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How a boy from Clyde ended up working for Elon Musk. And then went on to disrupt the global media industry. By Paul Little.
In 2012, a freelance writer named Hamish McKenzie interviewed US journalist
Last year, after the company raised over $100 million from investors, Substack was estimated to be worth as much as $1 billion. Even allowing for the irrational exuberance of the US start-up scene, it’s still an impressive valuation for a company that employs around 80 people.
These days McKenzie lives in San Francisco, where the company has its headquarters. It’s a long way in every sense from Alexandra, where he grew up. He was born in Clyde in 1981. His father, Richard, was an atmospheric physicist, and the family spent three years overseas while Richard did his PhD at Oxford. McKenzie’s mother, Louise, taught Māori language and culture at high school.
He did a degree in English at the University of Otago. His heart was set on journalism, and there was a stint as editor of the student paper Critic, but no trajectory in mind beyond that. “I’ve always had dreams and ambitions and fantasies,” says McKenzie, “but never, never anticipated that anything would present itself in the way it has in the past few years.”
His career as a freelancer took him to the US via Hong Kong. And when Elon Musk invited him to work at Tesla, “I couldn’t really say no.”
McKenzie had written about a Mark Zuckerberg-funded tech lobby group called FWD.us. “They’d made a big mess of everything, trying to play Capitol Hill games. Zuckerberg and his cohorts had convinced a number of big-money tech people to put money into it. Elon had been part of that early on. And then they did these things that pissed him off and Elon withdrew. I’d written a story about that big mess, and Elon was impressed by that story.”
Musk was also impressed by a blog post McKenzie had written describing Musk as more significant than Apple’s Steve Jobs. The assessment was based on the potential impact of electric cars and interplanetary travel. “I would probably moderate my gushiness about this now,” he reflects.
Musk hired him on $200,000 a year, the most he had ever earned. “My title was lead writer and no one knew what I was going to do, including me,” he says. “Elon was just like: ‘Go and join the communications team. We’ll figure it out.'” His new colleagues found out about the hire only when it was reported in the Silicon Valley scandal sheet Valleywag.
In the end, McKenzie stayed only a year. “I wanted to be a journalist. I didn’t want to be a general comms person.” He also had three bosses within that time – not usually a sign of a stable workplace.
He decided to write the book that would eventually be published as Insane Mode: How Elon Musk’s Tesla sparked an electric revolution to end the age of oil, drawing on his experiences.
The handsome $125,000 advance was severely depleted by the $750-an-hour lawyer McKenzie had to employ to deal with legal pressure from Musk, who did not want it to appear. In the end, it “was told from a more distant perspective, but still told the same story”.
While writing the book, he went to work part-time with his friend Chris Best at a messaging app called Kik Interactive. After Best left Kik, he took some time to think about the future of the media.
“Chris sent me this draft of a blog post he had written decrying the ills of the attention economy and how, out of the original sin of online advertising, these machines have emerged to maximise return for advertisers, which means creating news feeds that optimise for addiction,” says McKenzie. “Content that enraged or provoked or divided people was being rewarded.”
McKenzie pointed out that everyone in the media knew this, but nobody knew what the alternatives could be. “That led to these discussions, and he never got around to finishing the piece. We started the company instead.”
McKenzie, Best and another former Kik colleague, Jairaj Sethi, decided Substack would be a home for online newsletters. The thinking behind Best’s blog post served as guiding principles. Start-up funding included $20,000 from McKenzie’s dad and an inheritance from his grandmother. In 2019, Substack raised $25 million in venture capital to fund expansion. Two years later, it raised another $100 million or so.
The key difference from previous online newsletter services is that readers are “the customer, not the product”, McKenzie explains. “They get a clean reading experience – it’s got no ads. They’re not being packaged up and sold to some advertiser.”
Simplicity was crucial to Substack’s success. Subscription-based online media have a lot of moving parts: the platform itself, an email function, a payment system and other technology all need to work for it to succeed. “Most people are not all those things,” says McKenzie. “You’re lucky if you’re a good writer. So we thought, what if we can take all the other stuff off the table for people so they don’t have to worry about anything but the writing?” Substack also provides some help with editing, design service, legal support and even health coverage.
So, what do Substack readers get that they can’t already find elsewhere? Choice for one thing, and variety for another. There are thousands of Substacks with something for every interest and outlook. Plus, readers “get a deep relationship with the writers they most trust and love”, McKenzie says.
As well as Greenwald and other high-profile US journalists, including Andrew Sullivan, Edward Snowden and Dan Rather, the literary likes of Salman Rushdie, Chuck Palahniuk and Patti Smith also have Substacks. There are now flourishing “Substack natives”. And the platform has made stars of writers who otherwise might have remained known only to a small circle. Its most successful writer in terms of subscribers and earnings is history professor Heather Cox Richardson, whose excellent Letters from an American is “a newsletter about the history behind today’s politics”.
Writers decide how much they will charge – and there is lots of company advice on how to work out what that should be. Most ask for between US$5 and US$15 a month. The uber-niche Petition – “Curated financial news, analysis and commentary with an emphasis on distressed investing, restructuring and bankruptcy” – charges an exceptional US$49 a month.
Substack won’t say how many writers are earning more than US$1 million a year, only that the top 10 publications make more than US$25 million annually in aggregate. Richardson’s “tens of thousands” of subscribers paying US$5 a month put her comfortably in the million-dollar club by 2020.
New Zealand writers who use the platform include Bernard Hickey, Emily Writes, and several Davids (Farrier, Slack and Cohen).
