Reddit's monetization blues

Reddit's co-founder and CEO Steve Huffman recently announced changes to Reddit's API, including changes in pricing for accessing the API and prohibiting third-party apps from showing NSFW content. Reddit management has suddenly realized that it needs to be profitable or at least reach break even. And like Twitter discovered, one way to keep revenue in the company is to effectively discourage third-party apps.

Reddit and the Reddit mobile app are free. Revenue comes from advertising. Reddit's API was free and did not serve ads. Giving access to their API to third parties didn't generate income for Reddit and took money away from the table by allowing those apps to monetize either by charging directly or placing their own ads. Also, many AI companies trained their Large Language Models (LLM) using Reddit's data for free. Charging for API access makes sense from Reddit's point of view.

Reddit is all about user-generated content and user-managed subreddits (communities). Some subreddits have millions of members. Reddit needs subreddit moderators to exist. Moderators, however, work for free: for the love of it, or maybe for the status or leverage resulting from moderating some subreddits. In Reddit, moderators have control over many details of their subreddit. For example, a moderator can decide to take their community private, effectively limiting public access to their community's content.

Many moderators and developers didn't receive Reddit's announcement well. Moderators work for free, they can't be fired, they can't be bossed around… but they can be pissed off. After a disastrous AMA (Ask Me Anything) on Reddit with Steve Huffman, a large number of outraged moderators of subreddits have announced that they will protest by 'going dark', which means setting their subreddits to private. This will effectively limit access and search to members of those subreddits, affecting Reddit's ability to monetize that content. (cfr The Verge.)

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The standard startup/unicorn manual says that during the first years, achieving network effects is more important than being profitable. Network effects are what make a social network valuable. When money was abundant and free for startups, many of them were valued as unicorns simply because of their user base. Now that VC money is not abundant it seems clear that not every business model turns a profit just by reaching a massive number of users.

Reddit API changes may make sense from a financial point of view but in Reddit's case, their model depends heavily on unpaid labor. It's a bad idea to outrage your most critical asset and make them feel you are taking power away from them.

Reddit, business models

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