Substack SWOT Analysis: A Real-World Example
Some of my readers reached out and asked for a real-world example of a SWOT analysis. I picked a company I have a lot of admiration for: Substack. Besides their mission...
Intro
Some of my readers reached out and asked for a real-world example of a SWOT analysis. I picked a company I have a lot of admiration for: Substack. Besides their mission, they were an obvious choice since I am using their product for this blog. I don't know much about the Newsletter space. I have been in the Web CMS and Digital Transformation space for years which definitely helps.
Important disclaimer: this is a quick and dirty SWOT analysis (~2 hours research). I will probably get it 80% wrong but the point is to illustrate how this works. I had to make tons of assumptions and lacked business data. Finally, if you work at Substack, don't get offended if you disagree. It's so much easier for an outsider to do an analysis than actually running the show. Keep the great work!
Understanding the Newsletter Market's Competitive Landscape
Here's my approach. First, I learned about Substack and their business. Then, I researched competitors. This helped me get a feel for their strengths and weaknesses. I used a mixed of Google and Youtube keyword searches. I focused on independent reviews of existing users or SMEs -no ChatGPT. I also skimmed through competitors' website to understand their offering and Go-To-Market.
My direct vs indirect competitor analysis landed me here:
Direct Competitors: Medium and Ghost seem to be the de-facto competitors. They have newsletter, blogging, and monetization capabilities. Squarespace is another candidate. There is a bunch of niche players. It is good practice to track those and see if they are growing, raising more money, or acquired.
Indirect Competitors:
Social Platforms: this includes UGC platforms such as Facebook, Instagram, Twitter. They offer blogging and newsletter capabilities to make their offering stickier. It neutralizes newcomers like Substack. Interestingly, Substack (still) lists Bulletin and Revue as direct competitors. Facebook recently killed Bulletin; Twitter did the same with Revue.
Monetization Experts: Patreon is the most renown of them with a high brand equity in the US. Such solutions focus on monetization and to an extend community building. Writers use these solutions to monetize content and build a follower base. This approach let them stay on their publishing platform of choice.
Marketing specialists: this includes email marketing providers like Mailchimp, Constant Contact, and Hubspot. They attract small to mid-sizes businesses. Their solution is richer and their platform more mature
Medium: a strong player in the lower end of the market
Medium built a strong brand. They differentiate with a revenue sharing model based on readership. Curators review and approve new content. Medium does not target business owners who want to monetize their content and make a living out of it. Medium caters to "occasional writers" who enjoy writing and welcome the extra income. They won't attract high potential earners. Medium's brand is strong and represents a threat to Substack in the lowest tiers.
Ghost.org: the better version of WordPress
Ghost has a unique set of characteristics. They would fit the "visionaries" quadrant in a Forrester or Gartner analysis. I put Ghost in the strong competitor category. That's why I spent thirty minutes researching Ghost.
So what's unique about Ghost?
First, Ghost is setup as a non-profit which means they does not have to answer to private investors. No one can acquire them. It is realrisk for startups like Substack.
Second, their core values stand out! They stand for free publishing. You can sense the pride in their mission. Check out their About Us page. It is telling about their organization, values and leadership style!
Third, they are open source and built on node.js. Node.js, is an open source Javascript runtime environment. It delivers performance, scalability, and low latency. Medium uses node.js.
Fourth, their feature set is ahead of Substack. They have site templates, OOTB integrations, and paid add-ons through their marketplace. Their GTM is broader than Substack (better or worst?). They focus on four personas: creators, publishers, business, developers.
Ghost is a $5.6M ARR business and has 3.1M installs; my guess is that 10% to 20% are active (300K to 600K sites). Ghost has the potential to displace Wordpress. As they attract more developers. their open-source platform and marketplace grow. With the right execution, that thing could go as a rocket ship and be impossible to stop!
One downside is that Ghost cannot buy their growth (raise VC money) and do it 100% in an organic fashion. Wordpress pull that one in slow motion. Nowadays the pace of innovation is much faster. Can Ghost reach critical mass fast enough before the nex gen of disruptors?
Substack's secret sauce
Why would a writer choose Substack when they can go with Medium or Ghost?
Substack is a disruptor. Back in 2017, they made a bold bet on paid newsletters. At that time, the publishing industry had moved to free ad-sponsored models. Substack enables writers to earn money for their creative work. This benefits readers who can access high quality (ad-free) content. Their go-to-market is laser focused on writers publishing newsletters.
Substack addresses the ever-growing demand for authentic and uncensored content. Substack protects freedom of speech sets. This sets tehm apart from social media platforms and mainstream news publications.
To start my blog, I looked at Wordpress hosted solutions on Dreamhost, Medium, and Substack. Ghost did not appear in my research (low brand recognition). I chose Substack for two reasons: ease of use, their support to small independant writers. I became a reader over a year ago and subscribed to several of their paid newsletters. The quality of articles is hard to find elsewhere.
Substack is a logical choice for unknown writers seeking to monetize their content. Writers are not marketers. They do not have the time and skills to market their brand. Writers are better off growing their business on the back of Substack large network.
Substack is like a knowledge marketplace with suppliers (writers) and buyers (readers). They receipe for success is simple. Bring more writers. Attract more readers. Convert them in paid subscribers. The network effects can be quite powerful.
I also like to compare their business to a franchise model. The franchise (Substack) provides tools and services to the franchisee (writer). They develop the brand and drive demand for franchisees. In return, the franchisee sells his service using the franchise's tools and pays a fee on each sale.
