Medium’s Strategy Problem

Some premium publications are leaving Medium. This exposes the platform’s fuzzy subscription strategy.

Today a dive into Medium’s subscription strategy, its shortcomings and an alternative approach. It is an interesting case study of the emerging market of subscription publications. Also, it’s a personal affair for me. After all, I set up attentionecono.me on Medium. So, I care about the company’s future. Alas, there are reasons to be skeptical.

From Poynter:

Facing stagnating readership and a tough market for digital ads, many publishers dropped their old sites and joined Medium’s growing network. Now, after a company-wide shift away from digital advertising, some of them are heading for the exits. Pacific Standard, an award-winning magazine based in Santa Barbara, California, launched the first iteration of its new site on May 8. … Film School Rejects, another publisher brought aboard by Medium last year, has also left. In a blog post on Film School Rejects’ new WordPress site, founder Neil Miller explained that the decision was prompted by changes at Medium that made it harder to pay for the company. In January, Medium canceled its “Promoted Stories” advertising network rather than participate in what Medium CEO Ev Williams called “the broken system” of “ad-driven media on the internet.”

I co-sign Ev Williams evaluation of the state of ad-driven media. I also share his vision of a future where subscriptions play an integral part in funding writing/journalism on the web. However, Medium’s execution on said vision has been subpar so far. This latest piece of news gives me pause.

That is not to say Medium is doomed. To the contrary. If the company manages to set its priorities straight and execute accordingly, it has a lot of potential. This, of course, remains a decently-sized if.

The bull case for Medium

Here is the pitch for Medium’s best case scenario:

Medium is the platform for quality writing on the web. Here’s how it works: On the publisher-side, we serve as the best available infrastructure for niche publishers, including monetization tools, particularly subscriptions. Thanks to our already sizable userbase, we are a very attractive environment for publishers. By constantly growing the amount of quality writing on our platform, we attract evermore users who are willing to pay for premium content. We earn money by taking a cut of all these transactions. As we become the de-facto standard application for small and medium online publishers with a subscription model, our business scales along with the business of our content-creating userbase.

Let’s dig into this a bit.

The web is structurally tailormade for niche publications that create unique, quality content with a high degree of differentiation. And while it used to be tough to get people to pay for content, this is changing. Across all types of media, subscription businesses are growing. Spotify, Netflix and, yes, even the New York Times.

Now, the latter doesn’t really fit the description above. Its content is neither niche nor entirely unique. It’s a bundle of all kinds of journalism. The Times’ relative success with the subscription business model is due to its superb, unmatched journalistic brand (and, some might argue, Trump).

There are better examples for the kind of publications and writers Medium should try to build the best service for: The Information, Ben Thompson’s Stratechery or De Correspondent (with some reservations). All of them are focused, quality publications. They provide so much value that their readers willingly pay a monthly subscription fee to finance their work.

All of them them have one thing in common: They are startups, custom-built for the web and with a subscription business model in mind from the get-go. I could explain at length why that is an important piece of the puzzle. But Ben Thompson did exactly that last week. A quote from his great piece on local news and the subscription model (emphasize mine):

What is critical to understand is that everything in the preceding section is interconnected: by owning printing presses and delivery trucks (and thanks to the low marginal cost of printing extra pages), newspapers were the primary outlet for advertising that didn’t work (or couldn’t afford) TV or radio — and there was a lot of it. Maximizing advertising, though, meant maximizing the potential audience, which meant offering all kinds of different types of content in volume… In short, the business model drove the content, just as it drove every other piece of the business. It follows, though, that if the content bundle no longer makes sense — which it doesn’t in the slightest — that the business model probably doesn’t make sense either. This is the problem with newspapers: every aspect of their operations, from costs to content, is optimized for a business model that is obsolete. To put it another way, an obsolete business model means an obsolete business. There is nothing to be saved.

I think he is spot-on. The old advertising-based business model for news — and many other kinds of writing — is failing. Subscriptions are on the rise. However, due to the established organizational structures and the prevalent mindset among existing publishers, transitioning the business from advertising to subscriptions is a tough challenge. After all, introducing subscriptions isn’t as simple as building a paywall. The entire product needs to be optimized in accordance with the business model.

