Felix Salmon

A correspondent writes, via email:

Since much of the seed capital of Matter was Kickstarter funded, isn’t it worth asking why the backers aren’t coming along, so to speak?

I know the absolute answer, but the usual issues of founder sweat equity versus angel capital apply, it seems to me. It’s likely that the angel funding via Kickstarter is pretty substantial on a term sheet basis relative to other early stage investing. At the very least, it’s an interesting topic vis a vis what Kickstarter is and isn’t: the Verge just did a piece about how it’s not a store. Fine. But what exactly is it then? It would be one thing if it was used to put the screws to Sand Hill Road, but the people left holding the bag aren’t really Fred Wilson.

This is an easy one, but it’s also important. Kickstarter is not a store, but it’s definitely not a place to raise seed-round equity. The money that gets raised by a company on Kickstarter isn’t debt, and isn’t equity: it’s operating revenues. From a business-plan perspective, Kickstarter revenues are basically pre-orders.

Last September, NPR asked a simple question: “When A Kickstarter Campaign Fails, Does Anyone Get The Money Back?”. It’s a question with a simple answer: No. To take just one example, look at the Geode. It raised $350,000 a year ago, but most of its backers — who are complaining vociferously in the comments section — seem to have received nothing. And while the founder didn’t just abscond with the money (he was eventually tracked down by the Charleston Post and Courier), it’s pretty clear that the Geode is Exhibit A for people who think of Kickstarter as SkyMall for vaporware.

There is one small piece of good news from the Geode fiasco: while the manufacturer has disappeared, and Kickstarter certainly isn’t giving anybody their money back, some commenters have managed to get refunds from their credit-card companies. If you do back a Kickstarter where you’re expecting a reasonably valuable thing in return, then it makes sense to use a credit card, rather than say a debit card or PayPal, to make your payment. (Just as it makes sense, if you’re buying an airline ticket, to use a credit card just in case the airline goes bust before your flight.)

That said, NPR’s question does make it clear that there’s a pretty explicit contractual relationship between the company and the funder: cash goes one way, goods and/or services flow the other way, a few months later. The money counts as revenues, not as funding, and the liability for the company is not a cash liability but rather one of deliverables.

But if it’s wrong to think of Kickstarter funding as debt finance, it’s even more wrong to think of it as equity finance. Kickstarter money is pretty much the cheapest money that an entrepreneur can raise, and that’s great: anything which makes it easier to generate some cashflow for startups can generally be considered a good thing. And Kickstarter is very clear that it’s not going to jump onto the crowdfunding bandwagon that was included in the JOBS act. Other companies can try to provide platforms for small companies selling off micro-chunks of micro-equity: that’s not what Kickstarter is about.

Matter did give out some equity, carefully, to important partners like Clearleft, which is wonderfully recycling the proceeds from yesterday’s sale into a small incubator. Matter’s backers, however, would and should neither want nor expect to see their pledges converted into some kind of equity. Most of the backers — 1,775 of the 2,566 in total — gave $25 or less: it’s clearly impractical for any company to deal with that many shareholders owning such tiny stakes. And people who subscribed after Matter launched have in some cases given just as much money; it’s not clear why the people who prepaid should get some kind of equity stake, while all other customers don’t.

Clearly there’s a bit of an asymmetry here: whenever you back a Kickstarter project, you’re running the risk of unexpectedly losing everything, while there’s no countervailing upside risk of some windfall down the road. But that’s the genius of Kickstarter. It gives creative people and entrepreneurs a way of asking for money without seeming to be begging, and it gives funders a way to be able to support the people they like and admire within the familiar wrapper of a commercial transaction. It’s a fine line to walk, and Kickstarter has done a very good job of not turning it into a contractually-binding funding operation, be it debt or equity or something in between.

For people who are used to looking at the world in terms of capital structures and funding costs, this can be weird: at one event in Davos this year, I met a successful businessman who was genuinely offended at how cheap the effective funding cost was for startup companies using Kickstarter. But backers of Kickstarter projects don’t think that way, and it’s worth noting that Kickstarter caps the amount that any one person can give at $10,000.

On the internet, there are lots of people who are generous and enthusiastic. That’s a great resource to be able to tap into. Let’s not try to turn it into something which is all lawyered up and financial.

Maud Newton has a good introduction to the art of Molly Crabapple, whose new paintings are being raucously exhibited at a storefront gallery on the Lower East Side. The new work was born of Occupy, and shares much of its ethos:

“Occupy favored art that was populist,” she told me last month… Theirs was art, Crabapple says, “that was passionate, accessible, unironic—art that bled and took sides. It was art out of the gallery and into the streets, into life. I hope it presented an alternative, a good strong alternative to detached, ironic uber-expensive art whose primary purpose is to fill up an oligarch’s loft.”

Newton places Crabapple in what she calls a “vanguard” of “artists are dedicated to a more democratic art world”, and quotes Jerry Saltz’s important essay on how the “art world” is fragmenting into multiple “art worlds”. Saltz’s piece, interestingly enough, is illustrated with a photograph of Keith Haring’s 1982 opening at another downtown storefront art gallery. For all that Crabapple wasn’t even born in 1982, the similarities are obvious: a flat, populist, all-over aesthetic with a real propensity to go viral; the gallery merely one part of a much broader cultural attack.

It’s not that such things are entirely absent from the higher-end art world these days: indeed, you can see them in any number of artists from Duke Riley to Takashi Murakami. Rather, what’s interesting to me is the way that a new economics of art is emerging — one which has much less emphasis on the Priceless And Transcendent Unique Object, and which relaxes much more easily into simple enjoyment of the art itself, whatever form it takes.

Crabapple, for instance, in her Kickstarter campaign for the current show, promised to give 538 backers art objects ranging from a signed Molly Crabapple million dollar bill, all the way up to one of the 9 big paintings which anchor the show. Those hundreds of backers are excited to be supporting the project; they’re not, in general, worried about things like edition sizes, or certificates of authenticity, or all the other trappings of art-world seriousness which mainly exist to give potential buyers the illusion that they’re purchasing something which has some kind of secondary-market resale value.

There are many successful artists these days, from Shepard Fairey to Damien Hirst, who are taking this path — who are selling art to consumers who enjoy it, without making a big deal about how unique it is or how much it might rise in value. These artists tend to want to disintermediate galleries, who are generally wedded to the art-as-investment narrative, or at least to the idea that there’s a certain amount of money that any given artwork is “worth”. That’s very different from the practice of, say, Roberto Dutesco, whose Soho storefront sells his photographs of horses in much the same way that the shop next door might sell sofas. The photos are expensive, but not because they have any particular resale value: the major auction houses won’t even accept them. (The last time one of them came up for auction, in Berlin, it sold for the same price as Dutesco’s book.)

Dutesco’s photographs have decorative value, and they look expensive, and they’re actually extremely good at filling up an oligarch’s loft, if the oligarch isn’t particularly interested in detached, ironic uber-expensive art. In fact, they are just as much at home in Soho as limited-edition Fairey posters are in Los Feliz. And just like Fairey, Dutesco can make a very good living selling his art, as a decorative consumption good, directly to the people who put it straight up on their walls.

This kind of thing is not entirely new, but I think it’s becoming more common, thanks to the way in which the internet allows artists to reach a niche audience much more easily than they ever could before. I’m a big fan of Etsy, in this regard; I’ve used it myself to buy the work of the brilliant Stephanie Tillman, who sells her wonderful, darkly hilarious embroideries online at ridiculously low prices. Much like Dutesco, every piece is unique, but anybody else can come along subsequently and buy their own virtually-identical version. Originality and scarcity are not what matters; it’s the art that matters.

The high-end art world naturally mistrusts all these artists, as it mistrusts just about anybody who tries to sell their own work rather than going through a gallery. If an art lover buys art directly from an artist without a gallery, you’re not going to have any third party reassuring yourself that you’re making a good decision, or that the piece will be worth much more in the future. The art world lives on third-party validation, and galleries really do earn their money, in that without them, the art they sell would be worth much, much less.

But as that world shrinks down to a hard and shiny plutocratic core, alternative models are bound to present themselves — and with them, a whole new idea of what art is and should be. When you procure art via Etsy or Kickstarter, you’re basically going back to the old patronage model, trusting your instincts, going with what you love. It’s incredibly easy to be very snobbish about a lot of this art, but in many ways its very attraction is the way in which it has no particular interest in ending up on the walls of MoMA.

We no longer live in a world where a small group of the self-appointed elite can simply tell the rest of us what is good and what isn’t. We’re going to make our own determinations of what we love, and we’re going to be happy transgressing boundaries in doing so: many of the comments on my post about technologists buying art, for instance, were from techies who said that they do buy art; it’s just that the art they buy is likely to be a piece of hardware, like the iPhone, or maybe a Telsa car. Their point is well taken: people pay a premium for such things just because they love their aesthetics, and want to own them and interact with them. They’re quite art-like, in that way.

I hope this world expands, and that many more artists will be able to carve out a niche for themselves selling pieces directly to the people who love what they do. Museums and curators will always exist, searching for narratives and art-historical importance. But if the internet is going to democratize art, and I think it probably will, then those tastemakers are going to have to be marginalized in the process. Instead, in places like Etsy and Kickstarter, a thousand flowers will bloom.

Seth Stevenson has a problem with the fact that the Internet raised $703,168 for Karen Klein, the bullied bus monitor. That kind of money is “disproportionate”, he says, adding:

Charities have always used poignant, individual stories to play on people’s emotions and open up their wallets. But the idea was that you should donate to the charity, not to the individual sad sack with the most heart-wrenching video or the most prominent link on Reddit. Likewise, political and social causes have long used the specter of bad behavior to lobby for new laws and policies—but rarely to round up an angry mob that tracks down specific offenders. It seems we’ve decided it’s more fun (and much easier) to collaborate in making one person happy or unhappy than it is to work together to change the underlying context.

