I don't understand the subscription model either


I came across this seemingly innocuous tweet from a men's fashion blogger that resulted in a classic Twitter pile-on.

derek guy (@dieworkwear)

i support everyone who's trying to make a living and hope people are able to do what they love, but i don't understand how people start substacks and patreons and ask people to pay them $5/ month for content. 3:40 PM · Mar 1, 2023

Original Link

The responses were some variant of "people should write for free forever huh?" or "people put up a subscription banner, some people pay to continue hearing from them. What's so hard to understand about that?".

For me, quite a few things still!

What am I paying for?

The main reason I've identified as to why I personally still don't grok the subscription model is this: most people do not design their offering as a "product". In most cases, the 'offer' is not really anything more than an infrequent and unfocused blog with a paywall. I don't feel like I'm paying for a stream of specialized knowledge . Instead, I feel like I'm supporting you, as you fumble through what may be your first business venture. In isolation, is that worth $5/mo if the person isn't a particularly compelling writer?

A followup tweet from the author of the original points to this:

derek guy (@dieworkwear)
i know ive said this before, but i miss the content that was on the internet 15-20 yrs ago. created by passionate hobbyists who did what they did out of love, and there was no intention to sell merch, gain subscribers, or even grow an audience. 3:51 PM · Mar 1, 2023 · 506K Views

I hate to say it, but a lot of what passes for "paid content" out there is materially worse than information made available for free by others. It's one thing if you're a talented storyteller or insight-haver who can weave these myriad threads together into a narrative that both entertains and saves people time. But that's very difficult to do, so the route taken by most appears to be writing with a particular ideological bent or sense of humour that makes their work relatable, not necessarily good.

Pricing and Positioning

Part of that is because of the price point. There are newsletters that people will pay big money for, particularly if it's information you couldn't get elsewhere, that will make you money. Think of Platts' Oil and Gas Bulletin. That's not really a Substack-type of publication, but it's as ubiquitous (or used to be so) on an energy trader's desk as the Wall Street Journal would be on a management consultants'.

It costs a lot more than $5/mo though, but in my opinion that gives it a sense of continuity and permanence that is absent on a one-person newsletter where there's a risk that the person loses interest or becomes unable to monetize. For a modern analogue of this, you can think of crypto-related newsletters that offer access to a paid Telegram or Discord channel where discussion of presumably non-public market intelligence is taking place.

Setting pricing too low creates a paradox where it signals to the buyer that the product is both frivolous because it' so cheap, while also not worth it because comparatively you get more out of say, a US$5/mo VPS on Digital Ocean. Are they completely different products with different use cases and benefits? Yes, but they come out of the same limited pool of money known as my wallet!

Pricing is also a tremendously difficult thing for any business to get right, as evidenced by the backlash Netflix and Spotify have received for gradually raising their prices each year. Individual businesses that sell one thing have it even harder, because there are price points that are psychologically hard-wired into our brain as "acceptable" or "too much", even as those thresholds become unmoored from reality in the wake of rising inflation. So if you're known for delivering high value at $5/mo, what's going to happen to your readership once the fiver is no longer enough to keep the lights on, and you have to accelerate to a more eye-raising $10/mo? Speaking for myself, I'd expect the quality to improve as well, even if mathematically it is simply a cost-of-doing-business increase.

Price-Quality balance will never be perfect

Part of the reason there are so many "content"-related subscriptions is because the market for paid writing is seemingly shrinking every year as more and more publications are slashing payments to long-form writers. Substack claims to be a safe harbour for writers to hang their own shingle, but is a poor replacement for the loss of on-commission writing as it forces writers to also become "publishers". Quality suffers as a result. Filler and bloat begin to appear in their work as they try to stick to a "content calendar".

Why do all writers have to go with Substack anyway, and have their presence disappear beneath the weight of the publishing behemoths that dominate much of its business? The big reason is that the economics of making micropayments online (for amounts of $0.01 to $10) remains unfeasible.

You as a sole proprietor may be able to set up your own website, but if you want to accept payments, you will have to route them through some faceless behemoth such as Paypal and Stripe. They do the nasty work of dealing with Mastercard and Visa, but your customer's money goes to them first, not you. Paypal and Stripe can withold payments if any part of your business fails a compliance check and that can happen at any time. In that kind of climate, it makes sense for writers to shift the risk to a company like Substack (for a cut of your revenue) that probably has a better relationship with payment processors than you do.

Why can't I buy just one thing?

Even if you were able to set up your own shop and handle payments, you'd still be paying 3% plus a flat charge of $0.30 on every transaction. If you want to sell a short story for $2, your processing fee will be $0.32, or 8.3% of the price. If you've ever wondered why E-books are barely cheaper than paperbacks, the transaction fee is partially why.

Substack won't deal with these low-tier prices either, which is why the minimum paid tier they offer is the notorious $5/mo. It's this ongoing processing costs that have also accelerated the push for subscriptions and away from one-time purchases.

When we make purchasing decisions, we usually don't "subscribe" first unless it's an essential service like electricity or a phone plan. With everything else, like a phone or a restaurant, it's usually on a one-time payment basis, with subscriptions (continuing business) occurring if the offering is determined to be delivering sustained value.

What's my threshold for subscribing to a one-person business?

Maybe it's just me. Maybe I don't want to admit that there's a human being behind every business, likely an underpaid one. Perhaps I can't expect every interaction to be emotionless and transactional in the way most professional businesses are. But the catch-22 for me seems to be something along the lines of "If you don't do this professionally, do I want to buy from you?"

This is where it gets tricky for me; I'm happy to do one-time buys, but a subscription needs to pass a trust test. Once, I purchased a USB Digital-to-Audio converter (DAC) from a home-based business. There were commercial options available, but I liked the fairly chintzy marketing page on Ebay for the home seller promising a high quality, no-fluff product, and was pleased with it once it arrived. I bought it on a one-time basis for $50. There was no expectation of a continuance of our commercial relationshship.

That's where the difference lies in today's patronage model. You're not just paying for the delivery of a product, you're paying to support someone's work. You're showing appreciation. And that makes the actual pricing less useful as a signal for quality and regularity. You're acknowledging the reality that this is a one-person business that could end at any moment.

The problem for me has been balancing that desire for supporting human endeavour with the mental tax of managing a growing list of micro-subscriptions that keep billing me in the background whether I use them or not. I'm very much of the "out of sight, out of mind" type of person. It's entirely possible that I will forget about a service I use unless it's repeatedly visible to me.

Substack's attempted to address this with a native mobile app that presumably makes it easier to keep your subscriptions and reading in one place. But using that would put me in a position where I'm in Substack's moat; you see, unlike an RSS app that lets you subscribe to anything with an RSS feed, the official Substack app will only let you access newsletters on Substack.