(2020-09-26) Keesling Substack Rhymes With Medium

Adam Keesling: Substack Rhymes With Medium.

In July of 2019, Substack raised a $15.3 million Series A that was led by Andreessen Horowitz.

Substack probably has about $2.64 million in annualized revenue. In order to achieve a VC-scale outcome, they would need a $1 billion valuation. If we assume a 10x revenue multiple, they need $100 million in revenue. $2.64 million is a good start, but far from reaching their expectations.

At the time, my thesis was that the way for Substack to grow into their lofty valuation was to provide discovery for writers. If they could build a new place for people to spend time — and offer recommendations along the way — then they would be onto something. Note that this wouldn’t only help drive discovery, but also build a network effect. From my November 2019 post

It’s now becoming clear where the money is going: to entice writers to join the platform.

Substack’s plan mirrors another company, one that isn’t discussed as much these days. Medium was founded in 2013 by Twitter co-founder Ev Williams

This is something that Medium never seemed to understand

The idea that we want to consume content without knowing the creator isn’t quite right. Rather, the content is just a proxy for access to a person, brand or emotion.

the big question is their cost structure. For each publication, they take 10% of the subscription revenue. At the beginning of a publication's life, this is reasonable. Maybe even a steal. But once a writer builds a business that makes hundreds of thousands of dollars a year, what’s stopping them from moving to another platform like Ghost or building their own tech in-house to save money? This happened with Medium too.