Well, yes! It is more fun, and much easier, to make one person happy than it is “to work together to change the underlying context”. And yes, that’s one of the reasons why we do such things. There’s nothing inherently bad about fun-and-easy, but Stevenson seems to think that there is. The hidden syllogism would seem to be that the $700,000 that went to Karen Klein is money that would otherwise have gone to change the underlying context, and that therefore there’s something corrosive about the donations to Klein, because the alternative, while not as fun and not as easy, was in some sense superior.

But this is silly. At the margin, the Karen Klein campaign, along with all the publicity surrounding it, surely helped, rather than hindered, those people working to change the underlying context. And once someone has given $20 to Karen Klein, they will be more rather than less receptive to people asking for help on broader campaigns.

The fact is that almost none of us have some kind of annual giving budget, from which we draw when we send money to someone like Karen Klein. Instead, we give as and when we’re moved to do so. Once you start giving money away, you’re more likely to give money away in the future; Stevenson’s implication, by contrast, is that giving money in one place makes you less likely to give money somewhere else. Which is completely wrong.

Still, phenomena like the Karen Klein campaign are interesting. As Stevenson says, the vast majority of the money was given after it became clear that campaign founder Max Sidorov’s stated aim — to send Klein on “the vacation of a lifetime” — had long been surpassed. Which means that the people giving to the campaign no longer, at that point, wanted to send Klein on a vacation. The whole point of the campaign, from the beginning, was to be excessive: to single out Klein and shower her with cash and goodwill, not because she was more deserving than anybody else on Indiegogo, but just because sometimes the internet does excellent things for people. As the campaign snowballed, the very gratuitousness of it became its point: thousands of people were giving money to someone who no longer needed it, just because they could.

Stevenson draws various lessons about “metaperceptual influence” online, along with “deindividuation through the enhanced opportunity for anonymity”, all in the service of a thesis that there’s “something inherently different about crowd behavior on the Internet”. But he misses the simple and obvious point: that the internet is so enormous that 32,000 is less of a crowd than it is a micro-subset of people who think it’s cool to do something randomly good in a vaguely coordinated and largely effortless manner. As Amanda Palmer puts it, on the internet, a relatively small number of self-selecting people can be more than enough: enough to fund an album tour, enough to send $700,000 to a bus monitor in upstate New York, enough to make thousands of Harlem Shake videos. There’s something random about these things: you could never predict in advance which ones will catch the wave and which ones won’t. That’s just the way the internet works: it’s a bed of a million oysters, and, randomly yet inevitably, some of them will grow pearls.

If you want to look at crowd behavior online, it seems to me that the place to look is not any of the million fads which flare up and die down in a matter of a week or two. More interesting, to me, are the political campaigns — Howard Dean ’04, Barack Obama ’08, Ron Paul ’12 — which manage to excite a wired and youthful base. Those campaigns really are rival goods: if you support Obama you’re opposing Hillary, if you support Ron Paul you’re opposing Newt Gingrich. And they also share with political campaigns more generally the fact that giving money is generally done more for the benefit of the giver than it is for the benefit of the recipient: the marginal benefit of a donated dollar in a presidential campaign is very close to zero, in these ad-saturated times.

And that’s surely the real reason why so much money flowed to Karen Klein: people who gave her money felt really good about doing so. They weren’t trying to change the world, they were just making themselves feel good, and helping out a victim of bullying at the same time. It’s the story of most successful Kickstarter campaigns, too: the feeling-good-about-giving part is much more important than the ostensible commercial transaction.

The internet is the greatest disintermediating force the world has ever known, and it’s going to have to change the way that charities campaign — at least with respect to the ones who like to use individual stories as a way of raising collective funds. That worked much better when you couldn’t help the individual directly. Nowadays, as a charity, you either need to give people the belief that they are helping the individual (as Kiva does, for example). Otherwise, you risk being disintermediated entirely by the likes of Max Sidorov.

Apologies for the delay between part 1 and this: I wanted to wait until Amanda Palmer’s TED talk appeared online, because it’s an important part of the other big aspect of content economics. Part 1 was about the ability of publishers to sell readers to advertisers; part 2 is about the ability of publishers to persuade readers to pay the publisher directly.

There are basically three ways to go about this. You can put up a paywall; you can ask for donations; or you can sell non-digital things to your digital audience.

On its face, Palmer’s talk is about the second strategy, but in fact it’s about all three. (And yes, I’m the “financial blogger” referred to in the talk.) For instance, when it comes to online publishing, why are paywalls more common than tip jars, despite the fact that they’re much more difficult to implement? Palmer does a great job of walking us through the answer to that question: there’s something shameful, there’s a whiff of the panhandler, in asking strangers for money.

At the beginning of the talk, Palmer talks about her early career as a living statue, and the people who would drive by, shouting “get a job!” as she waited for people to drop money into her hat. The implication, of course, was that being a living statue is not a job (its surprisingly consistent revenue stream notwithstanding), and that a living statue’s income represents an entirely one-way transmission of value: spectators give money, and receive nothing in return. The rest of Palmer’s talk is an attempt to explain that the value goes both ways, and that there is (or should be) nothing shameful about creators asking for money. But the attitude she’s pushing against is deeply ingrained.

A couple of weeks ago, for instance, I asked Andrew Sullivan why he chose to put up a paywall rather than putting up a tip jar. His answer (at about 23:00) was unambiguous:

This is not a tip jar. And it is not a pledge drive. It is a subscription. And that makes it a different proposition. It’s telling people I’m not an amateur, and I’m not a charity. I’m doing work that I’m asking people to pay for. And it seems to me that at some point, we have to say that, in new media. Or else it is not going to continue to exist…

I had two pledge drives early on, in 2002 and 2003, which netted a certain amount of money. But this is a different model. This is trying to make it sustainable, long term: don’t give it money just because you like me. We are trying to create an actual site that is news and opinion that people value and pay for, and become associated with in the long run. We could have done a tip jar. We decided no. We wanted to be a business. And do it the right way.

The distinctions here are subtle ones: Sullivan still nags his readers, just as public radio does during its pledge drives, but in his mind those nags aren’t part of a pledge drive, because he’s a business, rather than an amateur, or a charity. And similarly, although he raised $500,000 from readers before his paywall even existed, those dollars weren’t donations, for much the same reason. There’s something shameful, on this view, about working for tips; there’s an unpleasant neediness about asking for charity. And it was those reasons, as much as any simply financial considerations, which resulted in Sullivan plumping for a paywall model.

Truth be told, Sullivan’s paywall is not much of a wall at all. 70% of his readers don’t click on the read-on links at all; they just stay on the home page, which is always free. And of the 30% who do click on read-on links, 91% are still within their allocation of seven free stories. Which means that overall, just 2.7% of his readers are reaching the point at which it gets a little bit harder to read what they want to read. And the actual number is lower even than that: many of his readers use RSS readers to consume his content, or else they disable cookies, or otherwise don’t get counted among the people visiting his website.

But as Sullivan would probably agree, the choice between a paywall or a tip jar is not as clear-cut as it sounds: realistically, it’s more of a spectrum. Some paywalls are forbiddingly high “Berliners“: if you don’t cough up, you have no access. Most, however, are porous to a greater or lesser extent. The Times and Sunday Times of London will give you the first 75 words or so of any story; the New York Times will allow you a certain number of free articles per month, plus all articles arrived at from external sites; the WSJ will let you in if you’re coming from Google, or from a link which has been emailed to you by a subscriber. At other sites, the wall is drawn around some content but not all: the New Yorker, for instance, puts only some of its magazine content online for free, while the Boston Globe hides all of its content behind a Berliner paywall but then allows a subset of that content onto Boston.com for free.

None of these models is obviously better than any of the others. No paywall lasts untouched for long: all publishers are making decisions to put up or take down paywalls every day, and it can be hard to keep track of which publications have which model. (Right now, for instance, without looking, I genuinely can’t remember whether the Economist is paywalling any of its content or not.) Just in the past few days, we’ve seen one high paywall demolished, at Variety; there, the new proprietor, Jay Penske, called it the “end of an error“. Meanwhile, another paywall has been erected, at Fortune: for the time being, for now, most Fortune magazine content is now behind a wall, while online-only content is free.

In an editor’s letter which isn’t online, Fortune’s Andy Serwer says that “we consider Fortune’s content valuable enough that we have decided not to give it all away online”. The unfortunate implication is that the online-only content, including the excellent Term Sheet blog, is not valuable enough to be worth charging for. On the other hand, if you look at the pricing, you’ll see that the cost of a digital subscription — $19.99 per year — is exactly the same as the cost of a digital subscription plus home delivery of the magazine. And the unfortunate implication of that is that all the extra value one finds in a magazine — the art direction, the layouts, the ability to read it while waiting for your airplane to take off — is also worthless. (Contrast that with the NYT paywall, which doesn’t really charge for the content at all, but rather for the online ability to navigate from one story to another.)

The real reason why Fortune put up a paywall, of course, has nothing to do with how valuable Andy Serwer thinks the magazine’s content is. Instead, the paywall is just another way for the Time Inc brass to try to make money and keep the magazine’s rate base high, the idea being that people will be less likely to cancel their magazine subscriptions if they know that they won’t be able to read that content online for free.

Which brings up a fundamental rule of online subscriptions: there is zero correlation between value and price. There are lots of incredibly expensive stock-tipping newsletters which have a negative value: you’d be much better off if you didn’t subscribe to any of them at all. And of course there’s an almost infinite amount of wonderfully valuable content available online for free, starting with Wikipedia and moving on through the sites of organizations like Reuters, Bloomberg, the Guardian, and the BBC.

Or look what happened when Newsweek and Sullivan parted ways: both of them started subscription products, at almost identical prices. (Sullivan wants $20 per year; Newsweek wants $25.) That doesn’t mean the two products have almost-equal value; it just means that both Newsweek and Sullivan — just like Marco Arment, for that matter — came to the conclusion that the $20-a-year range was more or less the point on the supply-and-demand curve where they would maximize their income. They might be right about that; it’s hard to tell. Paywalls are put together in so many different ways, at so many different price points, that trying to work out their relative merits, in terms of income generated, is almost impossible.

