Reddit’s IPO is its own decline
I’m not an artistic person.
But in the depths of the Covid-19 pandemic, too much time and too much boredom led me to explore the world of watercolouring.
I spent hours and hours learning about intricate methods to handle brushes and control water, how to mix and layer colour effectively, and the fundamentals of composition and contrast.
What I realised was that I increasingly gravitated toward one online source in particular: r/Watercolor. It’s a “subreddit” — a forum on Reddit dedicated specifically to watercolouring.
I’d constantly scroll through the forum to see watercolour veterans share their tips and tricks, to admire and gain inspiration from others’ artworks, and even to occasionally post my own artworks and gain valuable support and advice. I’d found a vibrant, encouraging community to pursue my watercolouring interests, all while paying membership charges of $0.
In an internet increasingly dominated by clickbait, invasive advertising, and an infinite drudge of AI-generated content, this felt special. The internet was once a quaint and vibrant street night market: filled with fun, wholesome corners dedicated to niche interests, that you could just happen to chance upon and explore on a regular basis. But as the internet grew larger, more connected and toxic, many of these independent communities have either turned into ghost towns or privatised.
For the past decade, Reddit has been one of the last bastions of that early-internet forum culture. Founded in 2005, Reddit has grown into a thriving social media platform with 267 million weekly active unique users and >100,000 subreddits. Amidst the enshittification of the internet, Reddit is often considered the mainstream social media platform with the most authentic and helpful results: a commonly cited internet hack is to type “reddit” after a Google search query to get more authentic results.
But Reddit’s IPO may threaten all of this authentic early-internet culture. Reddit’s recent measures have shown that its management is willing to chase financial and commercial goals, at the harsh expense of its platforms’ users.
Reddit’s IPO narrative is one of a textbook glitzy tech unicorn. It’s one of the largest social media platforms in the world by number of users, and presents significant opportunities for further monetisation.
As the AI industry has exploded over the past two years, attention for the site’s authentic, human-written content — what CEO Steve Huffman terms a “vast corpus” of valuable data — has exploded. Reddit recently inked a $60 million/year partnership with Google for real-time access to this data.
Over the past few years, Reddit also launched a collectible NFT avatar programme, and has ramped up advertising efforts. All the standard pre-IPO hype measures.
And even though Reddit’s IPO valuation of $6.5 billion was a substantial discount on its frothy 2021 peak of $10 billion valuation, Reddit execs still have plenty of reason to smile. Reddit’s shares popped 48% on debut, with CEO Huffman selling 500,000 shares worth a cool $16 million.
In the leadup to its IPO, Reddit touted how it’ll be reserving some 1.76 million shares (8% of the stock it’s selling in the IPO) for long-time redditors to buy at the original IPO price of $34.
This is supposed to be a gracious gesture of appreciation to redditors. In an email to its most active users, Reddit wrote that “because you have helped make Reddit what it is today, you now have the opportunity to become Reddit owners at the same price as institutional investors.”
In typically IPOs, stock is first sold to institutional investors. On IPO day, high demand and limited supply for the stock usually creates a ‘pop’, resulting in a stock price surge. Institutional investors can then take advantage of this, selling the stock at a higher price for a quick buck. Hence the implicit opportunity for redditors is to flip the stock for a quick and easy profit.
But redditors haven’t exactly taken well to this offer. To many of them, this is merely a symbolic gesture in response to the large-scale complaints that redditors have no financial benefit from the billions of dollars in IPO value they’ve created for the platform. Also, as Bloomberg’s Matt Levine writes:
“The whole idea of meme stocks originates with Reddit; Reddit’s boards are where the great meme stocks were created; Reddit is where the online communities of investors are. Surely Reddit has some advantages in appealing to retail investors on Reddit. It might as well get some of them in its stock early.”
By providing opportunities for its users to become shareholders, Reddit aligns redditors’ incentives with their own, which may make them more receptive to, say, more partnerships with Google down the line. It’s clear that this IPO tactic — while not exactly evil — isn’t purely borne out of gratitude to redditors either.
The IPO will exacerbate ongoing tensions between Reddit and its users. Last year, in its quest for monetisation, Reddit changed its API policy to charge third-party applications, forcing many beloved third-party applications to shut down. Hundreds of subreddits privatised to protest Reddit’s decision , and “fuck spez” became a widespread saying across the platform (u/spez is CEO Steve Huffman’s reddit account). With the IPO, resentment toward Reddit management has only grown. Comments like ““how do I short an IPO?” are commonplace across the site.
Ultimately, Reddit is built upon its users’ goodwill. It is not centrally moderated — instead, each subreddit has its own moderators, who volunteer their own time, free of charge, to oversee their individual communities.
If it follows the standard social media monetisation playbook of spamming the site with ads and promotions, it will just collapse from the inside.
Redditors take pride in the fact that they’re the least valuable users of any social media platform to advertisers. The platform’s long-struggle with monetisation is purely down to the fact that its users and moderators hold all the power.
But Reddit is now a public company. Satiating investors’ everlasting thirst for further profit is hard. Even more so for Reddit, who has to balance investors’ demands with users.
And their demands may often be contradictory. For example, some redditors aren’t happy about the Google deal, where their content and thoughts are being monetised to train AIs, without any financial compensation.
Taken from a different angle, Hussein Kesvani argues that more difficult conversations lie in store for Reddit.
“Any move to commercialise the platform further will require having to decide which subreddits — essentially which communities — are “profitable” and which aren’t. As it courts investment, Reddit will also have to confront users who decide that their work in maintaining subreddits requires financial compensation. Meanwhile, investors in Reddit may feel that any injection of cash would require certain parts of the Reddit ecosystem — particularly those deemed NSFW (not safe for work) — to be shut down or heavily restricted, likely punishing already heavily marginalised communities such as trans people or sex workers.”
It’s no doubt that Reddit has many, many flaws (beyond the ones I’ve already raised, Reddit also faces many, many complaints for having subreddits filled with racism, misogyny, hate speech, et cetera).
Yet it’s still one of the last places for genuine and authentic conversation on the internet.
I understand the need for the founders to be financially recuperated for launching such a great site. But this is not the way. There are some cases in business where it is fundamentally impossible to balance the interests of both shareholders and customers/users. Reddit is one such case. For platforms like Reddit where user goodwill is essential for the platform’s survival, it should either:
- stay as a private company, or
- have been structured as a nonprofit in the first place.
Of course, these suggestions would not attract the glitzy, Silicon Valley-esque hype Reddit now receives. The pursuit of hype and stigma against nonprofits is a toxic element of the tech industry, and needs to be resolved. But that’s an issue for another day.
Ultimately, I may be wrong entirely. Reddit may somehow manage the herculean task of balancing the interests of its investors and users. But if it doesn’t — and it probably won’t — its plight should serve as fair warning for other similar platforms. And in the process, we will lose a key part of what made the internet special.
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