Good morning,
Two quick corrections from the past couple of weeks:
- A reader notes that my point about Apple’s opportunity cost in selling in Russia is somewhat misstated as phones in different countries differ in terms of their cellular specifications, which means that Russian iPhones can not necessarily be shifted elsewhere. It’s a good point, although my point certainly applies to future iPhone production.
- In the same Daily Update I mentioned offhand that Disney+ was a channel for Amazon Prime Video; this isn’t correct, as Disney+ is only available as an app for the Fire TV, not a Prime Video channel.
On to the update:
Substack Launches App
From Substack:
Today, we’re launching an iOS app for reading. It’s like your email inbox, but better.
For readers, the app brings all your Substack subscriptions together in one venue, giving you a beautiful, focused place to read your favorite writers. Discovery features make it easier to find and fall in love with new writers, and the app brings text, audio, video, and community seamlessly together for the best reading experience on the internet.
For writers, your connection to your readers gets upgraded when they choose to install the app. As ever, you retain total ownership of your content and mailing list, but now you also get instant, reliable delivery (no more Promotions folder!), multiple media formats in a single package, and another way for readers to connect with you and your work.
As in everything we do at Substack, we see our work on this app as being in service of writers. This is just the first version, but it already incorporates a bunch of early feedback from newsletter authors. We’d love to hear your thoughts in the comments below, or via feedback@substack.com.
Substack, needless to say, is no longer a Faceless Publisher, but that’s not a surprise; that die was cast when Substack raised their Series A. In other words, a lot of the angst about this announcement was better felt in 2019; still, it’s worth diving into the specific implications of this announcement, and I like how Substack distinguished between different categories of stakeholders in announcing their new app.
Substack and the Four Bens
Back in 2020, while writing about Spotify’s podcast initiatives, I had to admit that any article about the company was coming from three perspectives. From a Daily Update entitled Spotify and the Three Bens:
This is where it is important to distinguish between my role as analyst, my role as writer/podcaster, and my role as publisher. Analyst Ben says it is a good idea for Spotify to try and be the Facebook of podcasting…Writer/Podcaster Ben certainly sees the allure: having my podcast available to Spotify’s 271 million monthly active users would be great; for that matter, having this Daily Update read by everyone I could reach on Facebook would be great as well. I’ve already put in the work, why not reach everyone? Indeed, were I supported by advertising, that would be the imperative.
Publisher Ben, though, remembers that my business model is predicated on a higher average revenue per user (thanks to subscriptions), not a higher number of users; that means making tradeoffs, and foregoing wide reach is one of them. That, by extension, means not agreeing to Spotify’s terms for Exponent (note on this below), and accepting that leveraging RSS to have per-subscriber feeds makes having the Daily Update Podcast on Spotify literally impossible. More broadly, owning my own destiny as a publisher means avoiding Aggregators and connecting directly with customers.
Note, by the way, that doesn’t always mean giving customers what they want (I’ve already fielded plenty of complaints about Spotify and Google Podcast support). I said at the beginning that “making customers happy” is a good starting point for any business, but it is not the end point. Markets are more than customers: they include competitors, platforms, Aggregators, partners, and more; good strategy means considering all of them and making choices accordingly.
Spotify, to their credit, ameliorated the tension between publisher Ben and podcaster Ben by releasing the Spotify Open Access Platform, which lets publisher Ben own his audience while podcaster Ben gets reach on Spotify; analyst Ben thinks it’s a great idea for Spotify to prioritize being the only destination for audio, even if they don’t make any money off of my being on their platform — at least I’m not driving my subscribers to other podcast players. It’s working for Spotify I would add: 33% of Stratechery podcast listeners do so via Spotify, despite the fact my audience is much more technically oriented and more likely to be familiar with traditional podcast players (this share is lower than Spotify’s reported 40%+ marketshare, but it’s closer than I expected).
The reason I bring this up now is that I think it is a useful framework to think about this move by Substack, and it reminds me I ought to add a fourth Ben: reader/user Ben. I’ll start there:
Reader Ben: I am not a typical Substack reader; I have 37 paid subscriptions, both because it is my job to be informed about super niche topics, and also because I feel a sense of ownership for this business model and want to see people succeed (which means I subscribe to plenty of writers that I only read occasionally). Given that very significant caveat, the Substack app is a big win for Reader Ben: I was never reading these posts via email (I had long since routed Substack posts to their own folder), and was already using the Substack web app; the app is basically the same thing plus the polish typical of native apps versus web apps, and minus the ability to subscriber to new sites (thanks to Apple’s App Store rules, which would require in-app purchase — more on this below).
One of the biggest open questions is what this means for what I suspect are more typical readers, who only subscribe to one or two Substacks. For these folks I believe that email is ideal; while the Substack post claims the app is better than your email inbox, your email has the significant advantage of being an inbox you are already going to check. To that end, I think that Substack’s original implementation of the app’s first run experience, which turned off emails by default, was bad for most writers: requiring readers to remember to check another app is a recipe for forgetting about your subscription, leading to eventual churn (Substack reversed this decision after a backlash).
Writer and Publisher Ben: There are three specific scenarios to consider here. First, if I were just starting out, I would be a bit nervous of this move for the reason I just noted: I think that being in my readers’ email inbox is really valuable, and I would be worried about being forgotten in yet another app that my readers need to remember to check. On the other hand, to the extent that my readers are subscribed to other Substack’s, the greater the degree to which I could draft off of their popularity to make sure my content is seen and read.