But there’s another consideration, too: the more formidable the paywall, the more money you might generate in the short term, but the less likely it is that new readers are going to discover your content and want to subscribe to you in the future. Amazing offline resources like the Oxford English Dictionary and the Encylopedia Britannica are facing existential threats not only because their paywalls are too high for people to feel that they’re worth subscribing to, but also because their audiences are not being replaced at nearly the rate at which they’re dying off. The FT, for instance, has discovered that its current subscriber base is pretty price-insensitive, and has taken the opportunity to raise its subscription prices aggressively. That makes perfect sense if Pearson, the FT’s parent, is looking to maximize short term cashflows, especially if it’s going to sell off the FT sooner rather than later anyway. But if you’re trying to build a brand which will flourish over the long term, it’s important to make that brand as discoverable as possible.

And the lesson of very porous paywalls, like Sullivan’s, or even of pure tip jars, like Maria Popova’s, is that on the internet, people prefer carrots to sticks. That’s one of the lessons of Kickstarter, too. To put it in Palmer’s terms: if you want to give money, you’re likely to give more, and to give more happily, than if you feel that you’re being forced to spend money. If you look at the $611,000 that Sullivan has raised to date, essentially none of it has come from people who feel forced to cough up $20 per year in order to be able to read his website. To a first approximation, all of that money has come from supporters: people who want Sullivan, and the Dish, to continue.

Palmer concludes her talk by saying that “people have been obsessed with the wrong question: how do we make people pay for music. What if we started asking: how do we let people pay for music?” The same question can and should be asked about other forms of online content, too. Tomorrow Magazine raised $45,452 — more than three times its goal — from 1,779 people, none of whom felt in the slightest bit grudging about the money they were spending. A mere 296 people clubbed together to raise $24,624 for Baltimore Brew. 99% Invisible, a radio show, raised $170,477 from 5,661 people. And that’s just a few of the Kickstarter journalism projects which were funded in 2012. There are lots of other models, too, like membership of Longreads, or Spot.us, which helps to fund all manner of interesting and amazing journalism. What all of these projects have in common is that they’re free online even as they’re asking for money: they’re not going to punish anybody for not supporting them by throwing up a paywall and saying “well, in that case, we won’t give you access”.

As Palmer says, this kind of model involves something quite rare in the journalism community: the ability to trust that people will support you, even if they don’t have to do so. And the stronger the relationship you have with your readers, the more you’ll be able to trust them. This is why Palmer’s Kickstarter campaign was so successful: not because she had a lot of fans (that, in itself, doesn’t work), but because the connection she has with her fans was so strong. As Paul Smalera says, “digital media needs to reconnect to readers”:

For all of the hype around interactivity, big media is still primarily a one-way street. And the rise of programmatic ad-buying will only reinforce that trend. Most old media revenue officers aren’t going to care about connecting to their online audience, beyond understanding their aggregate profile and average value to an ad network. Yet cultivating those reader relationships on an editorial level can unlock all sorts of value, understanding, and yes, even revenue.

Twitter is great at this: readers are quite right when they feel that they know the people they follow on Twitter, in a way they never do just by reading polished content. But there’s more to connecting with your audience than Twitter. Indeed, the best way of all to do it is to venture out into the real world.

Events are one obvious way of doing that, and can be significant profit drivers in their own right. Atlantic Media is fantastic at monetizing its brand by putting on conferences, as are other franchises: the tech world is a particularly good place for such things, as All Things D or Wired or TechCrunch will attest. The NYT has its Dealbook conference, the New Yorker has its festival, and of course the business press has branched out into things like the Economist’s gatherings or the WSJ’s whole suite of events.

Big formal expensive events like these aren’t easy to put on, of course — they require large dedicated staffs, and a huge amount of effort. But non-sponsored events like Radiolab Live are a bit cheaper and easier, and anyone can cobble together a Meetup, or even just tell his readers to meet him at the Oyster Bar for an impromptu celebration.

And events are just one tiny part of the non-digital world which digital creators can put their brand on and sell. The whole Kickstarter phenomenon, for instance, is based on the idea that if you give enough money, you’ll get stuff in return. Palmer was offering glossy books and LPs and CDs and even (if you ponied up $10,000) promised to come and paint your picture and have dinner with you. Tomorrow offered a phone message from a porn star. 99% Invisible offered books and shirts and all manner of other stuff. Kickstarter is no tip jar: make no mistake, it has a very large element of e-commerce to it as well. Meanwhile, Monocle has seven stores around the world, plus an elaborate e-commerce site, and Mental Floss magazine makes a good third of its revenue from selling things.

Think of this as the flipside of content marketing: if brands can bypass publishers and create their own content in order to sell the stuff they produce, then publishers can bypass advertisers and sell their own stuff — be it a $40 chemistry cocktail set or a £415 cashmere scarf — to their readers directly.

The bigger lesson here is that when it comes to persuading your readers to pay you money, it actually helps to be small. There’s an exception for finance, of course, and also for the NYT, which is unique in many ways. But the lesson of Palmer’s talk is that while 25,000 supporters aren’t nearly enough to support a band on a record label, they’re more than enough to support a band on Kickstarter — or, for that matter, to keep an iPad magazine going strong. What’s more, while consumers can be very loyal to brands and to publications, in many ways it’s easier to become loyal to an individual, especially when she has an idiosyncratic and unique voice.

If you want to read The Dish, you can’t get there by going to thedish.com or to thedailydish.com or anything like that: you get there by going to andrewsullivan.com. The person is the site, and when that happens, the readership becomes much more willing to hand over money. Do I want to give Fortune $20 a year so that I can read its magazine articles online? No, I do not — especially when we live in a social world, where if I find a story I love, the first thing I want to do is be able to share it. On the other hand, I’m much more willing to spend $20 a year to support Andrew Sullivan, even if I rarely visit his site, precisely because I don’t particularly have to do so, and can read any of his stuff whether I pay him or not.

We’re not talking about micropayments here: those have never taken off, and I doubt they will, at this point. For a long time, people thought that the sheer size of the internet would enable enormous numbers of people to pay negligible sums of money, which would add up to substantial amounts in aggregate. The problem with that was that it’s just too hard to spend money online: the effort involved just isn’t worth it, for sums of a dollar or less.

Instead, the sheer size of the internet enabled the opposite to happen: it enabled smallish numbers of people to pay modest amounts of money, which can add up to just as much in total.

So if you’re a huge publicly-listed corporation, by all means create an elaborate paywall in the hopes that people will decide that they need your content and will just have to pay for it. Every so often, that can work, as it has at the FT and the NYT. But frankly I don’t think those examples are particularly replicable: they’re both sui generis in many ways. Instead, it seems to me, the most promising aspect of content payments is at the other end of the spectrum. Build up a relationship with your readers, in large part by giving your content away for free; ask for money with pride and shamelessness; and place no cap on how much you let your readers spend. Give them the opportunity, and you might be very surprised at what they’re willing to buy.

By a curious coincidence, Maria Popova was scheduled to give a speech about blog business models the day after Tom Bleymaier and I wrote about hers. I went along to hear what she had to say, and caught up with her afterwards.

Popova is making changes to her site. Without revealing how much money she makes from Amazon links, she is going to improve her disclosure: every page now has a footer talking about how “Brain Pickings participates in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising commissions by linking to Amazon.”

That’s Amazon’s language, as mandated in section 10 of the Associates Program Operating Agreement. (It’s easy to miss, and it’s kinda buried in the agreement, so I’m sure a lot of other Amazon affiliates are also technically in breach of that part of the contract.) Unfortunately for Popova, it uses the word “advertising” twice in one sentence. That’s a problem, for Brain Pickings, because Popova doesn’t consider her affiliate links to be advertising, and she still says on her tip jar and on her donations page that the site is ad-free. Here’s how Popova sees the difference:

I’d be writing about the books I read anyway, whether or not they “generate a sale,” and that’s not true of an ad, which simply wouldn’t exist then.

There is a certain logic to this. It’s even reasonable to say that she’d be linking to the Amazon page for each book anyway; I, for instance, link to Amazon most of the time that I write about a book, without any affiliate link. In that sense, even the link to Amazon is a natural part of what one expects from a blog, and is not intrusive advertising which is only there because it generates revenue for the advertiser.

On the other hand, the fundamental property of advertising is that it advertises, not that it’s intrusive or gratuitous. (In glossy luxury magazines, for instance, the advertising is a necessary and fundamental part of the editorial product, just as much as it is the main source of income for the publisher.) So it’s understandable that many people, including Amazon, consider affiliate links to be advertising (as opposed to, say, some kind of biz-dev relationship). What’s more, many such links — especially when they’re accompanied by photographs of the product in question, and live permanently in the right rail of a website — are unambiguously advertisements.

It’s easy to overstate the importance of this point. The question here is just whether Popova can or should continue to describe her site as “ad-free” if she uses Amazon affiliate links: it’s not some kind of existential threat to her dual-income model.

The way I see it, Popova has three reasons for including that language. The first, which I’ll get to in a minute, is to imply in some sense that if she’s not making money from ads, she has to make money some other way. The second is to remind readers that they’re having a more pleasant experience just because Brain Pickings is unsullied by banner ads. And the third is Popova’s more general distaste for the ad-supported model, which she sees as leading to sites which lose their integrity as they whore for pageviews. I don’t share that distaste, especially as we move into a world where publishers are increasingly looking for unique visitors and engagement rather than raw traffic. Ultimately, Popova’s incentives are not that different from those of today’s ad-supported online properties: in both cases, income rises with readership and engagement.

The presence of Amazon ads is not some kind of existential threat to Popova’s tip jar: there’s absolutely no reason why she can’t have income from both sources. Just look at public radio and television: individual shows, and individual stations, and national networks all ask for donations even as they also receive substantial income from advertising. (Which is presented as “sponsorship”, but it’s the same thing.)

