'Ad models break everyone's brains': How Patreon and Substack are trying to make the internet a better place with membership and subscriptions

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Email newsletter platform Substack wants to provide a high quality alternative to social media, and is following the success of Patreon's subscription model.

• For digital creators, Patreon and Substack provide an alternative model to making money on the internet.
• Both platforms allow users to pay monthly fees to support their favorite artists, writers, podcasters, and gamers through subscriptions and membership - as opposed to relying on the ad-based revenue model from larger social media platforms.
• As larger platforms become overrun with toxicity and spam, and because ad revenue is dependent on engagement and virality, some creators and users are turning to Patreon and Substack for a healthier, more sustainable internet experience.

Last year, Facebook made $55 billion in advertising revenue - about 98% of its total revenue. Most social media platforms generate a vast majority of their revenue from advertising and decide to keep their service free. But free isn't always better.

The advertising model relies on engagement, and in recent years, this relationship has proved problematic. Research has shown that many of these platforms are designed to facilitate addiction and are potentially unhealthy. They can amplify hate speech and have been criticized for struggling to curb harassment and abuse.

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Or, as Substack cofounder Hamish McKenzie puts it, "Ad models break everyone's brains."

In 2017, McKenzie and Chris Best founded Substack to provide an alternative to the advertising model. They believed that internet users were overwhelmed with the sheer amount of content and disillusioned with the spam and toxicity on ad-based platforms, and would be willing to pay a small monthly fee for quality content and a healthier experience.

They also believed that creators, especially writers, needed to build a direct relationship with their audience and monetize their expertise. Many journalists had started their own email newsletters to build readership, and Substack provided the infrastructure for writers to launch newsletters and make money through user subscriptions.

Best and McKenzie said they quickly saw that when they changed the incentive structure - replacing quantity with quality, and free with paid - they created a new kind of online relationship between writers and their readers.

"Twitter tends to be full of vitriol, performative outrage, and confrontation, while people tell us that the response they get to email newsletters feels more personal, thoughtful, and lovely," Best told Business Insider. "You take away the incentive to be a jerk and you get a different kind of way to connect with your readers."

In July, Substack raised $15.7 million in Series A funding led by Andreessen Horowitz. With thousands of writers and more than 50,000 paying subscribers, both creators and users are proving their desire for an alternative to the ad-based online marketplace.

Following Patreon's success

Substack's subscription model was inspired by a company with a similar approach: Patreon.

Six years ago, Jack Conte and Sam Yam founded Patreon to give artists an opportunity to monetize smaller fan bases. On Patreon, users - called "Patrons" - buy into a membership by paying a monthly amount to access the creator's work along with special benefits and merchandise.

For creators like Heather McDonald, who funds her Juicy Scoop podcast through Patreon, the membership model provides a direct audience relationship and source of income.

"I'd rather have 4,000 patrons than 4 million Instagram followers," McDonald told Patreon. "On social media, there's always haters and trolls, but my patrons on Patreon are there for a reason: to support my work."

Today, there are more than 3 million patrons supporting some 100,000 creators on Patreon, and the membership platform has facilitated more than $1 billion paid to creators. Patreon recently raised $60 million in Series D funding - it's raised $166 million in total - and earned a spot on the Forbes 2019 billion-dollar startup list (its most recent valuation was $450 million in 2017).

Subscription-based models provide tremendous value for digital creators. But there is a reason the ad-based platforms are used more often.

Patreon and Substack are not discovery platforms. Wyatt Jenkins, Patreon's head of product, says that many creators ask for help growing an audience, but it's not what Patreon is built for. The membership model is geared toward sustaining loyal, niche groups - not scale or virality.

Creators will likely still need to rely on the ad-based platforms for reach, and for many, the prospect of going viral and gaining influence on Instagram or Twitter is more alluring than developing a smaller, dedicated fanbase. However, advertisers will always be the priority on these platforms. Patreon is looking to offer creators a sustainable business model.

"If I were talking to a 19-year-old YouTuber, I would say, 'Hey, you should have your distribution channels and get good at those,'" Jenkins told Business Insider. "But if you rely on those for monetization, it's going to be volatile … Always remember to take your top fans and have a membership that you work with. That's how you make a sustainable living."

Subscriptions, membership, and limitations

Digital content is less free than it once was. Subscriptions have grown across streaming and journalism, and most people are now accustomed to paying a few bucks a month for Spotify or Netflix, and maybe The New York Times or The Washington Post.

But is there a limit to how many subscriptions users are willing to pay for?

Best isn't too worried about subscription overload, and thinks Substack has a number of ways to creatively avoid the issue as it grows. For example, Substack could explore bundling similar writers together in a larger subscription package, not unlike a traditional Cable TV model, where users can access a wide range of content for one monthly price.

The free, ad-based model has been able to support an enormous amount of content, making social media an unparalleled platform for discovering creators and engaging with other users.

But the disadvantages of this model have also become clear, and Patreon and Substack believe there is a more sustainable way for digital creators to support themselves - and a healthier way for users to experience the internet.

"Everything I open on my phone is like a feed of shit that's just pummeling me. I don't know that human beings were designed to digest that much information," Jenkins said. "We've swung the pendulum so far in one direction with discovery platforms, and now I think the pendulum is swinging back."