Fragmentation theory Part II

Bluesky hits 20m users, Elon Musk tried to buy Substack

In this era of modern-day robber barons taking over the media the words of one of the original robber barons of the 19th century Andrew Carnegie springs to mind “The pen was getting to be a weapon with me.”

A New York Times article just out claims that Elon Musk tried to acquire Substack and wanted to merge it with X early last year only to have the offer turned down. A few months later Substack launched its Notes functionality and Musk started to suppress links to Substack’s on X.

Last week I outlined my theory of how social media would see more and more fragmentation. I highlighted how this reminded me of trends in financial markets where technology, regulation, and consumer tastes drove this as people wanted more personalized services, the problem of toxic liquidity in broad arenas, and the increase in the amount of recycling across platforms.

Since I wrote that piece, we have received a few more data points on not only Bluesky but also Substack as a platform that allows the best of aggregation and fragmentation.

Bluesky hits 20 million users

In recent days Bluesky has kept at an elevated pace of around 1 million new users per day and a whole host of engagement metrics are trending in the same direction. For instance, the daily number of unique likers which had been around 1m started to increase sharply 10 days ago and has been rising daily with the latest number above 2.7m. A similar trend can be seen in the amount of posting.

Bluesky user numbers grew from just over 10 million a month ago to around 20 million currently. Although these numbers are small compared to X’s 600 million user base, the vast bulk of Bluesky users are in the US and UK. These markets are likely to be around 100 million users for X and once you exclude the bots and click farms from the numbers, they are likely to be materially lower. In terms of the economics of the user base, it is also worth noting that social media platforms make 10x more per user in advertising dollars in the US versus Asia Pacific.

Musk wanted to buy Substack which has 4 million paid subscriptions

This brings me to the platform I am writing from, which is not a head-on-head competitor to social media platforms but in a relevant adjacent space. Given the amount of toxic flow and recycling of the same content from LinkedIn to Instagram to X and others, every platform is looking for original, differentiated content. Perhaps, this is why Elon Musk wanted to merge much smaller and newer Substack into X.

This week’s New York Times piece on Substack also gave an updated statistic. Substack has the same number of paid subscriptions as the Wall Street Journal! The number of paid subscriptions on Substack, which had grown from over 50,000 in mid-2019 to over 1 million in late 2021 now stands at over 4 million.

Substack’s revenues will be materially lower than the WSJ as it is only taking a 10% cut from these Substack’s. Then again top newspapers like the WSJ have large cost bases which include writers.

Bluesky needs to go deep in verticals

This brings me back to the X copycat Bluesky. A point Peter Thiel made in Zero to One was that the traditional venture capitalist idea for going for a large addressable market was flawed and that the best thing to do is to dominate a small niche and then you can extend outwards at a later date. Bluesky will never have the breadth of global reach and user base of X, but it can go deeper.

To get the engine warming being a liberal echo chamber is not a bad starting point. But to be successful long-term Bluesky will need to be more than a left-wing online version of Fox News. Whether it is politics - which is also Substack’s most important category - or economics Bluesky will have to go deeper than X ever did. X is the home for the tech and VC community, but this is mostly memes, gossip, and self-promotion rather than going very deep into the subject matter. Even those tech newsletters like Ben Thompson who grew up on X a decade ago are a sideshow nowadays and heavyweight dialogues are always a food fight between Elon Musk and someone on the left like Vinod Khosla or Yann LeCun of Meta.

Perhaps, Bluesky should look at what works on Substack as much as X. What Substack can do partly because of the newsletter format is to allow fragmentation where every newsletter strives to be a personal monopoly in their space with some elements of tribes. It is not aggregating like social media or a newspaper but there is scope for writers and readers to benefit from some level of aggregation on the website.

Being a place for trusted sources

What I have noticed in recent days on Bluesky is that slowly the number of bots and dodgy-looking accounts has picked up. X users want a Gladiator show “Rome is not the marble of the Senate, it’s the sand of the Colosseum. He’ll bring them death and they will love him for it.” But the whole reason for Bluesky to exist is a place where you can discover deep and relevant content and get away from the blood sport.

A strategy for Bluesky could be to lean aggressively into trusted and official sources - becoming the aggregator and distributor for these organizations that are struggling with the toxicity of most social media. These would include traditional media, governments, and big business.

The freefall of the economics of the news media has been much written about. For all the complaining about Elon Musk and his tech bro friends, they won the battle! But to win the war for the marginal audience member, the news media needs better distribution. Similarweb data shows that Facebook and X saw 75-85% declines in the traffic they send to news media websites over the last 3 years and now only around 1-1.5% comes from each of these sources. Ensuring Bluesky’s governance maintains an iron-clad commitment to not suppressing external media links, should be central to a strategic partnership between major newspaper sites and Bluesky. Most individual journalists have moved fast to adopt Bluesky, but it has to become a place for breaking news from the media.

Newspapers will always post content on multiple platforms and follow their readers to where they are, but Bluesky’s birth feels like an opportunity for them to shape the governance of a new platform, perhaps even with small equity stakes in it.

For Bluesky getting unique “must-have” proprietary content is crucial and it is unlikely to ever be able to compete for private citizen-driven breaking news. X is the king of this albeit it is as much fake news as real news.

Getting governments and quasi-governmental agencies to all post on Bluesky regularly will add to the breadth of content. These organizations often struggle to get information out and they are surrounded by fake news on other platforms. New York City government agencies have all been ordered to set up Bluesky accounts in recent days and others are likely to follow.

Finally, corporates are historically poor at posting on social media. They tend to be conservative by nature and have found LinkedIn their natural home. Here their releases are heavily scripted, stiff, and rarely resonate with stakeholders. A format like X or Bluesky offers more engagement with audiences.

Social media evolution is beginning

Perhaps the lesson of social media competition, aggregation, and fragmentation is to consider adjacent spaces.

As Peter Thiel said in Zero to One: “Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.” This was the case in competition in financial market structure.