The conflict, then, if there is one, isn’t between having ads and asking for donations. So where might it be? Daniel Davies says that book reviewers shouldn’t get commission sales, and that he’s been disappointed in the books he’s bought after seeing her recommend them; is that the conflict?

Popova’s reply to Davies is that she doesn’t review books: that she only writes about books she loves, and that if she doesn’t like books, she simply won’t write about them.

It’s surely true that Popova’s success is in large part a function of how well-read she is, and how positive she is about what she reads. At the same time, however, she has a clear financial interest, on a site suffused with Amazon affiliate links, to write about a lot of books (as opposed to, say, online writing); and to say such nice things about those books that her readers are going to go out and buy them as a result. If she didn’t have the affiliate links, there would be less of a question about her recommendations, and whether it’s really possible for that many books to be that good.

Affiliate links do produce a conflict, then: they give an incentive to write positively about books for sale which might not actually be particularly worth buying. But there are conflicts all over media, and as conflicts go, this one’s relatively minor — especially for someone with Popova’s readership. Because here’s the thing: Popova isn’t a journalist, and her loyalties are only to her readers, who genuinely don’t seem to care about things like this. The consistently positive and upbeat tone to Popova’s blog might generate healthy Amazon income as a side-effect, but it’s also genuine: she’s one of those bloggers — Gina Trapani is another very successful example — who have no time for snark and who naturally look for things to celebrate rather than things to tear down. (Just listen to that O’Reilly talk: she dishes out huge amounts of praise to virtually everybody she cites.)

To a certain extent, this is a female thing: positive happy bloggers tend to be female, as do their readers.* And when someone like Anne-Marie Slaughter supports Maria Popova to the tune of $300 per year, there’s definitely an element there of supporting the sisterhood. Which is a good thing!

But to many male observers, there’s something a bit off there. I was on the MediaTwits podcast with Andrew Sullivan today, for instance, and he went to some length to explain that his paywall is not a tip jar, like Popova has. The difference between a paywall and a tip jar, to Sullivan, is that tip jars have connotations of being an amateur, or a charity, while he is a professional looking to get paid for what he does. His paywall has already visibly reduced the number of people who read beyond the home page, but he’s sticking with it: he clearly wants his subscribers to be paying for something which they wouldn’t otherwise be able to receive.

To Joe Weisenthal, too, Popova’s tip jar has connotations of charity: he considers it the digital version of “panhandling”. Again, Popova doesn’t see it that way: I asked her if there was any level of Amazon affiliate income at which she would be making so much money that she would take the tip jar down, and she said that there wasn’t. To Popova, the tip jar is not about pleading poverty or neediness: it’s about giving readers the opportunity to support a site they find valuable.

The tip jar and the affiliate links are pretty similar, in Popova’s mind: they’re both ways that her readers can help support the site, either directly or indirectly. (A hint, for Popova’s supporters: if you’re buying something expensive on Amazon, follow a link from her blog first, and then add that expensive item to your cart. That way she’ll get about 7% of the proceeds.)

The affiliate links provide Popova with more than just money. There’s a whole extra layer of value there: Popova can see what books her readers are buying, and thereby see what her readers are interested in, or what she too should maybe be reading. In that sense, the Amazon data is bit like the emails that pour into the inboxes of high-profile bloggers like Andrew Sullivan and Tyler Cowen: a useful and efficient back-channel way of crowdsourcing material for the blog.

So the links are great for Popova. But, now that she’s disclosing their existence on every page, is that going to put a dent in her tip jar income? Will Popova’s readers still donate the same amount of money now that it is more obvious that Popova is running a “clearly commercial site”? Popova’s language — the way that she combines a request for donations with a statement that she doesn’t accept advertising — suggests that she fears they might not, as does the whole Björk episode.

But really, Björk failed in her fundraising not because she’s commercially successful but rather because she hasn’t built up a strong two-way relationship with her fans. The difference between Björk, on the one hand, and Amanda Palmer, on the other, who raised over $1 million on Kickstarter, is that Palmer has an astonishingly strong relationship with her fans — a relationship which feels personal. If I say “I like Björk”, what I mean is “I like Björk’s music”. If I say “I like Amanda Palmer”, on the other hand, I’m much more likely to mean “I like Amanda Palmer”.

The part of Popova’s response to me which has resonated most strongly is undoubtedly the bit where she says of her blog “it’s MY LIFE, Felix”. For Popova, there’s basically no distinction between her blog and her life — she is Brain Pickings. What’s more, her supporters understand that, and they’re wholly aware that when they support the blog, they’re supporting Popova, personally. If Brain Pickings were published by Time Inc, its tip jar wouldn’t fill up very quickly: that would be weird, a bit like Reddit running a pledge drive while being owned by Condé Nast. (That turned out quite well in the end, but it was still weird.)

Because there’s not much of a distinction between supporting Popova and supporting Brain Pickings, there is a sense in which it would be fine for donations to start falling if Popova was making enormous amounts of money from other sources. If Brain Pickings were written by Bill Gates, for instance, rather than Maria Popova, it’s hard to imagine that many people would place $10 per month in his tip jar. And that’s why it makes sense for Popova to be a little bit more forthcoming with regard to the amount of money she makes from Amazon.

At the margin, it probably doesn’t make a huge amount of difference: Popova’s donation base is pretty strong, and indeed is likely to continue to rise from its current level, as her readership and fan base expands. But if you look at Popova’s examples, in her speech, of all the various people who are making money online from sources other than advertising, a trend emerges. To the extent that donations are voluntary, they tend to be based on an interpersonal desire to help somebody out. Twitter is the new radio, in that sense: both mediums feel particularly intimate, and can be very powerful in creating an audience of people who feel that they really know and like the person they’re following or listening to. The more of a personal relationship that readers feel with authors, the more they’re willing to give. Where there’s less of a personal relationship, publishers have to create other kind of incentives: withholding content from people who won’t pay, giving goodies to those who do.

I suspect that’s why Andrew Sullivan plumped for a paywall rather than a tip jar: while he’s very open about his personal life and his finances, he also wants his commercial relationship with his readers to be a professional one, based on mutually-beneficial trade, rather than a personal one. While people supporting Amanda Palmer are clearly supporting Amanda Palmer, for instance, Sullivan prefers to see his supporters as people who are buying access to his pro-quality website. A professional like Sullivan feels more comfortable asking people to pay for his professional services than he does asking people to just support him voluntarily.

And this is where the tension underlying Popova’s business model reveals itself. Popova has made the decision that there are certain types of things she doesn’t want to write about:

Andrew and I have very different styles. He writes about his partner. I don’t. He writes about his health. I don’t. He writes about his financials and other meta-topics. I don’t. Please understand this is out of an impulse of being “opaque” about it – it simply isn’t the kind of writing I do.

That’s fair enough — but the internet, just like television, has a habit of rewarding those who overshare. And the less you talk about yourself, the more room you leave for people like Tom Bleymaier to try to reverse-engineer the stuff that isn’t public from the stuff that is. In a slightly different world, this wouldn’t be an issue at all: if Popova had set Brain Pickings up as a non-profit, for instance, then her income would be public on her form 990, while if she lived in Sweden, it would be public on her tax return. But Brain Pickings isn’t a non-profit, and isn’t Swedish, and is very successful — which is naturally going to result in a lot of people being interested in just how much money it makes, and whether it might make sense for them to follow a similar strategy.

In a world where all media business models are precarious, having two separate income streams is entirely sensible. And in general, the more money that bloggers can make, the better. Popova might not be making $400,000 a year yet, but I hope she does in future — and what’s more, I hope she does so while retaining a substantial tip-jar income stream. That would be a great sign of what’s possible in the ideas-blogging space. What’s more, as she moves in that direction, I hope she gets over her reticence and celebrates her good fortune with her readers and the public at large. It’s possible that she might lose a little bit of her tip-jar income. But it would be pretty easy to more than make up for those losses by monetizing the inspirational story of how an impoverished Bulgarian became an iconic role model for the new information economy.

*Update: This sentence has not gone down well in the Twittersphere. Just to make it clear, there’s a huge difference between “most A are B”, on the one hand, and “most B are A”, on the other. I believe that women, in general, make better bloggers than men, even if that means they are less likely to appear on op-ed pages. But, I might well be wrong about that!

Back in May, Kickstarter looked as though it was moving upmarket. Following Bob Lefsetz’s lead, I said that “while Kickstarter was originally embraced by the undiscovered and impecunious, its greatest potential, in the music industry, is actually with established acts who already have a large following”.

I said that in the first days of the now-famous Amanda Palmer Kickstarter campaign — something which not only massively exceeded its target, but which also got Palmer a key slot on the TED 2013 roster. But there have been few established music-industry acts following in Palmer’s footsteps. Indeed, when Björk recently tried something similar, she quickly discovered that she was never going to get anywhere near her £375,000 goal, and pulled the plug. There were various reasons why the Björk project failed, but one of them was undoubtedly the fact that Björk is a rich person and therefore doesn’t “need” £375,000.

It’s entirely natural to want to funnel money where the need is greatest. Andrew Sullivan’s readers are supporting him, for instance, because they know that the the only source of income keeping his blog going. And Maria Popova’s readers are also reportedly quite generous. Anne-Marie Slaughter, for instance, is on the record as giving $25 per month — that’s $300 per year — to Popova, saying that doing so is “a lot like giving to your public radio station”.

Popova doesn’t claim poverty. But she does have a tip jar, prompting her readers to give between $7 and $25 per month (that’s a lower bound of $84 per year, well above the cost of, say, the New Yorker). And she explains on every page that “Donating = Loving”, and that “bringing you (ad-free) Brain Pickings takes hundreds of hours each month”. The tip jar is more explicit, saying that “Brain Pickings remains ad-free and takes 450+ hours a month to curate and edit”, and Popova has said in the past (although not recently) that Brain Pickings is “not for profit”.

The messaging here is clear: I work hard, I put all my time into this, and I have no other source of income, so please give generously to support what I do. And Popova does work hard. But she also has another job, editing Explore, and it’s hard to see how she can spend 450 hours a month on any job and still have time left over for that. More importantly, while Brain Pickings might technically be ad-free, it also provides a substantial income to Popova before she gets any money at all from donations.

