Brainstorms Issue #16: Taboola for Newsletters

Brainstorms Issue #16

The Validation Bootcamp

If you missed it last week, I announced that I'd be hosting a Validation Bootcamp for anyone wanting to learn how to find great business ideas, launch MVPs, and find early adopters. Check out my announcement for more details. 

I've got 2 spots left. If you're interested, just reply to this email or check out the website.

Alright, on with the show! 

Taboola For Newsletters

“I’ve got a newsletter that has about ~4,500 subscribers. I’m in a position where I’m big enough to work with advertisers, but I also don’t really know where to start. Finding and setting up advertisments seems really challenging."

- Keevin, Brainstorms.io

The Pain Points

This is a problem I’ve considered solving myself - but haven’t gotten around to it. So, my laziness is your opportunity.

Here’s the problem in more detail:

1. Finding Advertisers: Do I just start emailing companies? Do I message other newsletters that have advertisers? I just don’t know where to start.

2. Deal Structure: After finding the advertiser, what should I ask for? Are there industry standards? What do the deal terms look like?

3. Managing Advertisers: Lastly, how do I manage my advertisers? Do I send them a report? What else can I do to keep them happy?

For advertisers, it’s a lot more straight forward. Newsletters provide a new medium for ad placement. Typically, newsletter readers are more targeted, have higher quality impressions, and have much better engagement rates than Facebook Abs or Google Ads.

The Opportunity

I see a massive opportunity for someone to create Taboola for newsletter creators.

Taboola is an advertising network that displays ads on large publishing sites. Here’s how it works:

• Taboola bundles up the audiences of large publishing websites like NBC, MSN, and Business insider.

• Taboola sends these publishing sites potential advertisers to run ads at the bottom of each article they produce.

• Approved ads are automatically pushed to the publishing site and shown to readers via a line of Javascript

This is a win for everyone. Advertisers gain a way to easily work with multiple large publishing sites, publishers don’t need to find and manage advertising relationships, and readers continue to get free content via the ad-supported model.

I believe this same model should exist for newsletters.  

Opportunity Size + Napkin Math

Now, more than ever, we’re seeing tens of thousands of creators write and publish their own newsletters. Some are calling it a newsletter renaissance.

To be clear, when I say newsletters, I’m not talking about marketing emails you get from ecommerce companies and stores. These are emails containing thoughts, ideas, news, and information that’s valuable to read.

With the recent ‘newsletter renaissance,’ the big question is, how big is this market?

Nailing down the market size wasn’t easy, but I did some napkin math to get a rough number:

• According to CovertKit’s Baremetrics and Newsletter Spy there are currently 34K newsletters on ConvertKit and 30-40K on Substack.

• There are roughly 12 big ESPs for newsletter creators. If we take Covertkit and Substack as top players, then I’ll estimate there are roughly 200k newsletters total.

• Unfortunately, most of these newsletters are defunct and don’t have a readership. Newsletter spy tells me only 20% of Substack newsletters have more than 200 subscribers. 

• Taking 20% X 200K estimates about 40K newsletters that you could bundle up.

  Next, we need to look at how much advertising revenue could be generated from these 40K newsletters. Let’s break that down:

• Using Newsletter Spy, I found the median subscribers of the top 20% of newsletters on Substack is roughly 1,000 subscribers.

• We’ll assume a 30% open rate which is pretty average.

• Advertising costs for newsletters vary widely but are generally much more expensive than Google Ads or Facebook Ads. Based on info from Hecto (discussed below), newsletters are charging roughly $.10/impression (expensive, I know).

• If we take 1,000 subscribers * 30% open rate * $.10/impression we get $30. 

• Now multiply $30 * 40,000 newsletters = $1.2M in potential advertising revenue/per ad/per issue.

  Newsletters typically put in at least two ads per issue, and most send out 4 issues a month. You can see how this business could get big quickly.

Current Solutions

Currently, no one has taken the Taboola approach to solving this problem. That being said, there are a few players in the space that are helping newsletters find advertisers.

• Swapstack

  • Swapstack helps you find advertisers for your newsletter and gives you some basic tools to help manage payments between parties. The tool feels a little clunky, and it appears they are doing most of the matchmaking manually. 

• Hecto

  • Hecto is a marketplace that connects newsletter creators with brands. Their platform is essentially a directory of newsletters with their engagement stats. If a brand is interested, they can reach out to the newsletter. It appears they have a few engagement requirements for newsletters that are listed on their site.

• Sponsor Gap

  • Sponsor Gap solves the advertising problem for creators by offering a database of advertisers for a price. Additionally, they have a private Slack Community of creators that you can network for advice.

How to Execute

This idea is a unique opportunity that has a big upside, but can easily be bootstrapped in the beginning.

1. Start with a Niche: The key here is to bundle newsletters together to make them more attractive to advertisers. I’d start with a niche (business, tech, self-help, etc…) so that the audiences are similar. This will make finding advertisers much easier as the audience is more targeted and relevant.

2. Build a Simple Offer: I’d start this with little to no tech. Create a simple landing page targeted at newsletter creators and reach out to them saying you’ll get them advertisers. Collect newsletter creator’s info via Typeform.

3. Create an MVP: Once you’ve got 5-10 newsletters in the same niche signed up, bundle them together and find an advertiser. Create the ad yourself, send it to the newsletter creators, and give them directions on how to place it in their newsletter. Congrats you just built an MVP! 🎉

4. Expand to Other Niches: Once you’ve nailed the first niche, expand into new niches and repeat the process.

Challenges

• Creators Want Control: The biggest challenge I see is aligning the values of the advertisers with the content creator. In most cases, these creators' reputation is on the line - meaning they aren’t willing to promote products they don’t use or believe in. This creates challenges from a bundling perspective.

• Two-Sided Market: This business has two sets of customers you need to keep happy, advertisers and creators. Unlike most two-sided markets, the classic chicken or egg problem seems manageable, but meeting the needs of both customers will be hard.

• Reporting: While some ESPs come in with built-in reporting, advertisers will probably want to know where their ad performed best. This could be a headache if the same ad was published across 300 different newsletters.

• Disintermediation: This is a classic marketplace problem. A brand works with a newsletter, they build rapport, and soon enough they are working directly together instead of through the platform that connected them in the first place.

TL;DR

• The Pain Points: Finding and managing newsletter advertisements is a pain.

• The Idea: Create Taboola for newsletters

• Opportunity Size: Big ($100M+)

• Why I Love This Idea:

  • One of the biggest challenges creators face is monetization

  • There’s little to no competition currently

  • It’s really easy to start

  • There is a huge market

• Biggest Hurdle? Align content creators' values with advertisers 

Thanks for reading - now get out there and build it! 

Catch ya next week, 

Keevin ✌