrBeast is upending what we thought we knew about publishing consistency. Most creators have accepted the notion that content quality is not the only factor in building a sustainable business; you also need to publish on a regular basis. If you don’t, you’ll lose momentum, your audience will abandon you, and your business will crater. That’s why you read so many stories about “creator burnout.” At some point, the grind becomes unsustainable.

But I’m encountering more and more creators who buck that trend. Take the YouTube channel Folding Ideas as an example. Its host has only published three videos in the last year, but they’re long; his most recent one lasts two hours and has racked up over 8 million views. It’s obvious that he doesn’t feel pressured to churn out content, and he still manages to find huge audiences despite long spans between video releases. His Patreon subscribers patiently pay him $7,700 a month with the knowledge that he’ll periodically release a new tome.

Or take the blog Wait But Why. Helmed by Tim Urban, the site goes months without publishing new content, and then it’ll drop a post spanning 40,000 words. As far as I can tell, he hasn’t published anything since 2021, and yet he has over 2,800 Patreon subscribers.

I’m not sure I have a grand unifying theory on why these creators are able to defy the laws of the internet, but there’s clearly a lesson to be learned in all of this. Have they found the answer to creator burnout, or are they merely exceptions to the rule? It’s definitely a topic I’ll be thinking about in the months to come.