The secret is affiliate links: if you follow a link from Brain Pickings to Amazon.com, then a big chunk of any money you end up spending on Amazon that session is going to make its way back to Popova. Affiliate links can be very lucrative: the Wirecutter, for instance, makes $50,000 per month, with that number “doubling every quarter”, according to David Carr; it gets that money from a readership of less than 350,000 unique visitors per month.

Brain Pickings claims 1.2 million readers, and while they surely don’t buy as much stuff on Amazon as the Wirecutter’s readers do, even if they only spend one fifth as much, that would still work out to an income to Popova of more than $400,000 per year from Amazon alone. An anonymous blogger on Tumblr (update: he has now named himself as Tom Bleymaier) has done the math a couple of different ways: one comes out to $432,000 per year, and the other comes in at $240,000 per year. However you estimate it, Popova’s Amazon income would seem to be more than enough to keep her blogging even if all her tip-jar income dried up entirely.

The blogger, who will say only that his name is Tom and that he Bleymaier, who runs a startup in Palo Alto, is not offended by Popova’s income: rather, he’s offended by the way in which Popova is being deliberately opaque about what she’s doing. Affiliate links are a form of advertising, which does somewhat put the lie to Popova’s claims of being ad-free. And as Tom says, if you’re making hundreds of thousands of dollars a year from such things, that gives authors a pretty strong incentive to “to change their tone such that they convince the reader to go all the way through with the purchase” of the book (or whatever) that they’re writing about.

What’s more, the affiliate links don’t end at Popova’s website: she links to Fab sales from her Twitter feed as well (here, for instance), and gets a percentage of all those revenues too. With more than 300,000 followers on Twitter, a 0.1% conversion rate means 300 sales, and potentially thousands of dollars of income from just one tweet. On top of that, as recently as a couple of months ago, Popova was found to be behind skeevy SEO sites like curesleepapnea.com, gastricbypassrisk.com, and liposuctionrisksinfo.com.

All of which makes the tip jar on Brain Pickings seem less like an honest request for readers to help keep the site going, and much more a cynical attempt to maximize income from a business which is already extremely lucrative. Andrew Sullivan is being very open about how much money he’s making, and where it’s coming from; Popova, by contrast, is being very opaque.

That’s sad, because Popova provides a valuable service to the web, and she also seems to have worked out a highly-successful business model. We should be celebrating the kind of money that Popova is making — I certainly don’t begrudge it — rather than seeing her try very hard to make it seem that she’s less successful than she is. If Popova is up there with John Gruber as a one-person operation making half a million dollars a year from blogging, and if she’s managed to get to that position by the age of 28, that achievement is just as impressive as Brain Pickings itself. The problem, of course, is that if she’s outed as a member of the 1%, her donation income might dry up quite quickly, and she doesn’t want that. Does she ever wonder, though, whether her readers might need that tip-jar money more than she does?

Update: Popova, who says there are “lots of factual errors” in this piece, has responded at length, via email. Here’s the whole thing.

Hey Felix,

A few thoughts on the whole Amazon situation.

Tom Bleymeier emailed me about a year ago with some seemingly polite but decidedly passive-aggressive questions about the affiliate links. I wrote him back and answered as patiently, honestly, and completely as I could, over a series of several exchanges. (I’ll forward you those in a second if I can dig them out – there’s nothing to hide, but I was very miffed by his complete lack of basic journalistic hygiene in making out-of-context quotes from private emails, which are by default always off the record, public.)

At some point, however, I had to disengage – in part because it was becoming enormously time-consuming, but mostly because it became painfully clear that this was a person who had projected his villain image onto me and had absolutely no interest in understanding my motives, my reality, who I am, or why I get up in the morning.

Regarding his Tumblr article – first of all, those numbers are ludicrous! If Amazon gave me even a tenth of that a year after Uncle Sam takes his fair share, I’d be delighted. Delighted!

A biographical note for context – I’ve spent most of my life in what constitutes poverty by American standards. When I came to America for college, I worked up to four jobs at a time to pay my way through, and graduated with student debt. Not much changed until 2010. When I moved to New York late that year, the security deposit my landlord required (in a non-fancy part of Brooklyn) was more than all my scattered savings combined – $80 more, to be precise. So I went to an ATM across the street, took $80 out of my credit card, deposited it into my checking account, and handed the whole big check to the landlord. While I’ve come a long way since the end of 2010, and I’m proud and relieved to report that for the first time in my life I’m not perpetually broke, to peg me as a member of the 1% – “outed” as one – is not only absolutely ludicrous but also quite hurtful.

Semi-relatedly, on motives: Brain Pickings is a record of what I, the subjective person, care about, what excites and inspires and stimulates me. A lot of that happens to be books, because I spend the majority of my life reading books, but I would do that anyway, whether 5 or 500,000 people shared in it. And I would do it whether those people clicked the Amazon link or the public library link I provide for each book I write about. (A fact, oddly, never made mention of – I suppose that would discredit the depiction of me as some dollar-sign-eyed monster trying to mercilessly “sell” people books…) I don’t mean to be passive-aggressive myself, I’m just having a very hard time with such depictions that run so counter to who I know I am.

Regarding the incorporation – that happened last spring, after a few readers alerted me that a company in Israel had incorporated under the name Brainpickin’, by someone named Ariel something-or-other per WHOIS, and was even using my old logotype. My studiomate Tina, who runs the Swiss Miss blog and had dealt with such issues, advised me to incorporate immediately and put me in touch with her IP lawyer, Jerald Tennenbaum. He said an LLC would be best and fastest for trademark purposes, filed the paperwork, billed me, I got a couple of official-looking envelopes from the government, and that was the end of it. I hadn’t even thought of it since, until this week’s quasi-scandal. If you’d like to reach out to Jerald to confirm, I’m happy to connect you.

Regarding transparency and comparisons to Andrew: I love Andrew, read him daily, and supported his indie move the first day he announced it. But Andrew and I have very different styles. He writes about his partner. I don’t. He writes about his health. I don’t. He writes about his financials and other meta-topics. I don’t. Please understand this is out of an impulse of being “opaque” about it – it simply isn’t the kind of writing I do. I’ve been completely honest about the Amazon links with anyone who’s ever asked – and have many, many, many emails I’m happy to forward – and have brought it up myself multiple times in talks and on Twitter.

There are many things I don’t write about simply because I don’t think they’re relevant to readers, but gladly disclose them when asked. For example, I don’t tell people how much it costs to actually run the site – which, when you add up web hosting, email newsletter delivery, the money I spend on books, TypeKit, VaultPress, proofreader, developer, designer, and various data plans, adds up to about $3,600 a month. That doesn’t include my hours which, if paid at minimum working wage – so if I were cleaning toilets instead of, say, poring through Edison’s diaries – would bring the total up to about $7,000 a month.

I also don’t mention that I send a good chunk of the donations and such I receive to other things I want to support – sites like It’s Okay To Be Smart and Ed Yong’s science blog (until he discontinued the donations a few weeks ago), Radiolab, The New York Public Library, A Room of Her Own (a foundation supporting women writers), and various KickStarter projects in the science/history/storytelling space. I don’t write about this partly because it’s my own business and thus irrelevant to readers, and partly because it’s simply cheesy to brag about altruism.

Regarding hours, actually – to anyone who knows me, questioning how much time I put into what I do would be laughable. Brain Pickings is not how I make a living – it’s MY LIFE, Felix. Every waking moment goes into it one way or another – the enormous amount of time it takes to read books, to research, to meet with people, to interview, and even to do this right now, and of course to write 3 articles a day Monday through Friday, between 300 and 3000 words each. (Add to that the time of my proofreader and any intern at any given time, plus designer and developer when needed.) And here’s the thing – I do it not to “build an audience” or “generate revenue” or any of that, but because it gives me enormous joy and stimulation. It makes me excited to wake up and fulfilled to go to bed. And I guess what it boils down to is that the fraction of the world that’s ever come across Brain Pickings and cares will just have to take my word for it. Those who don’t are free to ask me questions, which I will always answer as honestly as I can and as completely as time permits, or they’re free to move on. But Brain Pickings is my home – and people interested in hostile takedowns, like Tom seems to be, rather than in understanding what moves me or having an intelligent conversation about things, are simply not welcome in it.

Thanks for reading. Sorry this is so long.

// maria

The big media news of the day is that Andrew Sullivan is taking his team, going independent, and running the Daily Dish as a standalone business. It’s a risky move, but it’s not that risky. And I like the direction he’s moving in, for a number of reasons.

Firstly — and this is absolutely vital — Sullivan is clear that “there is no paywall”. Sullivan wants as many people as possible to read his blog, and you don’t do that by preventing them from doing so. If you follow an external link to an Andrew Sullivan post, you will always be able to read that post, whether you’ve paid him or not, and no matter how many posts you’ve previously read that month. This is a concept taken straight from the NYT, and it’s very smart; I wish that other publications, including the FT and WSJ, would follow suit.

If you want absolute proof that this is not a paywall, just look here: “our RSS feed won’t be affected by the meter”, he says. Sullivan has, from day one, always served up a full RSS feed, and that is not going to change. So if you want to read every word he writes, without paying a penny, that’s easy: just subscribe to his RSS feed. The purpose of what Sullivan calls “a freemium-based meter” is emphatically not to keep people out: it’s not a wall. Rather, it’s a mechanism for allowing Sullivan’s most loyal readers to pay him for the content they love. So far, about one third of them are paying more than the $19.99/year headline price: they want to support this project, he doesn’t need to threaten them with some kind of if-you-don’t-pay-me-you-won’t-be-able-to-read-my-stuff pitch.

