How Substack Won Over the Internet | First Time Founders with Ed Elson

Episode Overview

• Explores the fundamental shift from the "Attention Economy" (ad-driven, distraction-focused) to the "Subscription Economy" (trust-driven, value-focused).
• Examines why current social media incentives inevitably create toxicity and how aligning platform revenue with creator revenue solves this.
• Discusses the "Parlor Trick" psychology of why people refuse to pay for abstract "news" but happily pay for specific individuals they trust.
• Analyzes the future of media in an AI world, predicting a "barbell" split between perfect algorithmic content and raw, authentic human connection.

Key Concepts

• The Shift from Institutional to Individual Trust Legacy media relied on the authority of institutions (e.g., The New York Times), but trust has collapsed. The internet shifted trust to individuals. Substack’s model capitalizes on this by allowing creators to monetize direct relationships. Readers are no longer paying for a brand logo; they are paying to support a specific voice that helps them understand the world.

• Incentive Structures Create "Heavens" or "Hells" The "hellscape" of modern social media (rage-bait, polarization, doom-scrolling) is not a result of flawed human nature, but of the advertising business model. When a platform sells attention, it must optimize for emotional agitation to keep users online. By flipping the model to direct subscriptions, the incentive changes to providing deep value and respecting the reader's time, proving that better business models can create healthier digital behaviors.

• The "Parlor Trick" of Payment Willingness There is a widespread misconception that people won't pay for online content. Chris Best debunks this with a "parlor trick": If asked if they will pay for "newsletters" in general, people say no. If asked if they would pay $5/month to ensure their favorite writer keeps working, they almost always say yes. Specificity and relationship are the keys to unlocking monetization.

• The "City" vs. The "Feed" Best conceptualizes Substack not as a publisher (which edits and curates) or a tool (which is passive), but as a "City." The platform provides infrastructure (roads, utilities, rights), but the culture is defined by the "neighborhoods" (writers/communities) that inhabit it. This allows for a cosmopolitan environment where opposing views exist in separate spaces, rather than a single algorithmic feed that forces conflict.

• The Authenticity Barbell against AI As AI becomes capable of generating "perfect" entertainment and stimulation ("wireheading"), the value of polished, generic content will drop to zero. This creates a "barbell" effect: one side is hyper-stimulated AI entertainment, and the other is raw, messy, verified human connection. Substack bets on the latter, where value is derived from the assurance that a real human is communicating with you.

• Owned vs. Rented Distribution Creators relying on ad-based platforms (X, TikTok, Instagram) are "renting" their audience. These platforms are incentivized to throttle links that send users away. True independence requires "owned" distribution (like an email list) where the platform has no incentive to block the relationship between the creator and the audience.

Quotes

• At 0:02:16 - "My model of this is... a technologically driven change. The internet came along and smashed a lot of the existing business models for media and culture... without necessarily replacing the economic engine." - Context: Framing the current media crisis as a structural economic issue rather than a cultural one.
• At 0:07:06 - "You can take the exact same set of people with the same strengths, the same flaws... and depending on how you set up the rules of the game... you can kind of create a heaven or a hell." - Context: Explaining how platform incentives dictate user behavior more than human nature does.
• At 0:09:59 - "There are still gatekeepers, but you can't keep the people in anymore... The internet came along and if you look at it, it did one revolutionary thing, which is let anybody publish." - Context: Describing the shift from scarce distribution to abundant distribution.
• At 0:11:14 - "[In the old model] there wasn't necessarily a great way to make money doing the work you believe in... legacy media was in decline and... social media... wasn't going to give you a way to make money." - Context: Identifying the specific market gap Substack filled for writers.
• At 0:14:14 - "My parlor trick was... I would say, 'Well, who's your favorite writer?' ... 'Would you pay five bucks a month for them?' And they would say, 'Well, yeah, for them... that's different because they're really good.'" - Context: Illustrating that people pay for relationships and specificity, not abstract content categories.
• At 0:16:29 - "You're still downstream from the incentives on those platforms... If you want to participate in it, you still have to be really, really good at Twitter." - Context: Explaining why Substack had to build its own discovery network rather than relying on other social media.
• At 0:25:17 - "I think of it as what should come after social media." - Context: Positioning the subscription network as an evolution beyond the ad-driven social web.
• At 0:37:55 - "For every dollar Substack makes, the creators make nine. We can literally only succeed as a business if we are helping people make money do the work they believe in." - Context: Defining the financial alignment that prevents the platform from becoming toxic.
• At 0:41:42 - "I think of Substack as like a city in the astral plane of the internet... it's a place where you can be free and independent... you can own your plot of land." - Context: Using the city metaphor to explain the balance of infrastructure and independence.
• At 0:44:42 - "Come and type into this box, and if the thing you type is actually great—which is really hard—... you're going to get rich and famous. You shouldn't have to think about anything else." - Context: Summarizing the ideal user experience where technology disappears and only quality matters.

Takeaways

• Build on "Owned" Land: Do not build your primary business on platforms that monetize attention (Twitter/Facebook/TikTok). You must move your audience to a platform where you own the direct connection (email/subscription) to survive algorithm changes.
• Monetize Specificity, Not Categories: When asking for payment, do not sell "news" or "content." Sell a specific relationship, a specific voice, and a specific perspective. People open their wallets for individuals they trust, not for general information.
• Lean into "Human" Imperfection: As AI floods the web with polished, cheap content, your competitive advantage is "human messiness." Prioritize formats that prove your humanity—live streams, personal essays, and honest community interaction.
• Evaluate Platforms by Incentives: Before joining a platform, look at how they make money. If they make money by selling ads, you are the product. If they take a cut of your revenue, they are your partner. Align yourself with partners who only win when you win.
• Use Video for Depth, Not Just Reach: Don't view video solely as a short-form discovery tool (like TikToks). Use long-form video and podcasting as a "high-bandwidth" way to deepen trust with your most loyal audience, treating it like a visual essay.
• Focus on Retention Over Virality: In a subscription model, one loyal reader who stays for years is worth infinitely more than a viral post that brings 10,000 passive views. Shift your metrics from "views" to "trust" and "retention."