Supply-Driven Markets

The core Substack thesis: provide the monetization mechanism and you bring into existence writers/content that don't exist today. That new supply creates demand that's currently invisible.

Everyone assumes demand is the constraint. It's not. There's enormous untapped appetite for smart, high-quality stuff. The bottleneck is supply. The infrastructure to monetize quality content didn't exist, so the content didn't exist.

People don't know what they want until you give it to them. No one asked for a Macintosh. No one asked for an iPhone. Supply-side innovation creates demand that surveys and market research can't detect.

From the transcript:

On the Substack investment thesis:

• "There was this chicken and egg thing right up front, which was like, well, can you really see, the internet's awash with content. People aren't paying for almost any of it. Like are they really gonna, you have to kind of squint and kind of say okay are people actually going to pay for any of the stuff that they're getting today."
• "I think the thing that in that case that we had faith in was basically this could be what we call a supply driven market. Which is, if you provide the monetization capability, then you're going to bring into existence writers and content that don't exist today. And that is going to create new demand that's not visible today. And then that demand is going to come back around and it's going to incent... so it was basically a bet that there's like an entire generation of high quality content that doesn't exist because the monetization mechanism doesn't exist."
• "That's certainly what Chris and his partners believe. And I think that's absolutely what's proven out. And so it's like a great example of founders that really see a future that doesn't exist yet. And it's obvious to them."

On the broader principle:

• "There's also, I think, just like enormous latent demand for actual smart high quality stuff. And particularly in media and in every kind of media. And I think the issue is not lack of demand. And I think the issue is lack of supply."
• "This kind of goes back to consumer marketing 101, which is people don't know what they want until it's given to them. Nobody ever asked for a Macintosh. Nobody ever asked for an iPhone. Like these things had to be designed and built and provided on the supply side before the demand materialized. And then the demand of course turned out to be far higher than anybody expected. And I think that same thing is exactly true of media."

On long-form podcasting as proof:

• "I think a great early existence proof of this was the success of long form podcasting. Which is, I remember my early conversations with some of the early long form podcasters and they're like it's the strangest thing we've ever seen because everybody tells us that the consumers have short attention spans but people are literally watching three-hour podcasts and we get the analytics and people are watching all the way to the end of the three-hour podcast."
• "So I view this very much as like this is one of these classic markets that's a barbell. Which is yeah you have a certain amount of whatever just mainstream filler on the one side, but you have this massive sort of untapped market for high quality content in basically every domain. And there just had, technological transformation, the existing structure of the media company was a structure that was designed for a world of centralized media. You need a new structure today and that's why we're so high on Substack."

On the potential scale:

• "When we look at Substack it's the exact same thing that you were just talking about with Databricks which is like wow this thing could be orders of magnitude, orders of magnitude multiples larger than anything we've seen so far. And frankly, I think we're starting to see that."
• "I think Substack could be like a thousand times the size of the existing content industry, whatever you want to call it, media news industry."

Market Sizing Discussion

Market sizing presumes you can predict future markets from current dynamics. This breaks completely when there's a supply-side breakthrough.

On the venture capital approach to market sizing:

• "The venture lens I would put on this is, in terms of the mechanics of venture capital, the sort of classic venture capital triangle is team, product, and market. And you're always trying to kind of evaluate all three of those and people have always had different theories over the years of which is more important than the others and how they interact."

• "The thing that basically every investor, public market investors, private investors, the thing that we're all trained to do is basically market sizing. We're trained to do technology analysis. We're trained to do background checks on people. And then we're trained to do market sizing. Like, okay, how big is this market? Because the classic adage is if you put a huge amount of effort into going after a small market you still get a small outcome."

• "But there's a presumption in there which is that you can actually predict market sizes on these things. And the problem with that again is this sort of presumption that you can predict market sizes based on the dynamics that exist in the market today."

• "But if there's a fundamental change on the supply side, if there's a fundamental breakthrough, a fundamental capability that doesn't exist yet, you're not going to be able to accurately model the market size because you can't see it yet. Like you've changed one of the major variables and you can't do that."

• "You could call that the leap of faith or whatever, but it's like, okay, if you make the change in the supply side, then all of a sudden the market gets 10 or 100 or thousand times larger. Like you can almost never validate that with math at the time of the investment, but that's the thing that makes the outperformers really go."

• "As Ben and I kind of go through our careers, we just see more and more examples where the mistake that we or others make is, oh, this must be, the market for Uber and Lyft must be the market for taxi cabs. Or the market for cloud software must be the same as the market for on-prem software. Or the market for GPUs must be the market for people who like to play games"

• "We just keep seeing example after example after example where the significant enough technology change, product change on the supply side unlocks much larger markets. And I think that's going to be the single dominant trend in investing for the next 30 years. I think that's just going to telescope way out."