The real parallel here is not media paywalls so much as it is Kickstarter projects. It feels good to support something you love and admire — it feels much better, indeed, than paying some kind of sticker price for the same thing. Sullivan’s price point of $20/year is very close to the $25/year cost of subscribing to Newsweek, which Sullivan is now leaving. But the two payments feel different: it’s the difference between paying an individual and paying a faceless corporation. And although Sullivan is doing this on an unprecedented scale — he has a significant staff now — this kind of model is not unprecedented. Jason Kottke tried it way back in 2005, and Maria Popova has been doing something very similar for a while. The only real difference is that Sullivan is being a little pushier about asking for money, and making it a little bit difficult for very regular readers of his website to read absolutely everything without paying.

I am a big fan of Sullivan’s decision not to accept advertising. Once upon a time, selling ads on blogs made sense — but now it doesn’t. They can turn a blog into an unreadable mess if you’re not very careful, and the amount of cash they generate is rapidly diminishing. They do horrible things to pageload times, they annoy readers, and — most importantly — they would turn Sullivan from being a blogger into being a publisher. Some people are great at making that move: Josh Marshall is a prime example. But one of the great attractions, to Sullivan, of going out on his own is that he’s going out on his own. Having done that, the last thing he’s going to want to do is hire a publisher who will tell him that he needs to do this or that.

And in any case, publishers don’t come cheap — by the time they’ve paid for themselves, there’s often very little money left over to pay for everything else.

The big unanswered question about Sullivan’s business model is how the economics are going to play out. He seems to have brought in about $100,000 today, from loyal readers — that’s about 4,000 subscribers off the bat. But that $100,000 is going to go fast. Sullivan is coming off a fat contract at NewsBeast, signed when Tina Brown was flush with lots of Barry Diller cash. He almost certainly couldn’t get her to agree to replicate that contract when it came up for renewal, so it’s hard to know how much money he’d receive if he stayed at the Beast. But my guess is that Sullivan wants the staff of seven, including two paid interns, to earn somewhere in the neighborhood of $750,000 a year between them, plus benefits. Add in what Sullivan lumps under “legal, technological and accounting expenses”, and you’re well into seven digits. So while today’s haul is impressive, Sullivan is going to have to keep those subscription revenues coming on a pretty steady basis, and he’s surely targeting a paying subscriber base of at least 50,000 — about 5% of what he calls his “unofficial staff of around a million unpaid obsessives”.

That’s a high bar to set: it’s roughly the same as the circulation of The New Republic, which Sullivan used to edit. But if anybody can get there, Sullivan can.

And when it comes to income and expenses, Sullivan’s in a pretty unique and special place. His income, for starters: there’s a long list of publications which is happy to pay him top dollar to write for them. And I’m sure he could sell a book any time he wanted, too. As for his expenses, he was famously grouchy about moving to New York, and I suspect he won’t stay here much longer now that he doesn’t have to be here for work purposes. And then there’s his HIV+ status: as he told Andrew Leonard, “You only live once, and in my case, I never expected to live this long. So why the fuck not?”

Finally, Sullivan is burning no bridges here. If this works, great; if it doesn’t work, I’m sure that there will be a fair few publications out there willing to add their names to the list of places which have hosted the Dish. It’s what the financial types call a free option. And I’m very glad that Sullivan is taking the plunge, to see just how much money is out there for someone looking to make it on subscription revenues alone. I only have one request for him: please be very transparent about the numbers!

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

HSBC is now almost certain to face the largest anti-money laundering fine in history. The only question is how large it will be.

The bank is negotiating a civil settlement in the US for executing thousands of transactions for drug cartels and organizations with terrorist connections between 2001 and 2010 (full 334-page Senate report here). Among HSBC’s actions: providing at least $1 billion in financing to Al Rajhi Bank of Saudi Arabia, even though some of the owners of the firm were linked to the financing of terrorism; and funnelling at least $7 billion from Mexico to the US, despite being warned that such sums had to include drug proceeds.

After setting aside $700 million in July to cover the damages, the bank is adding another $800 million to its settlement reserves. But, as CEO Stuart Gulliver told reporters, the final payout “could be significantly higher” than $1.5 billion. (The FT cites analyst estimates ranging from $2 to $3 billion.) What’s more, any settlement is likely to be followed by criminal charges from the US Justice Department.

After the Senate released its scathing report, HSBC made a college try at crisis management: its head of compliance announced his resignation (in Senate testimony no less), an apology was made, and then, in one of the great moments in the annals of revolving-door employment, they hired the former chief US sanctions regulator to oversee their own sanctions compliance.

But when the bureacratic infighting that occurs when you are under investigation by 11 separate federal agencies seems to be your best bet at containing a scandal, things aren’t good. — Ben Walsh

On to today’s links:

Scoops
The FT is reportedly for sale (if you’ve got up to $1.6 billion lying around) – Bloomberg

Politcking
Has Wall Street already given up on Romney? – John Carney

Remuneration
It’s time for performance-based pay in DC – Sheila Bair
60% of Wall St doesn’t understand their own pay – Huffington Post

New Normal
“Time to move on”: Election Day has been replaced by Election Month – WaPo

Big Problems
We’re making too many “efficiency” innovations and not enough “empowering” innovations – Clayton Christensen
Why we can’t seem to solve big problems – MIT Technology Review

Alpha
Banks are firing their million-dollar derivatives traders and replacing them with algorithms – Bloomberg
S&P gets in trouble for giving AAA rating to obviously terrible thing – Matt Levine
Buy and hold still pretty much works – WSJ

Hoarders
“Dead money”: what’s behind the massive global rise in corporate cash stockpiles? – Economist

Today In Rationing
One problem with rebuilding beaches: we are running out of sand – NYT

An Economist Said This
Enough with “one man, one vote”, what about Pareto efficiency? – Steven Levitt

Video
Sherrod Brown, US Senator from Ohio, member of Senate Banking Committee, enjoying Hova – YouTube

Right On
Kickstarter CEO: “We don’t ever want to sell this company, we don’t ever want to IPO” – All Things D

Investigations
The FBI is probing Rochdale Securities – NY Post

Possibly Useless Data
Turnout plummets and the presidential race tied! (sample size: 10 people in New Hampshire) – Huffington Post
Obama wins Guam! – UPI

Are crowdfunding statistics the new counterfeiting statistics? Certainly they seem to have become a meme. If you know that crowdfunding is a big deal, it’s probably because you read all about it in TechCrunch, in May (“these portals raised $1.5 billion and successfully funded more than 1 million campaigns in 2011″), USA Today, a few weeks later (“About $1.5 billion was raised in 2011 by about 450 crowd-sourcing Internet sites worldwide”), or maybe the Economist, a week after that (“$2.8 billion will be raised worldwide this year, up from $1.5 billion in 2011″). More recently, Forbes upped the ante even further: “This year alone, an estimated $3.2 billion dollars is expected to be raised through donation-based crowdfunding platforms like Kickstarter”.

All of these statistics, you won’t be surprised to hear, come from the same place: a May report from Crowdfunding.org and its research arm, Massolution. The report lists — by placing their logos on five successive pages of the report, so that their names can’t be searched — 135 different “participating companies”, starting with Lending Club and Kiva, and ending with… um, hang on a sec. Lending Club and Kiva? Since when are they “crowdfunding platforms”?

It turns out, if you look at the definition of a “crowdfunding platform” that the report uses, it’s incredibly broad: “an operator of a funding platform that facilitates monetary exchange between funders and fundraisers.” Which turns out to include not only peer-to-peer lenders but also FirstGiving, a website which non-profits use to accept donations, and which claims to have moved $1 billion of funds through its system. For that matter, the definition doesn’t even say that the crowdfunding platform needs to be online: I reckon that if anybody hosting a political fundraiser probably counts as a crowdfunding platform under this definition. Hell, the New York Stock Exchange would even qualify.

Oh, and guess what: if you add up all the money raised in 2011 from all 135 companies listed, it doesn’t come to $1.47 billion at all. It comes to just $575 million. Where does the other $895 million come from? The report basically pulls it out of thin air, reckoning that since it didn’t manage to get numbers from all of the crowdfunding companies in the world, it would try to extrapolate, somehow. Or, in the language of the report:

Each CFP was modelled individually based on key metrics, market growth dynamics and other characteristics for a number of large CFPs that did not provide data in order to estimate the total funds.

It’s very hard to know what this means, but when it comes to crowdfunding platforms, all of the big ones, including Kickstarter, are already on the list. It beggars belief to assert that there’s a whole bunch of other platforms out there which together raise more money than those 135 companies put together.

In any case, you won’t find it in the abridged version of the report, but the key chart is this one:

According to this chart, of the $575 million that Massolution managed to total up, fully 49% is “donation based”, from companies like FirstGiving. And another 22% is “lending-based”, from companies like Lending Club. (I don’t know which bucket Kiva is in; I suspect it’s lending, but it’s certainly one or the other.) I don’t consider peer-to-peer lending to be crowdfunding, and I don’t think that giving money to charity online counts as crowdfunding either. So what happens if you exclude those two categories? You get $63 million in reward-based crowdfunding (think Kickstarter, which is now up to $247 million in total funds raised), and another $103 million in equity-based crowdfunding, all of which comes from outside the US.

Recently, SecondMarket has been moving into the business of raising money for fund managers of various descriptions — this too counts as crowdfunding under the Massolution definition, even if it’s just a couple of high net worth individuals putting their money into an art fund. And SecondMarket is adamant that it does not want to get into the crowdfunding game.

All of which is to say that Massolution has done a very good job of taking the relatively small amount of genuine crowdfunding which is going on out there, throwing it into a bucket with a lot of stuff which is not crowdfunding, and persuading the media that crowdfunding has already become a billion-dollar business, even before all the new activity legalized by the JOBS Act kicks in.

So what are the real numbers? Well, if you take only the “reward-based” and “equity-based” slices from the Massolution pie, they come to $165 million for 2011. That’s more or less in line with the $123 million number which the Daily Crowdsource came up with earlier this year. It’s not chump change, but it makes the entire global crowdsourcing space roughly half as big, in revenue terms, as, say, the Fifth Avenue Apple Store.

