#13 – Billion Dollar Newsletter Communities, part 2

By investing in its members or by using social tokens, newsletter communities can print a large number of Ben Franklins.

Welcome readers old and new. This is one of Thomas Hollands’ notes in his search for ideas which are surprisingly general, or generally surprising. You can find all past issues here.

"You can't build a billion dollar newsletter. But you can build a billion dollar newsletter community."

Last week we looked at whether a billion dollar newsletter was possible. It seems pretty unlikely that a newsletter alone could be worth ten million Benjamin Franklins.

But what about their communities? That’s what we’ll explore today.

Share Between the cracks

Billion dollar newsletter communities

A newsletter is like a candle in a dark room.

Readers, like moths, gather round to bathe in its light. Pre-internet, newsletters were purely broadcast media. Sure, one writer could reach many readers. But those readers didn't know about each other, unless they met in other contexts. They were like moths alert to a light, but blind to each other.

Today, newsletters go beyond a simple broadcast. Newsletter comments sections, subreddits, and discord channels make space for communities to congregate. Online newsletters cast light on their entire audience. Now they can see each other, they can interact with each other too.

Newsletter communities are Schelling points for people with similar ideas.

By articulating what she believes, the newsletter writer attracts readers who agree – like churchgoers congregating around a spontaneous sermon. People with similar ideas often become friends – and even friendships without economic output are very, very valuable. There is a lot of value wrapped up in relationships between community members, but it is highly intangible.

There is so much potential energy locked up in newsletter communities: potential colleagues, confidants, co-founders, mentors, and investors. But so far no one has worked out how to transmute potential energy into kinetic: how to turn illiquid social capital into liquid financial capital.

Currently, only a minority of newsletter social capital is monetised: Newsletters are good at monetising the reader-writer relationship, but not the reader-reader relationship.

Newsletters monetise the reader-writer relationship, either directly, with subscriptions, or indirectly, with advertising. But this is only a tiny fraction of the relationships enabled by the newsletter.

As an audience grows, the number of connections between writer and audience (trivially) grows linearly. But the number of connections between the audience members themselves scales with the square of the audience size. For a newsletter community with 100 members, there are 100 reader-writer relationships, and 4950 reader-reader relationships. For any reasonably sized newsletter community then, the vast majority of connections are between audience members and other audience members, not between the writer and her audience.

Reader-reader relationships are trickier to tax. The closest anyone has come to successfully monetising them is the classic social media business model: targeted advertising. You can estimate the dollar value of each reader's eyeball and sell ad space accordingly. You monetise each individual's attention. This kind of monetisation is zero-sum: each person only has so much attention, and (as we all know) there is more competing for it than ever before. The indirectness is also irritating for the readers. They want to participate in a community, not be distracted by ads.

A better user experience is to monetise reader-reader relationships directly.

Unlike attention, relationships are positive sum: the more effort each party puts in, the better the relationship gets. And while ads are a welcome distraction at best, and an irritation at worst, relationships are a welcome distraction at worst, and a meaningful partnership at best. You can only make so much money monetising attention: it has capped upside. But if a relationship spawns a successful company, who knows how much value it could create? Monetising relationships has uncapped upside.

So how do you monetise relationships? One way is with investments and fellowships. The other is using social tokens.

Investments (and fellowships)

A newsletter with a big enough community is a highly idiosyncratic startup accelerator waiting to happen.

Finance newsletters attract wannabe hedge fund managers. Literary newsletters attract wannabe novelists. Business newsletters attract wannabe startup founders. All of these ventures are uncertain, and require upfront capital (either dollars, mentorship, or both) to be successful. By stepping in to provide this service, a newsletter community can print many Ben Franklins indeed.

Newsletter writers can take on the role of conventional venture capitalists, providing entrepreneurs in their community with funding, mentorship, and a willing audience of early-adopters, in exchange for equity or royalties in ventures from their community.

An example may help here:

When Salman Rushdie wrote Midnight's Children, he created (discovered?) a new niche in the cutthroat fiction ecosystem. Dozens of Indian novelists took inspiration from his work, and published great works of their own. But it took many years for a community to form. In the 1980s, there was no virtual space for likeminded people to gather.

The next Rushdie might publish on a newsletter platform like Substack. While sharing his work-in-progress, he'll meet other promising writers, who he can mentor, encourage, and (in exchange for a small royalty) help publish their debut novels. A vibrant community of talented writers will form. And the lead writer will have a financial stake in its formation.

For finance newsletters, the model is simpler. The writer shares her investment theses. She can then advise her community members on their investments, or (better yet) she could just invest her community members' money on their behalf. Packy McCormick, writer of Not Boring, is already doing this with his syndicated fund on Angel List.

For business newsletters it's the same story. The writer identifies upcoming new trends. He can then consult his audience members on new startups, investing in them himself if he can afford it. He can provide his founders access to his newsletter audience: a pool of interested early-adopters who are eager and happy to help fellow community members.

In the long-run, the most promising newsletters are perhaps not billion dollar businesses on their own. Instead, the newsletter will be a front business for the backroom deals. The newsletter will be the public-facing, investor relations departments of an online venture studio. A mothership, which supports several satellite startups aligned with the newsletter's areas of expertise.

Or, maybe not. By investing in its members, a newsletter can grow from a lone writer submitting weekly essays like a university student, to become a very unique kind of online venture studio.

But there’s an another path. The newsletter community could grow from being like a college club, that could scale to the size of a nation state. To do that, it’ll need its own currency.