Lea Korsgaard, co-founder and editor-in-chief of Zetland, a subscription-based publication from Denmark, put it perfectly in a recent interview (emphasize added):

These days it’s not a question of how to sustain the kind of journalism that we’ve always done, the key question is what journalism makes a difference in our lives so that they will pay for it. News publications, as such, just don’t make a difference because you can get it from so many sources. Today you make a difference by providing explanation, deep thinking about what’s going on. I think one of the reasons that it’s easy for us is that we don’t have the baggage of course — we don’t have this huge organization that has spent 100 years doing the same content, and it would be nice, sure, but on the other hand it’s nice not to have to struggle with that kind of scale.

The implication is clear: Building a site that finances writing with a subscription business model lends itself to startups and even entrepreneurial solo-writers. Their lack of unnecessary infrastructure and overhead — and thus costs — is a real advantage over incumbent organizations. Particularly because likely no subscription business would be able to ever cover those costs. The future of media is going to be a lot leaner than its present.

Owning the subscription writing market?

And that is where Medium’s opportunity lies. I am convinced that the companies I mentioned above will find many imitators in the future. The key challenge — and the one thing that takes a considerable investment if you want to start a subscription-based publication— is building the platform and technological infrastructure for such a site. While negligible in comparison to the investment necessary to start a print publication, it still takes either money or web development know-how. Many good writers have neither.

Medium has the potential to be a great solution for them. If the company were to focus on building exactly the right services and tools for founders and entrepreneurial writers, they could build the underlying engine that powers quality writing on the web.

In my pitch at the beginning I used the word infrastructure for a reason: Being a platform that doubles as the infrastructure on top of which other businesses are built is a very good strategic position to be in, particularly on the web. A brief list of companies that reside in that spot: Amazon (AWS & marketplace), Stripe, YouTube, AirBnB, Salesforce. Being the infrastructure for (and a catalyst of) the emerging industry of subscription-based publications has certainly a lot of upside. Execute well and you own that market.

Allowing writers to focus on their content

Would writers and media founders pick Medium over their own proprietary platform (or an open source, self-hosted solution a la WordPress)? There is certainly a case to be made against it. Indeed it is generally an advantage to own your platform: You are in full control and don’t rely on another company — which is particularly risky if said company is a startup with an uncertain future itself. Ben Thompson argues along those lines. Its one of the instances where I disagree with him.

For many founders in the publishing business, the technology that powers their site is a necessary investment but not their core business. Yes, some media startups indeed try to differentiate via technology — for instance Vox Media or The Outline — but most don’t. I generally think content is the most important differentiator for any online media business, yet there is some sense in owning technology if your business model is advertising. With subscriptions not so much: Focus on creating great content, build an audience, put a subscription model in place. The format doesn’t matter nearly as much as the content. (I read Thompson’s Daily Updates in an email. And I’m pretty confident that nobody visits his site for its great looks.)

For a subscription site, dealing with the technology presents merely a monetary or opportunity cost. Either you deal with it yourself — given you have the necessary skills — in which case you can’t write at the same time. Alternatively you need to hire/pay someone to get it done. Regardless of the path you choose: the time and/or money isn’t invested in creating content. Simply setting up a Medium publication allows you to focus on your core competency — and create the content you sell.

Moreover, Medium’s platform architecture can help new publishers to overcome the biggest challenge they face: finding an audience that cares about their topics. That differentiates Medium from other software-as-a-service solutions like wordpress.com & Co. (although Automattic, the company behind wordpress.com, has built some platform-like elements these aren’t on par with Medium’s).

The fuzzy reality

Thus, there is a hypothetical Medium that would be a great choice for entrepreneurial writers and media founders. It is, essentially, a Medium that gives them full control over the monetization of their content via a sleek subscription management service. And if my expectation that we’ll witness a growth in subscription sites isn’t mistaken, being the infrastructure that powers many of them would be an attractive position. Alas, the real Medium apparently isn’t focused on becoming that infrastructure/platform business. Instead, their current strategy appears fuzzy and rash to me.