The lesson of this story is that we shouldn’t be getting ahead of ourselves, and we certainly shouldn’t be accepting uncritically any statistics which come from Massolution. Carl Esposti, Massolution’s CEO, is on the executive board of the Crowdfunding Professionals Association — which is to say he very much has a dog in this fight. Next time he starts throwing out statistics on the size of the crowdfunding market, it would behoove any journalist to double-check exactly what he means by that. And whether he thinks it includes things like online donations to the Red Cross.

I have a piece in the latest issue of Wired magazine on the problem with IPOs in general, and technology IPOs in particular. In it, the JOBS Act comes across rather well:

It’s about to get easier for tech CEOs to ignore the IPO’s siren song. Legislation wending its way through Congress would change SEC rules, meaning no tech company would find itself forced to go public in the way that Facebook has. The bills, which have been supported quite vocally by a number of CEOs at pre-IPO companies in Silicon Valley, as well as VCs who want more control over the timing of their companies’ IPOs, would not count employees toward a company’s 500-investor limit. The legislation would also raise that limit to 1,000 shareholders.

I do think these changes to the 500-shareholder rule make perfect sense. Right now, companies like Facebook (and Google before it) tie themselves up in knots when it comes to giving equity to employees, handing out variations on the stock-unit theme rather than actual equity, just to get around this rule. That benefits no one, really. And ultimately they’re forced to go public anyway, with the timing imposed upon them by SEC regulations rather than being a matter of their own choice.

But this doesn’t mean that I’m a supporter of the JOBS Act more generally, which has been vehemently opposed not only by the usual subjects (Eliot Spitzer, Simon Johnson) but also by the much more centrist editorial board of the New York Times, which almost never saw a bipartisan bill it didn’t like. Even Bloomberg View has come out strongly against the act, in an editorial which, it’s worth remembering, is meant to broadly reflect the views of Mike Bloomberg personally. The SEC opposes it, as do former SEC officials like Arthur Levitt and a long list of consumer organizations.

A lot of the act is very hard to defend. The crowdfunding (a/k/a crowdmuppeting) part, for instance, seems very badly thought out: it’s certain to create a whole new class of startups which raise substantial sums on some Kickstarter-like platform, without having anything like the controls and staffing necessary to do the investor-relations job they’re letting themselves in for. On top of that, of course, there’s enormous scope for outright fraud here, given the lack of real penalties for issuers who lie.

Higher up the food chain, companies going public in an IPO could not only put out incomplete information in glossy sales pitches for themselves; they could also outsource that job to investment-bank analysts hoping their bank will win lucrative mandates down the road. There’s no good reason at all for this: it’s basically a way for unpopular incumbent lawmakers who voted for Dodd-Frank to try to weasel their way back into the big banks’ good graces and thereby open a campaign-finance spigot they desperately need.

I don’t fully understand the political dynamics here. A bill which was essentially drafted by a small group of bankers and financiers has managed to get itself widespread bipartisan support, even as it rolls back decades of investor protections. That wouldn’t have been possible a couple of years ago, and I’m unclear what has changed. But one thing is coming through loud and clear: anybody looking to Congress to be helpful in the fight to have effective regulation of financial institutions, is going to be very disappointed. Much more likely is that Congress will be actively unhelpful, and will do whatever the financial industry wants in terms of hobbling regulators and deregulating as much activity as it possibly can. Dodd-Frank, it seems, was a brief aberration. Now, we’re back to business as usual, and a captured Congress.

I had a fascinating conversation last night with a chap from Kickstarter, a site designed to help creative professionals realize projects. And it’s still doing that, pretty well. But there’s clearly a degree of mission creep at Kickstarter, too — especially with regard to some of the most successful and highest-profile projects on the site.

“A project is not open-ended,” says Kickstarter: “Starting a business, for example, does not qualify as a project.” Yet that’s exactly what Matter is doing with Kickstarter.

What’s more, Kickstarter can only be used to fund projects “from the creative fields of Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater”. Which one of those fields is a bar of soap supposed to fall into? Design, I guess. But if the fields of Design and Technology can be so broadly construed as to mean anything, they ultimately mean nothing. And the bar of soap — just like Matter or the famous $1.5 million iPhone dock — is at heart an attempt to start a business, much more than it is an attempt to fund a creative project.

The bar of soap and the iPhone dock are glossy and sophisticated sales pitches: one of the questions yesterday was whether they were closer to SkyMall or to QVC. But there’s a huge difference: SkyMall and QVC sell products which exist. On Kickstarter, you’re buying a hypothetical future product. And I worry that this is going to end in high-profile tears and recriminations at some point, the first time a big funded project fails to produce what it promised.

Getting a product to market is hard. Even companies with business plans and executives and millions of dollars in funding — and a fully-functioning product — can fall down on that front. Look for instance at the Switch lightbulb: in July 2011, Farhad Manjoo of Slate said it would go on sale in October 2011 for $20. In August 2011, Dan Koeppel of Wired magazine ran an article saying that the bulb would go on sale in October for $30. But here we are in March 2012, there’s still no sign of the thing, and the company’s Facebook page is filling up with comments saying things like “I’m going to start my own company making a product that no one can buy. Hmm….what should I not sell? So hard to decide.”

There are two big hidden risks which I think that Kickstarter should emphasize much more than it’s presently doing. The first is on the side of the person with the project. It’s easy, when you’re trying to raise funds, to promise lots of things to lots of people, in that glorious utopian future where you’ve raised the cash that you need and you can actually finish your project. So then you finish the project, and you’re still incredibly busy and stressed, but now you have hundreds or even thousands of things to send out. Which can be a decidedly unpleasant chore. Kickstarter buries its page warning about how shipping “may end up being a bigger part of your budget than you thought”, and doesn’t really talk at all about the massive time commitment involved. For rewards which are individually hand-made, the result can be something much sloppier than the project owner originally intended. Which isn’t really good for anybody.

The bigger risk, however, is on the side of the funder — and that’s the risk that the project will get funded, you will spend your money, and you will end up getting nothing in return. For original-concept Kickstarter projects, that’s probably OK: you supported the arts by funding an artist, and you hoped to get a memento of that funding, but the reward was just a reward, and not necessarily the main reason you funded the project. For things like bars of soap and iPhone docks, however, the great majority of the funders are thinking of themselves as buying a thing. And they’re not properly discounting the very real risk that they will end up with nothing at all.

Even the most well-intentioned projects can run into unanticipated obstacles, some of which could be fatal to the project. And of course there’s the risk too of outright merchant fraud. You put together a glossy Kickstarter video, raise a few hundred thousand dollars, and then just pocket the money while telling everybody that the project is taking longer than expected.

In either situation, your funders have very little recourse. They may or may not, at some point, be able to get a refund from their credit-card company, if they paid with a credit card. But it’s extremely unlikely that they’ll be able to get a refund from the project owner.

Kickstarter doesn’t keep statistics on the number of projects which get funded but not completed, or the number of projects where funders fail to receive what they were promised. It’s hard to know how such statistics could possibly be generated, since projects don’t come with deadlines by which the rewards are deliverable. I, for one, have a number of Kickstarter receivables coming to me; I don’t have them listed anywhere, however, and if they don’t arrive, I’m not going to be particularly upset. There are 12,521 people expecting an iPhone dock, however, and 21 of them have paid upwards of $5,000 to receive 100 docks or more. If I was expecting a shipment of 100 iPhone docks, I’d consider that a real business contract, rather than a much fuzzier form of support for some creative project.

The JOBS act which recently passed in the House would allow Kickstarter to allow project backers to receive equity, rather than specific rewards, in return for their money. The regulatory and compliance costs for Kickstarter would surely be enormous, but might well be worth it, given that SecondMarket is now valued at $200 million. But before Kickstarter moves into the realm of equity stakes, it should probably start thinking much harder about the way in which it’s becoming a shopping site. Because if it doesn’t have a good way of regulating the people on its platform who are fundamentally just selling things, then it’s going to have a really hard time becoming a platform for people selling ownership stakes in companies.

Kevin Drum has an interesting take on the Matter debate: if Matter does great journalism, it will succeed, and if it doesn’t, it will fail, and the business model doesn’t, well, matter.

I don’t have much of an opinion about Matter because I suspect their delivery mechanism is beside the point. It does have the benefit of keeping overhead costs low, but that’s probably a wash since they also have no advertising revenue. Basically, if they’re able to consistently produce spectacular pieces of journalism that generate a lot of online buzz, they’ll succeed. If they can’t, they won’t. But that would probably be true regardless of what kind of delivery model they choose.

I differ with Kevin here — I think the business model matters a lot, precisely because niche publications can’t support themselves online through advertising.

There are two ways of looking at this: the quantitative, and the practical. The quantitative goes something like this: let’s say that there are 2 million science nerds in America — that Matter’s potential audience is 2 million people. And let’s say that if Matter publishes a great piece online for free, it reaches 200,000 of them. If it manages a respectable RPM (that’s ad revenue per 1,000 pages) of $5, then that story will bring in 200 x $5 = $1,000. Even if it reaches a million science nerds it still only has revenues of $5,000 for that story. And then you have to back out the ad network’s take, the ad sales guy’s salary and commission, the time spent trying to do biz-dev deals, and in general the enormous publishing-side infrastructure that all successful ad-supported websites require. By the time you’ve done that, there’s literally nothing left for editorial.

The practical level is even simpler: a niche long-form science-journalism website is never going to get the kind of scale which advertisers want. Big-name brand advertisers want to reach lots of people lots of times. They’ll advertise on blogs, which can get audiences in the millions, but they’re not going to advertise on a site which only updates once a month or even once a week. In general, the amount of inventory online is growing fast, and websites need to be able to keep up with that growth or start seeing their advertisers fall away, one by one.

With subscriptions, though, the math is much more compelling: if you get 20,000 people paying a buck apiece for that story, that’s $20,000, with no sales overhead; most of that money can end up going to editorial.

