Advertisements Emerge on Substack's 'Ad-Free' Newsletter Ecosystem
In recent months, Substack, a newsletter platform whose appeal stems in part from its promise of an advertising-free ecosystem, has watched d.i.y. advertisements slowly find their way onto dozens of its most prominent newsletters, from Delia Cai's classifieds section to Packy McCormack's sponsorship deals.
To capitalize on the trend, a number of startups have emerged that help pair independent newsletters with interested advertisers, a development that presents a potential source of revenue for writers but could force the subscription-based Substack to respond to the phenomenon.
The founders of Substack have been vocal about their opposition to advertising since they launched the platform. On its website, the company describes how it makes money, saying: "Substack takes a 10% fee on all paid subscriptions. Substack will never run ads or sell user data."
Not only does Substack stake part of its identity in its eschewal of advertising, its business model relies on the decision. Substack subsidizes the cost of providing its free newsletter services by taking a 10% cut of the revenue it generates from its paid newsletters. An outbreak of advertising on its free newsletters could threaten that model if a significant chunk of newsletter writers choose to ignore the subscription component.
If users can make money without turning on their paywall, then they get free hosting and generate revenue. As an isolated event, advertising on Substack is no big deal. But if it becomes ubiquitous, the funding model of the platform could be at risk, forcing Substack to either clamp down on this cottage industry or embrace it. Substack could incorporate advertising into its product, but doing so would contradict the platform's commitment to remaining ad-free.
Because Substack has done neither, a number of startups are seizing the opportunity.
Swapstack, a small company that connects newsletter writers with brands looking to advertise with them, hopes to take advantage of Substack's inaction. Upstart.me and Letterwell, similar platforms based in Amsterdam and London, respectively, also promise to pair independent newsletters with interested advertisers, giving writers and brands even more options for connecting through email.
It's free real estate
The founders of Swapstack, Jake Schonberger and Jake Singer, originally hatched the idea as a form of audience sharing: You promote my newsletter in your newsletter, and I'll promote yours in mine. Hence, swapping Substacks.
But the concept quickly morphed, as the Facebook and Amazon alumni discovered an untapped desire from newsletter writers to find advertisers for their writing.
"We realized that writers with a smaller subscriber base — a couple hundred or maybe a thousand — when they started thinking about monetization, it didn't necessarily make sense to turn on a subscription model," Schonberger said. "Whereas at that same point, if you place an advertisement, you could make $200 a week."
Compared to erecting a paywall, which slows newsletter growth and limits readership, some newsletter writers are open to advertising because it allows them to grow quickly and monetize without asking readers for money.
Newsletter authors like Mary Retta, who writes the newsletter "close but not quite," also want their writing to be accessible to all readers, regardless of their ability to pay.
"A lot of the people who subscribe to my newsletter are younger, students, POC, or low-income, and it didn't feel right to put up barriers that would prevent people who otherwise would like to keep up with my work from reading," Retta said.
To meet this need, Schonberger and Singer set up a landing page, which directs interested parties to a Slack workspace where members chat and connect with potential sponsors in the #advertisers channel. There, Schonberger announces every new advertiser the duo lands, listing the company name and a brief bio, as well as its minimum number of subscribers (typically 1,000), budget, and preferred type of newsletter subject matter.
The advertisers, many of which are startups themselves, get an affordable vehicle for reaching a targeted, engaged group of readers. Because newsletters subscribers have opted in to reading an email, their attention can be valuable and cost effective, especially for startups whose marketing budgets are tight.
"People spend minutes with the content versus seconds," Schonberger said. "If you can get in front of people that actually care about the type of stuff that your brand is building, that's valuable."
Authors of newsletters that meet the brand's requirements can fill out a brief form describing their product; if the brand is interested, the two are connected and can begin hashing out the details of their agreement. When they have reached an agreement, the advertiser pays the newsletter writer — through Venmo or CashApp, at the moment — then sends over the necessary materials and the deal goes live.
