Photo: Marcelo Camargo/Agência Brasil

The platformization of newsletters

Substack's success, Twitter's acquisition of Revue, and Facebook's secret project. The last prey detected by the big tech sharks is the newsletters

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Sharks are acknowledged for having the ability to smell their prey’s blood from afar. In the business world, big tech companies have a similar ability, but instead of blood, they are attracted to opportunities to make (much) more money. The last prey detected by the keen sense of smell of these corporate sharks is newsletters.

It is strange to see newsletters targeted by companies so associated with innovation, technologies yet to be invented. After all, sending e-mail messages to large groups is as old as the web, something from the last century, when the speed of internet connections was measured in kilobits per second and access to the network in monthly hours.

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The truth is that newsletters have run out of style. They are “rediscovered” whenever the market faces a hangover originated from the excesses of another more recent communication technology and which turns out to be something different than what it promised. When Facebook overthrew the organic reach of pages in the mid-2010s, the newsletter emerged as an alternative to direct contact, free of inherent systemic risks from closed solutions like Facebook.

The recent wave of interest, practically a tsunami, emerged with Substack, an American startup founded in 2017 by Chris Best and Hamish McKenzie with the goal of giving “a better future for news.” With a different business model, some big shots names among its users, and a focus on writers instead of marketers, Substack managed to make newsletters something hot again.

Traditionally, newsletter systems charge according to the number of subscribers and/or the number of sending messages. Substack’s secret was to subvert that: the service is completely free and without limitations until the newsletter owner starts charging for it. At this point, the startup starts to grab a commission from readers’ subscriptions.

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Substack was able to create a business based on a good old cheap technology – it costs a fraction of a cent to send an email. In July 2019, the startup raised $15.3 million in a Series A round led by Andreessen Horowitz. It uses the money to attract big names in journalism, offering them massive advance payments, and fill gaps they often find in independence, such as a legal defense fund to be used if a user happens to be sued for something he or she wrote.

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Substack currently has 500,000 paid newsletters. A few of them have annual sales in the six digits; together, the ten most popular ones generate $15 million a year.

Before Substack, “people who write” interested in newsletters had two options: navigate the complexity and bear with the high costs of solutions aimed at marketing, such as Mailchimp and ConvertKit; or be accept severe limitations of tools aimed at writers, like TinyLetter (owned by Mailchimp). Substack’s focus on this audience, and bringing new features to the product, was a great hit.

Thing is a fragile kind of success, susceptible to being copied and improved by competitors. In the beginning of 2021, two big tech sharks went hunting in these seas.

In January, Twitter bought Revue, a startup that is almost contemporary and very similar to Substack – same focus, same business model – but that for whatever reason has not gained traction. At first, it released features previously paid by all users and further lowered the commission charged for paid newsletters, to 5%, half of what Substack charges.

There are already indications that Revue newsletters will be integrated with Twitter, which can open up an ocean of potential leads for newsletter owners by reducing the registration friction.

In parallel and in the same week, The New York Times revealed that Facebook is working on a newsletter platform aimed at writers and journalists as part of the Facebook Journalism Project, the company’s arm focused on solutions for the journalistic market. There are no further details at the moment, but the newspaper’s sources believe that Facebook tool could be launched in mid-2021.

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Competition can come from unsuspected places as well. In January, Axios (a publication born and managed on top of newsletters, by the way) revealed exclusively that Forbes magazine is preparing a major expansion for premium (paid) newsletters. It is not an open matter, in the sense that anyone can launch newsletters; Forbes’ onslaught is more reminiscent of Substack’s way of approaching and “acquiring” renowned journalists, those who tend to generate high figures.

Forbes’ goal is to be a middle ground: sharing revenue with journalists from newsletters, but also offering benefits to them; give them editorial freedom, but demand consistency with the magazine’s values. Despite the relevant differences, it is undeniable that the idea comes in the wake of Substack’s success and that some names could be on either platform.

Welcome competition

Hamish McKenzie, Substack’s co-founder, ironically responded to the news that Twitter and Facebook want to enter the newsletter segment. “General Motors announces Bolt,” he said of the acquisition of Revue by Twitter. “Exxon announces solar energy project” was his comment to rumors from Facebook’s newsletters service. In other words, for him, they are old dogs trying to learn new tricks to adapt to changes in the environment.

Despite the scathing comments, McKenzie later wrote in his newsletter (where else?) that the competition is welcome and that, in general, the growing interest in newsletters is beneficial to everyone, as it points to a healthier internet, less dependent on business models based on engagement.

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“Maybe Twitter and Facebook are realizing that they need to take similar actions [to GM and Exxon] to be on the right side of the story,” wrote the Substack co-founder. As we know, GM and Exxon are companies that built their empires from fossil fuels and that now, in the face of the existential crisis of global warming, have announced ambitious projects based on renewable energy.

The big question is whether the newsletters will remain “clean energy sources” with the arrival of the big polluters of information and their Silicon Valley financiers. Substack already deals with some typical platform problems, such as the difficulty that writers have to discover, that is, to get new subscribers, and the organization, by the subscribers, of the countless newsletters that fill their inboxes. Substack launched an app; from that to having an algorithm that organizes newsletters…