Social Tokens

Warning: I don't really understand social tokens yet. The following is speculative at best and gobbledegook at worst.

Skimming the cream off the top is ok. But you leave most of the (still tasty) milk behind.

Investing in the highest value community members is ok. But you leave most of the (still valuable) relationships behind.

Investing in community members is a big improvement from merely monetising them by subscriptions or ads. But you can only capture the few most visible relationships in your community. Social tokens go further, allowing a community to monetise all the relationships between its members.

Social tokens are crypto tokens issued by communities that represent ownership in and value provided by creators and communities. For a primer on these, see Shreyas Hariharan's excellent essay. I still don't really get them yet. But I'll try to explain them anyway.

Here’s my troglodytic understanding:

Imagine every newsletter has its own currency, called its token. The writer decides how much of it to issue, and at the beginning, he owns basically all of it. Over time he has a protocol for issuing more. Owning a token conveys some benefits, such as accessing free copies of the writers newsletter, and perhaps membership to a private community discord channel. You can trade these tokens for dollars. As the author starts off, people pay nearly nothing for his tokens. You can access his newsletter for less than $0.01. But then he writes a few good pieces, and one hits the top of Hacker News. All of a sudden, the price of the token skyrockets, as there are more people who want to read the newsletter than there are tokens that give readers access. A flurry of trading occurs, and eventually, weeks later, the price for the token relaxes to an equilibrium of close to $1.

Now, there are hundreds of people in the discord channel, and many of them are vibing over the author's now infamous post. Ideas bounce around, and a few readers kick off some side projects. All of which are reported on in the members-only channel. There is still a market price for the tokens, and by buying and then selling, non-members can see what's going on in the community. It's exciting. The price of the token grows slowly, but keeps growing. The token's finances get too complex for the newsletter author to handle, so the community sets up a treasury – a tiny central bank for their token. The community continues abuzz. Members are starting newsletters of their own, also using the same social token – no token, no newsletter membership. The token's price keeps going up and to the right, just like the community's Google trends search result. Before long, people are speculating against the cryptocurrency, and another price bubble expands.

Right now, social tokens are only really used by some crypto communities, like Jamm. They're the only people who really understand them. But once they become sufficiently easy to use, they could provide a compelling way to monetise social communities, different to the "invest and mentor" approach I laid out above.

The big advantage of social tokens over investments is that they capture all the relationships in a community. Instead of directly monetising each relationship, you outsource the problem to the marketplace. Social tokens create a market:Buyers believe the value of the community will increase, and sellers believe it will decrease. When people buy a social token, they are betting on not only the most visible community members, but also the generativity of the community as a whole.

Provided there is enough trading in the marketplace, the token will capture the value in not just 1-n writer-reader relationships, but also n-n reader-reader relationships, plus higher order relationships (n-n-n...). Putting a tradable price on membership makes the community value legible.

Of course, social tokens are inseparable from their downsides. I'm a crypto novice, but even I know that speculation will be a huge problem. Efficient markets only work when there is sufficient liquidity. If people aren't trading often, price mismatches can occur, and corrections may leave people thinking they had a lot more money than they really did.

The second order effects are what I'm more worried about, though. When a measure becomes a target it ceases to be a good measure – a sole focus on a market price always selects for actions that will increase the price in the short term. And it selects against actions which may have no effect on the short-term price, but could lead to long-term gains. For example, some communities, in their desire to increase shareholder value, may try to include influencers into the community to increase community awareness, and drive the token price up. If these influencers have nothing to add, the community's value will wither. Other communities, by governing themselves well, will live long and prosper.

With social tokens there is still much to work out, but also much to be excited about. According to Shreyas, one quote captures the power of social tokens best: social tokens allow online communities to scale from the size of a college extracurricular club to a nation-state.

And there are very few nation states without a GDP of at least a billion dollars.


Tyler Cowen likes to remind people his blog Marginal Revolution is a kind of social media. Most of the value of Marginal Revolution comes not from Tyler's brief posts, but from the bubbling comments underneath. At least one couple have gotten married after a meeting of minds in the comments section.

Writing is merely the most visible part of the business of newsletters: it’s the thing that gets you in the door. The real value is in the community. Newsletters of the future will capture the value created by this community, either by investing in and mentoring promising community members, or by creating a community token that makes the price of community membership accessible and legible to all.

Chris Dixon, an early investor in Facebook and Twitter, used to say "come for the tool, stay for the network." I don't know what Dixon's up to today, but as I mentioned last week, his VC firm, a16z, took a big stake in Substack last year. On Substack, readers "come for the newsletter, and stay for the community". By monetising their communities, Substack will create billion dollar newsletters, and billions of dollars for their VCs.


Something I loved

Getting COVID-19 in March was a great excuse: finally I had a good reason for why I have no taste.

I drank vinegar, and ate raw cloves of garlic, but there was not a flavour to be scented. Fortunately this was fleeting: my gustatory senses returned after only 3 days of blandness.

My sense of aesthetic taste, on the other hand, needs some work. I’m trying to improve it, by identifying and describing things I like a lot.

This time it’s the writing of John McPhee, specifically Brigade de Cuisine.

I’d heard of McPhee many times before, but I read my first piece only a few weeks ago. I was blown away. His writing is so crisp. Reality contains a surprising amount of detail, and the best writing captures as much of it as possible. McPhee doesn’t just paint a picture in your head. He plants you in a scene, as compelling as a dream.

If you have time to read a long New Yorker piece, read Brigade de Cuisine. Then tell me what you think.

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