Schonberger and Singer plan to make money by taking a percentage of this deal, less than 10% they say, though they haven't taken any cuts yet. The two are working to launch a standalone platform for their business, which will help them more easily take a percentage of the deals and streamline the process. So far, Swapstack has facilitated 38 deals and generated roughly $5,700 in total, according to documents reviewed by Insider.
Alex Cervasio, a digital consultant who runs the newsletter The Daily Coach, discovered Swapstack late last year. Since then, he has signed deals to sponsor six editions of Sunday Thinking, a weekly column of his newsletter, for between $125 and $600 per post, according to documents reviewed by Insider. Cervasio, whose newsletter has more than 25,000 subscribers, says that the main value that Swapstack provides is the connection to interested advertisers.
"The biggest issue for me — for any creator, really — is just finding the point of contact for these companies that are willing to sponsor or advertising emails," Cervasio said.
Anum Hussain, a Hubspot alumna whose newsletter Below the Fold has more than 8,000 subscribers, said that the advertiser sourcing that Swapstack does saves her time cold emailing potential sponsors.
"There are so many potential sponsors out there, so having a vetting system that allows you to be easily introduced to them takes a lot off my plate," said Hussain.
The ad rush
Other platforms like Letterwell and Upstart.me are also hoping to turn independent newsletter advertising into a business.
Whereas Swapstack is little more than a Slack channel and a dream at the moment, Letterwell and Upstart.me both have fully developed platforms that connect advertisers and newsletter writers.
Letterwell has more than 290 newsletters on its site and has helped connect "thousands" of brands and newsletters, according to founder Sohum Shah. The platform caters to smaller newsletters and plans to launch as a programmatic advertising platform for email newsletters in the coming months.
"Think of Google Adsense or Facebook Ads but for email newsletters," Shah said. "We're essentially automating the whole advertising process, allowing advertisers to buy a specific number of views in an email newsletter campaign."
Upstart.me, which was founded by Karim Amrani, has 2,500 advertisers and 110 newsletters on its platform, according to documents reviewed by Insider. Amrani said that the site is not an ad platform and that it won't take a percentage of revenue. It will, however, offer newsletters "pro" options that allow them to pay for promotion on the website.
"Upstart.me is like a community pinboard that connects advertisers with newsletters," Amrani said.
Both allow newsletter writers to submit their products for inclusion on the platform, free of charge, and Letterwell already has a number of high-profile clients on its roster, including Scott's Cheap Flights, a popular newsletter with 1.8 million subscribers.
Pain points
On Swapstack, Upstart.me, and Letterwell, advertisers all clamored for newsletters that dealt with finance, investing, venture capital, or related industries. These newsletters are more likely to have affluent readerships who are keen to spend money, which makes them more valuable than the readers of, say, a cultural newsletter.
Other problems abound: Key metrics in the world of digital advertising, such as clickthrough rates, must be tracked manually. The specifics of the deals, such as price, duration, and creative, must be haggled out, which can put those unfamiliar with digital marketing practices at a disadvantage.
On a more existential level, all three startups must reckon with the fact that their business strategy is at odds with the ethos and financial model of Substack. If these services prove popular and free Substack users increasingly choose to use ads rather than subscriptions, they could force Substack into action.
The founders could renege on their promise to keep Substack an ad-free ecosystem, an enticing option for investors who might see Substack's disavowal of advertising as leaving money on the table. Or they could keep their commitment to an ad-free platform by either barring third-party advertising services or letting them continue unabated, a decision that could potentially hurt their business.
The possibility also exists that Substack could solve this problem by charging newsletter writers to use their platform, rather than offer their software for free. Other newsletter platforms, such as Revue, Ghost, and Mailchimp, cost anywhere from $5 to $300 a month and let users choose whether or not they want to run ads.
Nonetheless, the emergence of advertising in Substack's ad-free ecosystem raises intriguing questions about the future of the platform and of the newsletter boom more broadly. If the writers want ads, but the founders want subscriptions, who wins?
"Our goal," said Swapstack cofounder Singer, "is just to make it easy for people to do something that they are already doing."
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