Emergent Business Networks

There is a fundamental flaw in the Substack power law business model December 8, 2021

Posted by Bernard Lunn in Uncategorized.
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The fundamental flaw is that sovereign writers who make it to the top of the power law can easily switch from Substack to Stripe. If you already know something about online media paywalls & data barter economics, power law & sovereign writers, Substack & Stripe, algos and attention hacking, …that is your TLDR summary. If not, read on while I break it down for you.

I am a media entrepreneur who chose to focus on one niche – Fintech. So I am qualified to write about this subject. 

Online media paywalls & data barter economics

If you increasingly hit paywalls as you look for information, you are seeing how the concentration of media power in a few behemoths like Google and Facebook is impacting all of of us. They set the price of advertising and we all give them content. 

That is why I  replace the word “content” with “information”. Content implies fodder for the behemoth’s ad beast and implies that it is not worth much. By contrast, “information” implies something valuable. 

Media behemoths like Google and Facebook get free content. As Gillian Tett at FT tells us, this is a form of barter economics; we give our data in return for free information. 

Power law & sovereign writers

I believe the term sovereign writer was coined by Ben Thompson of Strachery who certainly qualifies as a sovereign writer. My definition is that a sovereign writer is a brand in their own right that sits atop a power law graph  and does not need work for big media brand (which has to pay them well to keep them).

They can easily switch to Stripe and cut out Substack’s 10% fee.

Substack & Stripe.  

Sub-stack enables writers to sell subscriptions, taking a 10% cut for their business plus another 3% via Stripe to credit card networks.

Stripe manages credit card payments for your site. It is easy enough to use and integrates with blogging, newsletter and subscription management tools.

Substack makes their money (quite a lot, it is a successful business) from millions who individually sell very little but in aggregate sell a lot (a million writers who each make $100 per year is $10m in revenue to Substack). 

Here is the problem. Those million writers in the long tail of the power law may only make $100 per year but they aspire to make $1m per year. Substack points them to those sovereign writers. If those sovereign writers ditch Substack and use Stripe directly, Substack revenue takes two hits

• they lose the revenue of the sovereign writers who leave Substack and that can add up – 100 sovereign writers making $1m pa is the same as 1m writers making $100 pa.

• They lose some of the long tail aspiring writers who see the sovereign writers (who they aspire to be) leaving Substack.

They are trying to stem this tide with Substack Pro, by making advance payments (as much as $250,000) which they recoup by charging 15% up to a defined amount and then their take is down to 10% again).

Algos and attention hacking

So what Substack needs to do is deliver attention from people who will buy a subscription which they are trying to do with their leaderboards, but their algos will have to beat  Google and Facebook who are masters at this game.  

Maaxi taxi sharing could be real competition for Uber September 30, 2014

Posted by Bernard Lunn in Uncategorized.
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I love free market competition, but something about Uber makes me queasy.

It is not the bare knuckles competition against Lyft. That is just how the game is played. Asking Uber to be more gentle on Lyft would be like the prop in a rugby scrum being told he should be gentle on his opposite number. Break the rules and the ref will call you out, but otherwise it’s ok.

What makes me queasy is the implicit assumption that the customer is King, Queen, Judge and Executioner.

We are all producers before we are consumers. If we are not producers, we have no money to be consumers (leaving alone for now the twin poles of trust fund inheritors and welfare recipients).

So the consumer King must be balanced with the producer Queen.

When producers who have been protected by regulation call “no fair” I am unsympathetic. Producers need to face competition head on. Regulating Uber out of the game is no answer.

That is why the Maaxi launch today caught my eye. This story has three pieces you don’t normally see together:

1. A “red in tooth and claw” capitalist (Nate Rothschild).

2. The legacy protected producer (Black Cab drivers in London).

3. A disruptive proposition. This is disrupting the disrupters. The proposition is to share a ride with somebody going the same way. Given how expensive taxis are in London, this is a big deal.

Tube/Subway fares have risen as well. I read this on a Tube ride costing me nearly $5. If three of us shared a taxi costing $15….

I am rooting for Maaxi.

The Content Quality Dilemma in the Media Business July 28, 2014

Posted by Bernard Lunn in Uncategorized.
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Software is eating the world….one bite at the time. Are you Softzilla or are you Softzilla’s lunch?

The first bite was the media business. I was there when it happened. It hurt.

Softzilla (my shorthand for software, digitization, mobile, big data, etc etc) first bit into the print business. At the time I was running a startup that saw this coming and was helping traditional media firms to restructure, take out costs and become “online-first” firms.

In the print to online transformation, the mantra was that “$1 of print revenue becomes 10c of online revenue.” So, yes, you had to make the transformation, staying in print only was certain death, but you had to cut costs (translation: fire lots of people) to go online. Everybody had read Innovator’s Dilemma; it was obvious what had to be done. Online, with tose 10c of revenue, you could not afford lots of editors and people doing fact checking and research. So you cut into the muscle and fired the people who ensured that content was high quality, those well-paid journalists and editors, fact checkers etc. The content quality then, predictably, suffered and the audience clicked away.