Many of these people could get or have had jobs at NZ media outlets, but Substack gives them independence, editorial control and the possibility of expanding their audience to include a share of the platform’s one million subscribers and 1.5 million paid subscriptions.
Someone who is not a big-name writer can also build it, but will they come? Substack has put a lot of effort into giving writers the resources to expand their followings. After all, that is the only way the company will earn any money. The determination not to allow advertising is unwavering. The company charges 10 per cent commission and the payment-processing company Stripe takes 2.9 per cent, plus 30c a transaction.
Beyond the obvious advice – use social media, tell your friends – McKenzie describes what Substack can do for you: “We build a product to maximise the chance someone will share it, and then someone will discover it, have a good experience and then decide to sign up.”
It is also finessing a recommendation system. “If I go to your Substack and subscribe, I’ll be shown three to five Substack writers you have recommended. Because you’re a writer I’ve learned to trust, I’m likely to pay credence to your recommendations. We’re trying to build a recommendation engine that is human-centric and not like the YouTube rabbit holes, or Twitter, sorting by controversy.”
Not that Substack is any stranger to controversy. It has recently been at the business end of arguments over cancel culture and content moderation, with writers leaving and much op-ed ink being spilt on the issue.
It does have lines that can’t be crossed. Its content guidelines say: “Substack cannot be used to publish content or fund initiatives that incite violence based on protected classes. Offending behaviour includes credible threats of physical harm to people based on their race, ethnicity, national origin, religion, sex, gender identity, sexual orientation, age, disability or medical condition.”
That leaves a lot of room for views on all those things that many people would find odious. If you wanted to have a Substack devoted to the view that, say, Jews run the entertainment industry, that would be fine.
McKenzie isn’t keen on such hypotheticals, but says: “I think people’s brains are a little bit broken about this. The position that Substack takes on free speech is not radical. It’s the view that 99 per cent of good-thinking, left-wing people had 15 years ago.”
The three founders have been adamant on the value they give to protecting free speech. McKenzie doesn’t object to the analogy that Substack is like the paper that newspapers and magazines are printed on, and no one goes after the paper makers for what is written on the paper.
“You’re better off exposing crazy to sunlight and letting it be disinfected than to push it aside and give it a sense of intrigue and mystique,” he says. The problem, according to him, is that on the likes of YouTube, Twitter and Facebook, “we’ve seen a lot of bad stuff happen because of their business models and because of the way they function, amplifying and rewarding provocative stuff. People have overcorrected in a way that risks compromising some incredibly important principles around free speech.”
He points out that the money – “probably billions” – that Facebook and Twitter have spent on content moderation and tweaking guidelines has not reduced the amount of disinformation in circulation.
So, the platform will not ban, for instance, anti-vax writing. The US-based Centre for Countering Digital Hate reported that Substack generates at least US$2.5 million a year from five popular anti-vaccine newsletters. One of those is by Dr Joseph Mercola, whom the New York Times calls a “misinformation superspreader”. There is also at least one New Zealand-based anti-vax Substack.
McKenzie’s ambitions for the platform are underpinned by New Zealand values he has taken to the US. “One of the key things is the New Zealand habit of under-promising and overdelivering. We try to be modest about it. We’re not changing the world – we’re trying to contribute to changing the world. My co-founders are also from cultures that prize modesty: Chris is Canadian and Jairaj was born and raised in Japan.”
New Zealand is still a big part of his life. “I was back for seven months last year during the pandemic. It was good. I could work remotely.” He is “nervous” about taking American citizenship, even though he is eligible.
McKenzie is married to Stephanie Wang, a former corporate lawyer who works at a small start-up. They have two sons, Arthur, “who is the same age as the pandemic”, and James, who is “the same age as Substack”.
A typical day starts with him driving – yes, a Tesla – to work, dropping the boys at school on the way. “Then a bunch of Zoom meetings.” He now holds “a luxury position” where he is able to focus on his own writing and “projects around helping writers”.
“I’m much happier doing that than managing,” he says.
His own Substack is called Disjointed. He reads “Dylan Cleaver, a lot of David Farrier, Matt Taibbi, Freddie deBoer – he’s from the left, but he takes down a lot of left shibboleths. I follow a lot of Substacks and see what’s interesting on a given day.”
Success inspires as much resentment online as it does anywhere else. If Substack appears to slip, schadenfreude goes into overdrive. Last month, it ended a contract with a freelance editor who had worked on a piece critical of the company that appeared on a competing platform. Much virtual tut-tutting ensued.
“It didn’t feel good to be maintaining a contract with a freelancer who had effectively said he didn’t like the company,” says McKenzie, “but, on reflection, we agreed that was a bad move, so we made amends and publicly apologised.”
Plans to raise more money were abandoned earlier this year. “The signals were bad, and then the market turned fast enough that it became clear that the wiser decision was to not try to raise money. So, we just stopped. We decided we should make some tough decisions to set Substack up to get through the economic winter.” Thirteen employees were laid off in June.
Unsurprisingly, Substack has inspired competitors and imitators. Twitter tried to buy it, but “we said no, very early in the discussion”, McKenzie says. LinkedIn, Facebook, Forbes and other traditional media have all introduced newsletter options since Substack debuted.
McKenzie sees this as evidence that the company is influencing the media landscape.
“There are other people trying to do this model now. It expands the possibilities. And I don’t know exactly how it plays out, but if we succeed, it means it’s going to be a part of the media ecosystem, where writers are truly in control and can build new types of media businesses.”
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