SWOT Analysis
I covered SWOT analysis in this article. I recommend you start with a small team of SMEs. Ask each member to draft a SWOT. Then meet to review everyone's draft. Write a competitive analysis to understand external forces.
For this exercise, I completed the SWOT analysis alone. I asked myself this question: how can Substack become a world leader and build moat for its business?
Strengths
Without access to key financial and product metrics, I had to make tons of assumptions.
Easy To Start - Substack is easy and fast to adopt for individuals with no technical skills. You can publish in minutes! Their platform hides the complexity of publishing content and managing a website.
Monetization - writers can start monetizing their work in minutes. The pricing model is clear and transparent. They take 10% of subscribers revenue, credit card fees are on top. This aligns incentives between writers and Substack. Both get paid with new subscribers.
Brand Recognition - their brand is strong in the US and I suppose English speaking countries. Substack attracted big names over the years that helped promote their brand. This is no small fate for a startup. Kudos to them!
Trust - the biggest risk for independent writers is censorship and de-platforming. Substack respects freedom of speech (see content guidelines). They provide legal advice if needed through Substack Defender. This creates long-term trust with writers and readers.
Weaknesses
Product Maturity - the editor is basic and it lacks common formatting features. I found the search, analytics, and SEO subpar. . All Substack sites look the same. It may be problematic in the long-run. Can (Should) writers build their brand on the back of Substack? It is like Adidas selling shoes under the "Amazon" brand.
Lag Behind Competition - Substack has no extensions or integrations. analytics, user segmentation, referral programs, simple commerce, paid content. Competitors like Ghost and Squarespace offer richer publishing platforms. Their markeplace offers templates and extensions. (Perceived) low switching costs may entice top earners to switch to the competition.
"Writer fatigue" Syndrome - Great content attracts readers that convert to paid subscribers. Because subscribers pay monthly, they expect a constant stream of quality content. This is hard in the long run. Only the best (top 5%?) can do it. This requires to work full-time. It is possible Substack's growth plateau. Tiers-2 writers may experience "writer fatigue" syndrome leading to slower growth and attrition.
Organic Growth - Substack's growth and brand recognition has been mostly organic. The next phase may prove harder. Social platforms like Facebook or Twitter built viral growth mechanisms. The Substack model is different. A small percentage of their audience converts into paying subscribers. Even less turn into multi-subscribers (more than one subscription). Can they attract and retain writers at a low WAC (Writer Acquisition Cost)?
Opportunities
Product Maturity - Product maturity will lower attrition and increase conversion. There is room to enhance existing capabilities (editor, search, publishing workflow). Innovation (templates, extensions, analytics, SEO) is key to unlock growth.
Revenue Growth - Kudos to Substack for launching Substack pledge and Recommend a Writer. More growth opportunities exist. Offer new tools or services: landing page, discount and promo, referral program. Develop new monetization for other content types: podcast, videos , gated content. Consider a pay-per-view model. While tricky to position, it help monetize the long-tail and neutralize Medium. International expansion is a no-brainer. Start with English speaking countries.
Global Brand Recognition - Substack is so much more than a newsletter platform. It is one of the few place left on the web that respects freedom of speech. Traditional media networks are cratering. This is a unique opportunity to position Substack as a destination platform. Substack should expand internationally. The brand name does not translate well in other languages. They need to rebrand if they wish to penetrate non-English speaking countries. There is a R&D cost to add localization support.
Substack Community - Substack is a constellation of private spaces. There is no destination for writers and subscribers to exchange. Why not launch a Substack community? It can bring together writers and readers in a vibrant and engaging space. It will boost brand awareness, promote writers, content discovery, etc.
Threats
Pure-play Competitors - Media is another destination place that attracts casual writers. Media competes with Substack in the long-tail segment. Substack leads in the "top writers" (tiers-1) segment. Website builder competition is strong with the likes of Wordpress, Ghost, and Squarespace. Their offering is more mature. They offer more monetization streams. Their monthly pricing is cheaper for wrtiers with many subscribers. With low-switching costs, this is a real threat
Social Platforms - Facebook and Twitter acquired a Substack competitor and killed it. They can decide to acquire a pure-player in the newsletter industry at anytime. Imagine they go all-in against Substack, start a price war, and tap into their large installed base. Brand recognition (and fidelity) is key. Sooner than later Substack will have to differentiate itself.
Margin Pressure -it is only natural that the Newsletter industry consolidates over time. As such, the top players may enter in a price war, putting pressure on Substack's 10% gross margin. Ghost is already positioning their offering as a cheaper alternative.
Black Swan Event - the story goes like this. John Doe publishes a controversial article on Substack. It becomes "drama du jours" and pressure on social media mounts. Substack refuses to censure. Substack's infrastructure provider cuts the plug (or update their Terms of Use). Or, investors force Substack's CEO to sell to Google/Facebook/whoever and the game is over.
Conclusion
That SWOT analysis got us thinking a bit, don't you think (pun intended)?
By now, I hope you see the benefits your organization can reap from a SWOT analysis. Writing a short paragraph for each SWOT element is useful. It lets you share high-level context to key stakeholders. I did not bother doing a TWOS analysis but I would recommend doing it.
Usually, you also want to get hard data to back your assumptions -my analysis is full of them. Most of us will do a good job at assessing internal forces. Give extra-consideration to the external forces. You will not regret in the long run.
I learned a lot through this exercise. My view on Substack evolved. They are in the business of helping content creators to make a living. The Newsletter paradigm is phase 1 in their evolution.
If you took me up on the SWOT analysis challenge, share yours in the comment section!