Cut too slowly and you died fast. Cut too fast and you died slowly. This is what I call the Content Quality Dilemma.

The next startup was smaller but better known; it was ReadWriteWeb (now ReadWrite) where I was COO in 2009.

There was no Innovator’s Dilemma in ReadWrite. This was a pure-play online venture with low overheads (a global team all working remotely). However the dilemma was the same – how do you make enough money to pay for quality content?

In ReadWrite my COO job translated to a simple mission – sell enough advertising so that writers could get paid. That was where I saw the Content Quality Dilemma up close and personal.

The problem is very simple. It is that giant software only media firms like Google and Facebook set the rates for online advertising and with their scale and 100% automation (no messy journalists, editors and fact checkers who want to get paid) they can make huge profits on very low advertising rates. Those ad rates are too low to pay for lots of good journalists, editors and fact checkers.

In the tech blogging space it is easy to run this as an experiment. Take 15 days on a post with serious investigative journalism and analysis. Then take 15 minutes to dash off a post about a celebrity and use some pop-tech angle to make it tech relevant (the story is that the celebrity did something on Twitter or Facebook). The return on investment on that 15-minute post was stratospheric and the quality post was a financial disaster. Rupert Murdoch, when interviewed for this article, remarked, “what’s new buddy?”

This is now well understood. We are at the bottom of the Slough of Despond in the Media Business. It’s not just the old pre web firms, it’s also the early web firms; look at the share price and derision hurled at AOL and Yahoo. They are both run by super-smart, driven CEOs who had big success at Google, but they are “rolling a rock up a hill”.

Most of the entrepreneurs who got early into the blogging game already exited, took the cash and left the owners figuring out how to climb up to the Plateau of Productivity – which some of them will do. There is a demand for Quality Content. The only job is figuring out how to get paid properly for Quality Content.

If you work as a journalist or editor, you have probably seen that Content Marketing is where the jobs are headed. In other words, you work directly for the advertisers, cutting out those intermediaries (aka Media firms) with their old fashioned rules about Church vs State (aka Editorial vs Advertising). However what about the folks who are running Media Firms? How do they create both quality content and quality profits?

I decided to look at who is making quality content as well as quality profits. In those stories might be clues to show how to climb up that tough slope to the Plateau of Productivity (to see which of these are replicable and scalable).

• Wired. This is one for irony aficionados, a glossy and profitable print magazine for the folks helping Softzilla to eat the world. My takeaway, we all need a pixel break, but I don’t expect many media firms to be able to emulate this. It has to be really, really good (and that costs money) and consumers only want one in their chosen domain. Not easily replicable, could translate to a few other domains.

 

• AVC. This is Fred Wilson’s blog (he is a top tier VC). The content is daily and it is great. The takeaway, first make sure you are a good host to your community and then find a way other than advertising to make money. Not easily replicable.

 

• Techmeme. Gabe Rivera bootstrapped a profitable online media business by first using Softzilla to find content and then hiring some old fashioned humans to help filter out the junk and float the good stuff to the top. I assume he tweaks his code to learn from what the humans do. This 95% code and 5% human model might be a mainstream model. Possibly replicable.

 

• Bloggers Selling Expertise. Why do smart people blog/write for free? It is the same reason that smart developers contribute to open source – their fee rate and utilization goes up because customers can see how smart they are. The economics of blogging for attention are simple. This is powering lots of tiny micro-multinationals in lots of niche markets. Possibly replicable.

 

• Financial Time and Wall Street Journal with Paywalls. It works for them because “time is money” for their readers. I don’t see this as a mainstream strategy, because only the best of the best can get away with a paywall. Not easily replicable but has to be part of the solution.

 

• Vice Media. They started as an underground low cost fanzine type of operation and have over time built a valuable business that had Rupert Murdoch swinging by with his checkbook. The model seems to be lots of stringers out where the news is being made plus a few editors back at base. It’s an old model re-enabled by mobile technology (the stringer is no longer waiting in line for the telex machine in the lobby of the hotel). Possibly replicable, but needs skill, style and technology.

There are a few experiments with peer rating rather than popular rating. Popular rating is simple Page Views, the currency of the web that is controlled by Google and Facebook, it’s a game you cannot win. The two experiments with peer rating are Reddit and Hacker News. It is too early to see how these experiments turn out because neither has yet tried seriously to monetize their audience. If they adopt a mass-market page view strategy, their audience will click away and we will be writing Myspace like epitaphs.

However if they can find a way to charge based on influence rather than views they will show the way to lots of other media firms. This could be the yellow brick road for media. Recall that tech blog experiment:

“Take 15 days on a post with serious investigative journalism and analysis. Then take 15 minutes to dash off a post about a celebrity and use some pop-tech angle to make it tech relevant (they did something on Twitter or Facebook). The return on investment on that 15 minute post was stratospheric and the quality post was a financial disaster.”

Let’s say the 15 minute post got 100,000 page views and the 15 day post got 100 views. Case closed? No, not if 10 of those 100 views were partners in VC funds controlling $10 billion in aggregate funds and another 10 were CXO level in enterprises controlling $10 billion in aggregate budgets. How on earth do you monetize that without seriously invading privacy? If you have that one figured out, please contact me so that we can become disgustingly rich.