The second scenario is Stratechery with its current audience but published on Substack; this move would rankle me a bit more, for the inverse reason I just noted: my content is being commoditized to just another item in a Substack-branded feed, allowing smaller sites to draft on my popularity, and my brand to be leveraged to build Substack as a destination. This, I would note, is a criticism I have long had about the rest of Substack as well: from my perspective as a large publisher the fact that every site and email looks the same is a big negative, even if it lends smaller sites a share of the credibility earned by said large publishers.
The third scenario is the one that actually exists: Stratechery as an independent publication which can be added to the Substack app by adding the RSS feed. I am pretty happy about this, all things considered: readers who make the deliberate choice to add Stratechery to the Substack app won’t forget about me as they elevate the Substack app into something they check regularly, and they make the deliberate choice to add or remove me from their email inbox (Passport lets you specify the medium in which you consume Stratechery, including RSS, email, or podcast).
Analyst Ben: What is notable about the ability to add arbitrary RSS feeds to the Substack app is that you can not do the opposite: there is no RSS feed for individual Substacks, which means that if you want to collect all of your newsletters in one place, the only choice is Substack (or your email inbox), not any of the plethora of 3rd-party RSS services.
Correction: you can add an RSS feed, but it isn’t full posts, at least for paid publications. More on this tomorrow.
This is also why I rolled my eyes at the Substack founders invoking Google Reader as an inspiration: actually caring about RSS and open standards would mean offering RSS feeds, not just a one-way RSS reader. Substack doesn’t care about the open ecosystem, they care about becoming a destination for readers — an Aggregator of premium content, where you start with Substack and only then engage with publishers, whether on Substack or off.
This, though, is the analyst section, which is where I must admit this makes all kinds of sense. Substack was never going to grow into its valuation as long as it was allowing individual publishers to capture all of the value they generated; this shift puts the Substack brand front-and-center and sets up the app as a means of driving user growth and, potentially, a new business model.
In-App Purchase and the Substack Bundle
I think that one of the strategic mistakes that Substack made early on was in being too publisher friendly, in two regards. The first one is that every individual publisher on Substack adds subscribers to their own Stripe account, instead of a centralized Substack account, and the second one is that Substack failed to gain permission in their publisher terms of service to create a Substack bundle.
I understand why these choices happened: I believe the Substack founders in their declared intent to put publishers first, and unbundling Stripe meant that Substack’s platform fees seemed cheaper than they might have otherwise (that 10% does not include Stripe fees); the problem, though, is that pursuing the VC model meant an inevitable conflict in terms of value capture, which meant that Substack would, in the long run, never be as favorable a deal for publishers as building the subscription stack independently. The advantage Substack had, though, was ease-of-use and, if everything went well, the ability to drive more revenue by building a drastically larger audience via a Substack bundle.
To that end — and to be clear, I’m speaking as an analyst here — I think the company should have run all subscriptions through their own Stripe account; even if publishers own their email list, it’s much tougher to leave Substack if you can’t port their subscriptions, and you have much more flexibility in terms of converting subscriptions to bundles. Secondly, I would have had permission to bundle built into the publisher agreement from the beginning. Yes, this might have cost some number of writers who care about such things, but, to be honest, I think those writers are few and far between: if anything I suspect there are more Substack authors who are annoyed at the trouble of setting up their own Stripe account than there are who would have bothered to think through the implications of not owning their own infrastructure.
What is interesting is that Apple may give Substack cover to change course. One of the clear limitations of the Substack app is that you can’t subscribe to new publications, because allowing subscriptions in app would entail using in-app purchase, which subjects the subscription to Apple’s in-app purchase rules. The problem in this case is not simply the 30% take, but also the fact that every in-app subscription has to run through Apple’s system, and couldn’t be easily attributed to an individual publisher. Apple really has no concept of a platform like Substack: the company assumes that whoever owns the app owns all of the monetization within that app.
That right there is the opportunity I am referring to: Substack can (justifiably) say to its publishers that it is going to offer an all-up Substack bundle for in-app purchase because that is the only way it can offer in-app purchase, and that publishers should agree to be included as that is the only way they will be surfaced in what Substack hopes will be a new app that readers check regularly. Never mind that that app will be checked regularly because of large publishers that would succeed whether on Substack or off: this is a way for Substack to draft off of their popularity to build an alternative revenue model that entails readers paying for Substack first, and publishers second, instead of the other way around.
More broadly, this is another example of how Apple is a great friend to Aggregators and an obstacle for would-be platforms; the App Store and App Tracking Transparency accentuate the advantages that flow to companies that command consumer attention and make things much more difficult for companies that seek to operate in the background; faceless publishers face just as many if not more obstacles than faceless e-commerce operators. Substack making itself a consumer brand is a natural response both to its VC incentives as well as Apple’s preferences.
This Update will be available as a podcast later today. To receive it in your podcast player, visit Stratechery.
The Stratechery Update is intended for a single recipient, but occasional forwarding is totally fine! If you would like to order multiple subscriptions for your team with a group discount (minimum 5), please contact me directly.
Thanks for being a subscriber, and have a great day!