After Ev Williams famously announced that Medium would abandon advertising in January, the company introduced their current subscription model in March. For five dollars a month, you get access to some exclusive stories that Medium commissioned and paid for. It’s a bundle of stories from several writers — that is: you don’t know what you pay for. Also, subscribers get access to a few new Medium features; but features aren’t the primary driver for content subscriptions. (For further reading: Thompson accurately dissected all what’s wrong with the current approach in this piece.)

To be fair, Medium also announced at the time that they were planning to roll out tools for publishers that would allow them to implement a subscription service for their own publication (a few publications have had access to a beta program for a while now). They reassured me that these plans were still in place when I dealt with them a few weeks ago (when I was considering where I wanted to set up attentionecono.me). But it’s May and there hasn’t been any public update on the issue.

Instead, the first notable publishers are leaving because they aren’t convinced that Medium can create enough revenue for them going forward. Among them is Film School Rejects, one of the early testers of the publication-specific subscription feature. That’s a bad sign. Particularly since Medium’s business model is reliant upon a steady supply of great content worth paying for. This, however, is something the company might have to relearn after letting go old assumptions.

In the past, the company could boost traffic — the basis for a healthy advertising business — with marketing stunts like publishing pieces from Obama or Hillary Clinton. But establishing a subscription business — even the misguided, bundled current version — relies on sustained quality. This, in turn, takes good writers who write consistently. Doing so means they need to earn money. Attracting those writers to their platform and keeping them happy is essential to Medium’s business model (in both its current iteration and the one I outlined above).

Thus, the fact that publishers are opting to leave is bad news. What’s even worse: they are and have been vocal about their dismay with Medium and the way it handled the business model transition. This tells me that its relationship with publishers isn’t at the top of Medium’s priority list. Yet that’s exactly where it should be. For very selfish reasons.

Financial pressure or wonky strategy?

Of course one wonders why the company isn’t pursuing the path I outlined above more emphatically. I have two possible explanations.

#1

A strategy that focuses on attracting future businesses — on whose success your own growth relies — is a long-term play by definition. The problem, particularly for young companies like Medium, is making it to that future. While VCs are increasingly willing to finance companies that stay private for a long time, not even their pockets nor time is endless. It’s possible that Medium launched its 5$ subscription service because management assumed it would be the better path to generate at least some revenue quickly. That might or might not be the case — it depends on the quality and renown of writers the model I outlined above might attract — but it would be an understandable decision. One should ask M.G. Siegler; he could certainly provide some interesting insights into that.

#2

Medium follows another strategy. Namely, they want to build a subscription business based on the longtail of writing. That is, instead of focusing on professional content creators and offering them the tools to build a business, they want to be home to occasional writers and build a subscription service on top of their work. Which effectively would render them a publisher. Film School Rejects’ Neil Miller hints that this might be the case in his first column after the migration back to WordPress. He writes:

As time went on, it became clear that Medium’s priorities had shifted from being a platform for independent publishers to being itself a publisher of premium, subscription-based content. As we learned more about their future plans for the now-existent Medium ‘Members Only’ program, it became clear that our site wouldn’t be able to continue to operate the way we always had.

That, however, wouldn’t be a great proposition. Occasional writers, for instance domain experts working as practitioners, can produce excellent work. But they can’t do so on a regular basis. Yet, that’s precisely the key to a successful subscription business . After all, subscriptions mean you earn money via recurring payments. Creating the optimal conditions to convince readers to subscribe takes continuity. Because subscriptions, particularly when it comes to writing, are about ongoing relevance, trust and relationship. None of that applies to content from the longtail.

Quo vadis, Medium?

Whatever the case may be, the current status is not satisfactory. Luckily for Medium, it doesn’t take much to get back on track. At least not from a product perspective. A lot about the product is great already and implementing a subscription management service isn’t rocket science. What might be the tougher challenge, then, is making the right strategic assumptions to execute on.

The past few months were certainly turbulent at Medium. After all they let go a third of the staff. It’s always hard to align an organization behind a new strategy; twice so under such conditions. Let’s hope the company sets the right priorities soon. Because Ev Williams is right: the ad-driven system is broken. Medium, in the version I outlined above, could provide an interesting alternative. I root for the company. But until I see some clear indications that Medium knows what it wants to be, I’ll keep my skeptic hat on. Alas!