Reddit Made the Mistake of Ignoring Its Core Users

The social-media platform needs a path to profitability that recognizes the commitment of its moderators and volunteers.

More than 8,000 subreddits, the specialized forums that make up the platform visited by almost 60 million people daily, went dark earlier this week to protest Reddit’s decision to impose expensive conditions on the creators of third-party apps. (REUTERS)

Reddit has mostly come back to life after a multiday protest by moderators took thousands of forums offline. But whether the freewheeling site has addressed the deeper tensions tugging at the company is another matter.

More than 8,000 subreddits, the specialized forums that make up the platform visited by almost 60 million people daily, went dark earlier this week to protest Reddit's decision to impose expensive conditions on the creators of third-party apps. The move angered power users who depend on those apps to make Reddit easier to use.

The conflict highlights the innate tension surrounding Reddit as it envisions finally moving ahead with its long-awaited initial public offering, now anticipated for sometime later this year.

Chief Executive Officer Steve Huffman told his staff in an email Tuesday that “like all blowups on Reddit, this will pass as well.”

Before moving past this week's events, Huffman would be wise to recognize that the argument playing out is far bigger than this one issue. Users have long worried about what going public will mean for their beloved social-media platform, having seen sites like Twitter and Meta shift priorities and ethos under the pressures of pleasing Wall Street.

Unlike Meta and other, bigger tech peers, Reddit has managed to retain its identity as a non-corporate, free-spirited space. Aside from some advertising, the platform has changed little since its founding in 2005.

But Reddit has paid a price for staying cool and no-frills: The company isn't profitable.

“It is a different kind of tech company,” app developer Christian Selig told me. “Reddit of course has to keep the lights on, and of course has server bills and engineers to pay, [but] they aren't the ones providing the actual value. The value is the community and the platform.”

Selig is the creator of Apollo, a popular app for using Reddit. Like other apps, it needs access to Reddit's application programming interface, or API. That access is currently free but will be subject to fees starting next month. Covering those fees for Apollo's 1.5 million users will cost approximately $20 million a year, Selig estimates. He says that's unfeasible and will have no choice but to shut the app down.

Some Reddit devotees were incensed about the new fees. Huffman called the protest “noise,” further infuriating some dedicated users who rightly view their role as essential to the site's collaborative atmosphere.

Indeed, Reddit would struggle to function without the huge army of volunteers who do the work of moderating comments and keeping communities in check. Moderators removed 56.9 million pieces of content in 2022, according to Reddit's most recent transparency report. If that were left to Reddit's own small workforce, each of its permanent employees would have needed to review and remove approximately 30,000 posts each. That's to say nothing of the wider role moderators play in hosting communities.

If he is to steer Reddit to a multibillion-dollar IPO, Huffman will need moderators to be on his side. Additional signs of dissent will chip away at Reddit's value to investors.

Already, Reddit's perceived worth is under pressure. According to Pitchbook, the company has raised more than $1 billion and was valued at $10 billion at the time of its last funding round in August 2021. No more: Fidelity, a major investor, in April slashed its valuation by 41%.

Reddit hasn't been the only tech company to see its IPO prospects diminish. Last year was the softest in nearly 15 years for IPOs, and there are few major listings planned for this year. But Reddit has additional vulnerabilities: It has never managed to become an advertising powerhouse like its bigger social-network peers. Other ideas to turn things profitable have been in short supply. Fear of upsetting the delicate vibes of Reddit's community have led to a kind of innovation paralysis.

But there is new opportunity thanks to recent explosion of interest in artificial intelligence. Reddit, it turns out, is a fantastic resource for those looking for the mountains of data — human conversations — needed to create powerful tools like ChatGPT. And while billions of dollars of value have been created by using Reddit's data, Reddit itself hasn't directly benefited. Huffman is right to want that to change. The new developer fees are part of the process of making the most of Reddit. Next time a company wants to scrape Reddit's data, it might need to pay.

Users get that. Even Selig, the app developer, is sympathetic. “Going into an IPO, giving these things away for free is not a tenable, long-term solution,” he said. He suggested charging larger fees for apps and systems that lift data from Reddit as opposed to those that enable content to be added to Reddit. That seems to me like a workable distinction.

Not for the first time, Reddit's leadership has managed to infuriate those who love the site the most, vowing to press ahead with plans come what may. That approach may have worked for other companies that don't rely on users' goodwill and free labor. It won't work for Reddit. The real risk of user revolt will now need to make up a significant part of the “risk factors” Reddit must describe to potential investors — a list that is already long enough as it is.

Dave Lee is Bloomberg Opinion's US technology columnist. Previously, he was a San Francisco-based correspondent at the Financial Times and BBC News.