When Did Big Data Become Data Science And Does Anybody Care? July 26, 2014

Posted by Bernard Lunn in Uncategorized.
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I promise to keep this brief, it’s just an out take from another post I am working on. I have stopped seeing pitches for Big Data. They are now pitches for Data Science. Ho, hum, what’s the game? I think it is simply the realization that the “Big Data” roller-coaster is careening down towards the Slough of Despond. So you want to re-name it. 

I think Big Data is an enabler for Mobile, which is a real disruptive wave of change. Unless Big Data is delivered within context to what consumers need right now, it is just another “digital land-fill”. This will need major innovation at the mobile UX layer and at the back end computer science layer. 

 

My SAAS Writing on ReadWrite May 27, 2014

Posted by Bernard Lunn in Uncategorized.
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I wrote a lot about SAAS on ReadWrite, this is just me being a diligent digital archivist of my own work. I trust WordPress to always be here in some form and to always let me be in control, so no reason not to archive here. Some posts are like looking at bad fashion pics, “you had to be there at the time” in order not be too embarrassed now. Some are keepers IMHO.

 

30 second view on #flashboys April 1, 2014

Posted by Bernard Lunn in Uncategorized.
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Only from reading an online excerpt – and many years selling tech to Wall Street:

1. Rollicking good yarn, reads well (as always with Lewis).

2. Front running should be illegal no matter how it is done. For some bizarre reason front running using HFT tech is not illegal today. This book may help change that.

3. HFT kills day traders but is only minor loss for long term investors. Don’t think Buffet is worried by this.

4. Consumer loss of confidence in markets due to perception that they are rigged is the big issue, undermines a free enterprise society.

The Mobile Capability Maturity Model February 4, 2014

Posted by Bernard Lunn in Uncategorized.
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I like being out and about, dislike being chained to a desk so my iPhone is my primary work tool. My laptop is relegated to those things I cannot do properly on an iPhone (eg word processing and spreadsheets).

So I look at any productivity app through the lens of “how good is it on mobile?” I see three levels:

1. The Old Baseline is notification and reply by email. These are systems that somebody else chooses and I participate in the minimum possible.

2. An app that lets you do your daily tasks on a mobile device but which forces you to a browser to configure and set it up. This is the Modern Baseline.

3. An app that gets you configured and running in minutes all on a phone, no harder than a consumer app like Instagram. Trello is like this. This is competitive advantage today and will soon be baseline.

Pivots are usually for consumer ventures. This is what I learned leading an enterprise software pivot November 22, 2013

Posted by Bernard Lunn in Uncategorized.
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The company had built a product for a market that evaporated after we had made a few big sales. I was given the job of finding another market. We had a great product that I could position as a framework, some superb developers and a management team committed to going the extra mile for clients (because company survival depended on them being happy).

All I needed were some problems to solve that were relevant to the technology we had.

A wise fellow suggested I go to the City of London as they have lots of money and lots of problems. That is still true today.

It worked. We found a market, closed a few deals to establish credibility in that market and rebuilt the company around that market.

I started with the usual “what keeps you up at night?” line of questioning. Through this I stumbled on a “blue ocean” market that was just emerging (blue ocean means that no other vendors were targetting the market, as the market did not yet exist, but a simple trend analysis indicated to me that a big market would emerge and it did).

I learned three things from this:

1. The technical killer feature was not what we all thought it would be. I came back from the first meeting a bit despondent, because the problem that the client had – which he had freely admitted was very difficult to solve as per all the tech advice he was getting – was not the problem that I had thought best suited to our platform. I was dejectdly chatting about this with one of the developers and he said “oh, that would be easy”. As the client had told me that he considered it tough to solve, once I had a solution the sale was relatively easy.

2. Once means nothing, twice is coincidence, three times is a trend. The first sale just showed what we could do technically. The market did not yet exist – it was only a gleam in the eye for a few people. So we simply delivered a custom project using our framework. The second sale was closer to the market that was emerging. Also on the second sale we turned it into something more like a product, by the usual productization techniques. The client was recognised as an innovator – “a name to conjure with”. Yet we still needed the third client, a more mainstream one, to prove to the market (which was starting to be perceived as a market) that we had a product. Also on the third deal/project we knew enough and were confident enough to really create a product. Then we launched and scaled from 3 clients to 30.

3. When you hit the mother lode, throway the pickaxe and find the money to get a backhoe. This was where we went wrong. We were a boostrapped company. We did OK, became #2 in a good market, got acquired. We scaled from 3 to 30 clients, even the next 10x to 300; but we stumbled at the next 10x. This is where today in America you get calls from Growth Equity Funds. This was in Europe and before Growth Equity was mainstream. We might have been first in the market, but another venture saw the big picture opportunity and seized it (they are now a multi-$billion public company).

Its harder today. There are lots of software ventures with sophisticated frameworks and great developers. The key is still the same – find a problem to solve in a blue ocean market, get three customers ready to rave about you, then scale to meet the opportunity.