What’s more, if you’re writing for a small audience rather than a mass audience, you massively increase the opportunity space with regard to the kind of journalism that’s possible. Drum is right that the best writers and reporters in the business are expensive. But they will also nearly always work for less money if they get to chase down really juicy stories, or write exactly what they want to write, in a medium which will give them all the space they need. I’m sure that Christopher Hitchens didn’t charge the New York Review of Books or even the Atlantic anything like the kind of money he was being paid by Vanity Fair.

Matter has a compelling pitch as far as writers are concerned. You don’t need to dumb down your story, or make it accessible to a mass audience: instead, you can be obsessive and geeky and so long as you end up with a fantastic investigative narrative at the end, that’s fine. What’s more, we won’t cut out half your story unless doing so really makes it better: we don’t have any space constraints.

Professional-quality nanopublishing has never really worked online, because the ad-supported business model can’t make it work. In a world of micropayments, however, everything changes. Matter’s early to this game; one of the reasons I’m excited about it and hope it succeeds — and one of the reasons that 1,881 people have pledged $108,470 to make it work — is that if it works, then it will blaze the way for many other publications, in other fields.

There are lots of things which are yet to be worked out, not least how content behind a paywall can be effectively shared on the increasingly social internet. (Which is one reason I hope the Matter paywall is at least a little bit porous.) And I’m sure that Matter will make mistakes: all startups do. But at some point, a publisher somewhere is going to crack the nanopublishing/micropayments nut. And when that happens, it will be revolutionary for the world of online journalism.

Stephen Morse doesn’t Matter. In fact, he calls the journalism startup — whose Kickstarter campaign broke past the $100,000 level in just nine days — “Snake Oil Salesmen 2.0″ and “a scam”. And after getting a smart explanation of exactly how Matter’s business model is, he doubled down on his position and said he would keep it even if they manage to raise $500,000. So I invited him up to Reuters for a little debate.

We disagreed about a few different things. The first is Morse’s idea that there’s so much great content out there for less than 99 cents that no one’s going to pay that whopping sum to read Matter’s stories. I, obviously, disagree. I think that the success of the Kickstarter campaign is proof that there’s huge untapped demand for this kind of material — demand which is not being met by the competitors Morse cites, like Scientific American or Popular Mechanics. I think that the success of books for the Kindle — for that matter, the success of decades of magazines and centuries of paper books — demonstrates that there’s real demand for quality content, even from people who don’t necessarily have the time to read it all. I think that mobile devices like phones and tablets have revolutionized where and how we consume a huge range of written content. And, most importantly, I think that trail blazers like the iTunes Store and the New York Times are changing the willingness of millions of people to pay for digital material.

“If I were a content consumer,” says Morse, lapsing into a rather odd conditional, “I wouldn’t pay 99 cents for one article” when magazine subscriptions amortize out at a lower per-article cost, and besides there’s lots of great content out there which is absolutely free. Such things, he says, are “a much better value” than Matter. But here I think Morse misses the great hope of the 99-cent price: it’s low enough that substantially everybody in Matter’s target audience can afford to pay it without any real effect on their wealth or cashflow whatsoever. It’s less than the amount you tip a cab driver, or a bartender; in fact, it’s less than the cost of just about anything you might buy in the physical world. 99 cents is low enough that, for hundreds of thousands of people, worries about value disappear. They pay that on text messages all the time, which have much lower value. Why not pay it for something great, if doing so allows that thing to exist in the first place?

Put it this way: if Matter found a way for people to pay them after they read a story, rather than before, on a purely voluntary basis, I’d still be optimistic about their ability to make money doing this. Think of a world where you got the New Yorker delivered for free every week, and then clicked a button paying them 99 cents every time you really liked one of the articles. I think they could get a lot of revenue that way, and I think the success of the porous New York Times paywall is strong evidence of that. Yes, there will always be people who don’t want to pay, and there will always be others who somehow find free samizdat versions of Matter’s stories. But those people aren’t important. What’s important is the number of honest people who are more than happy to pay when they find something good to read. And that number is extremely large, and growing.

Matter’s Kickstarter campaign proves that people want to give them their money. The task facing Matter is to create material that’s so unique, so great, that readers around the country and the world will be eager to buy subscriptions, or individual issues, in the knowledge that their money is going straight to the creators of that content. It’s an exercise in doing something which has historically been extremely rare, in the world of journalism: selling stories to readers, as opposed to selling readers to advertisers. But the internet makes it so easy to reach millions of potential readers that a small and enthusiastic subgroup can be big enough to sustain this kind of publication. Nanopublishing didn’t work when Nick Denton tried it on an ad-supported basis. But Matter is effectively running a publication at a CPM of $1,000 — and a lot of math starts working when the numbers get that big.

In our debate, Morse snarked that no one down below us, in Times Square, had heard of Jim Giles or Bobbie Johnson, the co-founders of Matter. And in saying that he revealed his broader mindset: that of a would-be internet entrepreneur who raises venture funding by using the words “platform” and “scale” a lot while promising things like “explosive growth”. It’s no great secret that Giles and Johnson have talked to VCs, many of whom have been very supportive. But what they’re building doesn’t lend itself to the VC business model, where you either have monster, multi-million-dollar success, or else you die trying.

Morse uses the fact that Matter doesn’t have VC funding as a count against them, when in fact it’s a great count in their favor. VCs provide two things: money and advice. And Matter’s getting the advice; it’s just doing so without having to sell its soul to people wanting a monster return on their investment. All it needs to do, at least in the first instance, is pay for itself. And at the end of our debate, Morse finally came up with a number: if Matter can get 20,000 paying customers each week, he said, then he sees a sustainable model there.

Morse also said that “even if every science nerd out there pays a dollar, this is not going to be something that will get the critical audience needed to be a financial success”. Which I think is plainly wrong: there are a lot more than 20,000 science nerds out there. Scientific American has a circulation of 475,000. Popular Mechanics and Popular Science both have a circulation of over 1.2 million. Smithsonian has a circulation of more than 2 million. And National Geographic has a circulation of over 4 million. Can Matter reach 20,000 paying customers? Of course it can. Here’s Johnson:

We don’t think it’s going to be a mainstream smash; we don’t think it’s going to change the world; we don’t think we’re going to out New Yorker the New Yorker; we don’t think we’re going to be billionaires. But we do think, done right, we can offer something valuable and remain sustainable in the medium term.

There’s nothing pie-in-the-sky about that idea; to the contrary, it’s eminently achievable. I think so, and 1,806 of Matter’s Kickstarter backers think so too. With 17 more days to go.

Yesterday morning, a very exciting new journalism project was launched on Kickstarter. It’s called Matter, and it’s going to be home to long-form investigative narrative journalism about science and technology. “No cheap reviews, no snarky opinion pieces, no top ten lists,” they promise. “Just one unmissable story.”

They hit a nerve: as I write this, some 31 hours after the Kickstarter campaign was launched, it has already reached $44,395 of its $50,000 goal, with 569 backers. That’s an average of almost $80 each. “People are giving way more than I thought they would,” said co-founder Jim Giles when I talked to him today. “We have tapped into frustration with the way the internet has promoted quick and cheap journalism and bashed longer-quality stuff, or at least undermined the business model that used to support that sort of thing.”

Matter will surely exceed its $50,000 goal, which is great news, because the more money it raises the better. In the first instance, the $50,000 will be enough to get a nice website up and running, and should also pay for the first three stories on the site. With more money, Matter can get more ambitious: commission more stories, for one thing, but also start building an iPad app which would live in the iOS Newsstand. Or maybe something on Android, or both. There’s a lot of opportunity out there.

This is an old-school Kickstarter campaign, where people are raising the money they need to create something great. It’s not one of those campaigns where donors are essentially pre-buying the product in advance: this isn’t about buying stories before they’re published, or buying subscriptions before the publication even exists. “We’re asking people to make an investment in a sustainable platform for really good journalism,” says Giles, “not to buy a whole bunch of articles in advance.” (That said, anybody pledging $10 or more will get the first three stories, $50 gets you the first six, $100 gets you the first ten, $300 gets you the first 50, and $1,000 gets you a lifetime subscription.)

Once Matter has launched, readers will have the option of buying individual stories for 99 cents each — the Kindle Single model, basically — or buying a subscription. It’ll be monthly at first, and then weekly, assuming everything goes according to plan.

The stories themselves are going to be really good, I think. Matter’s founders, Jim Giles and Bobbie Johnson, are both first-rate journalists, and they’ve quietly amassed a list of really good writers and editors they want to work with. They have a smart model: rather than soliciting detailed pitches, they’re more interested in writers coming to them with vaguer ideas. The writer then gets matched to an editor very early on — before the piece is even formally commissioned — and the final article comes together as a collaboration between the writer, editor, and publishers.

I like this model, because one big weakness of long-form narrative journalism is that it has failed to embrace everything the web is capable of. Writers get commissioned to write X thousand words on Y; they then hand in a document written in Microsoft Word, which goes through a few rounds of editing before getting laid out to a greater or lesser degree. (Ben Hammersley is really good at diagnosing this problem and suggesting how to begin solving it.) I’m optimistic that Matter’s editing process will help its stories be much richer than most of what we’re seeing today.

Matter is coming into a world where companies like The Atavist and Byliner have already broken important ground, and where willingness to pay for content is clearly going up. It’s entirely natural, online, to disaggregate things like magazines, and have a blog over here be really good at what would in a magazine be the front-of-book stuff, while a subscription site over there specializes in features.

And while Matter is quite narrow in what it wants to publish — chiefly long-form, narrative, investigative news stories about science and technology — it’s quite broad in terms of how it intends to distribute that content, and what kind of models it might embrace along the way. For instance, Giles is very keen to work with newspapers, who might help underwrite some of the cost of reporting these stories, in return for being able to break the news in them. Matter would then give those stories the long-form narrative treatment. Or maybe the same story could just appear in both places, if the newspaper covered the costs of the reporting.

In any case, this is a great project, and I’m pretty sure that a lot of the readers of this blog would love to support it. Most long-form journalism these days is political, with much of the rest being in the art-and-literature field. There are thousands of amazing stories in science and technology; I can’t wait for Matter to start uncovering them.